GlobalShift

An Analysis of President Obama’s State Of The Union Address

Americans across the nation tuned into televisions and internet feeds to witness President Barack Obama’s first ever State of the Union address. How would the young president handle himself amidst the political tumult and economic desperation filling the country?

His tone was somber yet upbeat, carrying himself in his usual calm demeanor. He sought to cool the all too vitriolic and partisan arguments swirling around the capitol. It seemed the president desired to appease the more liberal and progressive wing of his party, while seeking to calm some of the more sensationalist claims emanating from those on further right. The speech was nothing spectacular, which seems appropriate given today’s political climate, and will probably be nothing more than an afterthought by Valentine’s Day.

Still, a lot of claims and promises were made as the President set the years agenda, focusing particularly on the American economy. Given President Obama’s oratory gifts, we must burrow beneath the rhetoric to examine the substance behind the statements. We must view his speech through a critical lens.

Criticizing a President who is still quite popular and who often rings a populist bell is tricky business, but it’s essential. One need only to look at George W. Bush’s presidency to see what happens when criticism is not sought before progressing with decisions. So, let us get to specifics.

Obama renewed his call for infrastructure projects with everything from clean energy jobs to high-speed railcars. He tapped into American pride early and often even saying that China won’t wait and that he doesn’t want the US to be second best. Fair enough. But the US government’s track record for picking winners and losers in the economy as well as its ability to invest money responsibly should leave one skeptical about such a plan.

He claimed to hate the Wall Street bailouts, which I halfheartedly believe. He called for further financial reforms noting that the House had just passed a reform bill of their own, while also attempting to sell his idea for levying a bank tax on the 50 or so largest banks. Unfortunately, these “reforms” are hollow. The fact is that the reform bill does not punish banks, in fact promises to cover losses instead of letting them fend for themselves by creating a permanent bailout authority and allowing access to easy credit under the fed. So if he hated the bailout then why is it a permanent part of his reform? As far as the tax levy (regardless of its constitutionality), it’s almost as if the government is handing them money so that they can then pay the tax.

Obama touted his supposed tax cuts for homebuyers, small businesses and child care. Actually, it’s not really tax cuts, it’s more in the category of tax credits – but more on that in a minute. He also noted that he has yet to raise taxes on the middle class; something we should all applaud.

He claimed that the 787 billion dollar stimulus saved or created 2 million jobs. Not quite. The fact is, the ability to discern what jobs were created or saved is very skewed, owing to the fact that in many cases they simply counted jobs that received stimulus funding – which does not equate to a job “saved” or “created”. The 2 million claim is also a very high estimate, by white house numbers it’s somewhere between 1.5 and 2 million (and probably a quarter of that is Wall Street jobs). Even if it is 2 million, that would amount to nearly 400,000 dollars spent per job. Is it wise to spend 400k on a job that pays 75k per year?

Obama wants to take 30 billion of the Wall Street repayment money and invest that into community banks. Certainly that would help small businesses and main street more. I tentatively applaud this decision while noting that many community banks are subsidiaries of larger banks anyways. He criticized the financial speculation and housing bubbles from the last decade but this is exactly the thing he is encouraging with his policies. Credit should come from savings and wise investments, not a government subsidy which might lead to further risky gambles on the part of banks.

Obama called for a jobs bill as well. I suppose we will all have to wait and see just what a jobs bill will look like before any meaningful discussion can take place. If his call for higher education spending is any indication as to what kind of jobs he might have in mind, we are in trouble.

A 10,000 dollar 4-year tax credit was proposed, with repayment of 10% of annual income for 20 years and 10 years if you go into public service. This sounds nice, but we already have too many government jobs. In fact, government jobs now exceed goods-producing jobs. Beyond that, if Obama wants to increase exports that means increasing industrial production (and making American goods cheaper for foreigners by devaluing the dollar is another, albeit destructive way). A college education shouldn’t be needed for many industrial sector jobs. By further subsidizing college tuition he essentially makes college the new high school and further drives up costs. It’s also telling the public they can fund college, even though college was meant to make graduates more money in the first place – so public funding for people to make more money in their lifetime.

College tuition wasn’t the only part of education Obama addressed. He also called for further funding of head start programs and reforms to make primary education more globally competitive. The fact is that 100 billion of the stimulus was set apart for education funding and of that only 4.35 billion was designated for actual performance incentives. The rest went to pad teacher unions’ demands and ensure teacher pay no matter the performance.

While it’s true that Obama called for a sort of “do-over” on health care, he still touted his health care plan by claiming it would reduce premiums and keep medicare intact. Yet, the Congressional Budget Office  projects a doubling of premiums over next 10 years regardless of a bill being passed and that individual market premiums will go up 13% faster than they would without the bill. Of course, he’s absolutely right in pointing out the dire need for health care reform (and I’ve got an idea help).

