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Kimberly Amadeo

Obama's SOTU Doesn't Reduce Debt - and That's Good for Now

By February 14, 2013

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President Obama's 2013 State of the Union Address (SOTU) outlined an 8-point program for his second term that is too ambitious to be fully implemented. For the most part, it was an extension of his existing economic policies. What was missing? A serious attempt to reduce the debt. This is actually a good thing, because the economy is not healthy enough to sustain austerity measures, which is what deficit reduction really is.

In fact, Obama should take a lesson from the Federal Reserve, and set a target before implementing contractionary fiscal policy. Obama should announce now that he will cut spending and/or raise taxes when the U.S. economy is firmly in the expansion phase of the business cycle, such as a GDP growth rat of 4%, and/or unemployment is below 6.5%. He should outline specifically what will be cut at that time. This gives businesses something they could plan around.

Here's a super-slimmed down summery of the SOTU's eight main areas:

  1. Debt Reduction - Implement existing Obamacare health care cost savings and new taxes.
  2. Tax Code Overhaul - Reward companies that create U.S. jobs.
  3. Create Jobs - More infrastructure projects, and raise minimum wage to $9/hour.
  4. Attack Climate Change - Develop U.S. energy, alternative energy and fund energy efficiency.
  5. Immigration Reform - Stronger border security, a path to citizenship for illegal immigrants, and a guest worker program.
  6. Education - A national pre-school program, and rewarding higher ed for cutting costs.
  7. Defense and Trade - Ending the War in Afghanistan and creating a new Trans-Atlantic Trade Agreement.
  8. Gun Control - He asked Congress to vote on a variety of gun control bills.

So what's likely to pass? Immigration reform, because of the growing power of Hispanic voters, and the fact it has something for everyone.  Ending the war, and creating new free trade agreements. Obamacare, which has already been passed. Other proposals will be debated, including raising the minimum wage, but may not find enough common ground within Congress to become law.

However, Obama has set a vision for the country. Whether you like it, hate it, or still haven't decided, it's given us the opportunity to talk about something other than debt crises and fiscal cliffs. Reducing the budget is not the most important challenge facing our economy right now, while getting people back to work is.

What do you think?

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