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Kimberly Amadeo

Business-Friendly State of the Union Drives Dow Above 12,000

By January 28, 2011

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President Obama's 2011 State of the Union Address encouraged Wall Street, following on the heels of the $858 billion tax cut package signed during the 2010 lame duck session. The focus of this year's State of the Union Address was job creation - and that means business-friendly incentives.

Wall Street liked the fact that Obama wanted to reduce the corporate tax rate without adding to the deficit. How? Close tax loopholes so the net effect on the budget would be zero. Obama's plan to freeze the discretionary spending budget at current levels was seen by Wall Street for what it was - continued stimulus spending, since the budget is at the highest level it's ever been. Businesses also liked Obama's reversal on approving the free-trade agreement (FTA) with South Korea. Obama campaigned against free-trade agreements in general.

Obama knows Americans want him to create jobs. He did emphasize education spending as a way to train more engineers and scientists. However, corporate tax cuts are not the best way to add jobs. Unemployment benefits are the best, creating 19 jobs per $1 million in benefits. Payroll tax cuts are next, adding 13 new jobs for every $1 million in cuts. The worst? The Bush Tax cuts, which will only create 4.6 jobs for every $1 million spent. Corporate tax cuts will add to corporate profits, but we've already seen that it hasn't  translated to more full-time, full-benefit jobs.

Despite all the deficit-reducing rhetoric, very little was said that will actually reduce the  $14 trillion debt, which is already 95% of everything the U.S. economy produces in a year. No big plans to cut the largest spending category,  Defense and Security spending, which was $890 billion in the FY 2011 budget.  The talk is that Social Security ($730 billion) and Medicare ($490 billion) may be cut. And that doesn't seem to bother Wall Street at all.

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