He claimed the health care bill would reduce the federal deficit, but this claim is made on the assumption that medicare will be cut 23% next year. Even at that, in a separate bill they repeal those cuts. So they can make claim about health care reductions, because a major source of the increased spending is part of entirely different bill. This is hiding the costs.

Obama called for a freeze on discretionary spending, which many have already pointed out that this only affects 13% of the budget and will only begin next year. I have severe doubts that such a freeze will even take place. Let’s not forget that McCain called for something similar during the campaign debates and Obama derided the idea. He claims that his office has identified already 20 billion in savings. I’d like to know how he identifies savings amidst so many ambitious spending programs. Talk about a deficit of trust.

A renewed call for transparency went out, as the president called for full disclosure of lobbyist contacts and publishing earmarks on a single website. Certainly this is something everyone can applaud, but why not go even further? Vow to veto any bill with earmarks.

Obama used the State of the Union platform to derogate the most recent Supreme Court decision regarding campaign finance. This was extremely misleading. While it’s true that popular opinion is against the ruling, such antagonism is based on ignorance of the facts. The ruling was in keeping with the Constitution. The aspects of the ruling which Americans should be outraged by, is how corporations are defined in legal terms. Ascribing personhood to a corporation, and grouping non-profits with major for profit multinationals is the thing we should be upset about, not this ruling.

Speaking of multinationals, Obama vowed to close tax breaks for companies that ship jobs overseas. Fantastic… I suppose. As the tax code currently works, special breaks for multinational corporations exacerbate problems. Multinationals often pay little or no taxes on their foreign profits. In some cases, tax benefits for foreign investment are larger than the actual tax, meaning that in some cases Uncle Sam actually pays corporations to invest overseas.

American multinationals can also defer US taxes indefinitely as long as profits are held in a foreign subsidiary. Taxes are only due when the money is returned to the US parent corporation. The result is like an IRA for multinationals’ foreign investments: foreign profits accumulate tax-free and US taxes are effectively voluntary on foreign investments. The effective tax rate on foreign non-financial income is below 5 percent, well below the statutory rate of 35 percent. Even when combined with foreign taxes, the total taxes on foreign income are often lower than taxes on US income. By one estimate, a typical investment in a low-tax country faces a total (foreign and U.S.) tax of only 5 percent.

Another thing Obama called for is eliminating all capital gains taxes on small business investments (which is great) and provide tax incentives for all businesses to invest in new plants and equipment (less great). As mentioned earlier, tax credits are different than tax cuts. A tax credit is a way for the government to direct how money is spent. It tries to create limits for how you could/should spend your money. But the government doesn’t necessarily know what’s best for you and your situation. Cutting taxes would allow you more options in spending your money in the way that’s best for you.

In a somewhat surprising turn, Obama encourage new projects for domestic oil and gas, as well as new nuclear energy facilities. Allowing companies to write off the expenses incurred in the search for new domestic oil reserves is one way to encourage homegrown energy. The other domestic energy project – nuclear – is not something I’m enthusiastic about because it’s an enormous commitment and often takes 15 or so years between planning a nuclear power plant and actually getting one.

Finally we turn to Obama’s remarks on the military. He called for a repeal of the “don’t ask don’t tell policy” barring gays from the military. I have mixed feelings on this. I absolutely applaud the step towards equality, but I am concerned over how actual military personnel will respond to openly gay members of the military, especially considering the high number of soldiers that come from conservative backgrounds.

Obama did set a date for combat troop withdrawal from Afghanistan, but the government’s propensity for hiring private militaries and renaming or re-assigning “combat” troops to something similar is something we have to be wary of. With an unpopular war, the government will often rename combat troops to something like “peace-keeping” or “training”, simply so that they can continue the war while claiming that the number of troops still over their is small. It’s trickery.

While Obama calling out the Supreme Court might have been misguided, his calling out Republicans was spot on. He walked into a major mess, for which they are mostly to blame, and we need more from them than simply objecting to proposals. To his credit, he sees some of the centralization of powers as emerging from necessity, in his attempt to “save” the economy. While I disagree with that philosophy, I think that many of the protests and “socialist” labels are somewhat unfounded and inflammatory. Yes, he’s big-government but no more so than the previous administration. He’s not a flaming liberal but, as it rather seems to me, center-left.

I’m more than doubtful that Obama’s approach will offer any political unity. We’re never going to have a “kumbaya” moment. Let’s all hope for the sake of the country that real change does come though, and soon. Unfortunately, in just a few days, we’ll probably be back to politics as usual. I’m sorry for dragging this on for so long, but I’ve only scratched the surface. Peter Schiff also has a pretty scathing critique, so I’ll leave it to him to finish what I’ve started here.