2013 Obama State of the Union Address:
President Obama gave his annual State of the Union address (SOTU) on February 12, 2013 at the House Chamber to a joint session of the 113th Congress. This speech is important because it outlines the President's key priorities for the fiscal year. For that reason, it also previews the FY 2014 Federal budget to be released in March.
The SOTU continues Obama's economic policies since becoming President. It also gave specific action steps to implement the goals outlined in Obama's Inaugural Address, given January 21, 2013.
It 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:
- Debt Reduction - Implement existing Obamacare health care cost savings and new taxes.
- Tax Code Overhaul - Reward companies that create U.S. jobs.
- Create Jobs - More infrastructure projects, and raise minimum wage to $9/hour.
- Attack Climate Change - Develop U.S. energy, alternative energy and fund energy efficiency.
- Immigration Reform - Stronger border security, a path to citizenship for illegal immigrants, and a guest worker program.
- Education - A national pre-school program, and rewarding higher ed for cutting costs.
- Defense and Trade - Ending the War in Afghanistan and creating a new Trans-Atlantic Trade Agreement.
- 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.
The 8 Main Points of the 2013 SOTU
Reduce the Debt:
Obama first discussed reducing the U.S. deficit and debt. However, he made it clear he would not do it at the expense of Social Security and Medicare, which protects the "generation who built this country."
He promised to cut the same amount from Medicare as recommended in the Simpson-Bowles Report. Part of the savings already comes from lower health care costs, thanks to Obamacare. The rest will come from reducing taxpayer subsidies to prescription drug companies and "asking more from the wealthiest seniors." The third cost savings will come from basing Medicare payments on quality of care, not quantity of tests.
Tax Code Overhaul:
Second, Obama talked about protecting the middle class. He supported a bipartisan comprehensive overhaul of the tax code to make it simpler. He advocated lower tax rates for businesses that create U.S. jobs, and penalties for those that create jobs overseas.
Third, Obama pushed for job creation by asking Congress to help do the following:
- Create 15 new public-private partnerships for manufacturing innovation and technology.
- Raise level of R&D to that seen during the space race.
- Fixit First program - put people to work to repair bridges and improve other infrastructure.
- Partnership to Rebuild America to attract private investment.
- Pass the rest of the American Jobs Act.
- Raise the Federal minimum wage to $9 an hour, and allow it to increase with the cost of living.
- Pass women's Paycheck Fairness Act.
- Offer incentives to companies to hire the long-term unemployed and people looking for their first job.
- Target 20 low income pockets.
Attack Climate Change:Fourth, Obama said we must do more to combat climate change. Superstorm Sandy and some of the worst natural disasters are symptoms of global warming. Obama asked Congress to adopt a proposal to address alternative energy. If they don't, he will ask his Cabinet to do so. In addition, he pledged to:
- Speed up new oil and gas permits.
- Support R&D to help energy burn cleaner.
- Use Federal energy tax revenues to fund an Energy Security Trust to drive new R&D needed to shift cars and trucks off oil for good.
- Cut in half energy wasted in U.S. by providing Federal funds to states that increase energy efficiency.
Obama said the time had come to pass comprehensive immigration law reform. This means stronger border security, including more boots on the border. It offers the 11 million illegal immigrants a path to citizenship if they learn English, pass a criminal background check, and pay any back taxes. They must also pay a citizenship fee, and wait in line along with legal immigrants. It also means revamping the legal immigration process to allow top-quality immigrants. Finally, the bill combines a crackdown on businesses who hire illegal workers with a legitimate guest worker program.
This bill will probably pass, since the 2012 Presidential Election showed Republicans the growing power of Hispanic voters. The opposition does not want to reward illegal immigrants with amnesty. For more, see The Comprehensive Immigration Reform Bill.
Sixth, Obama proposed a preschool education program that will work with states to make high-quality preschool available to every child in America. Every dollar invested in preschool education saves $7 later on. The Federal government will also work with states to establish partnerships with companies to provide training in math, science and high tech to high school students so they can graduate and get good jobs. Obama also asked Congress to change the Higher Education Act to reward federal aid to those schools that also demonstrate affordability and value with federal aid. He will also release a "College Scorecard" for parents and students can use to find schools that offer the best value.
Defense and Foreign Trade:
Obama said the U.S. will bring home another 30,000 troops from Afghanistan this year, and shift to training and anti-terrorist training next year. He also signed an executive order to increase information sharing to combat cyber attacks. He also proposed a new Trans-Atlantic free trade agreement. He also promised to strengthen peaceful alliances with those who want democracy, keep pressure on Iran and Syria, and stand steadfast with Israel. He promised to maintain the best military the world has even known and reduce inefficiencies in defense spending. He also promised to support families of both gays and straights, women in combat and invest in Veterans Affairs to support wounded warriors.
"They Deserve a Vote":
Obama asked Congress to vote on his gun control proposals, saying that all the victims of gun violence deserve at least a vote. Obama's proposals include background checks for all gun sales, reinstating the 1994 ban on assault weapons, limiting ammunition magazines to 10 rounds, and banning the possession of armor-piercing bullets by anyone other than the military and law enforcement. The proposal also includes more help for the mentally ill, training for school preparedness and more coordination between Federal agencies. Obama is willing to take on the National Rifle Association, which advocates increased police presence at public schools as the solution. (Source: NYT, Obama Gun Control Proposal, January 16, 2013)
Many of these bills and initiatives will be difficult to pass, given that the first several months may be consumed with negotiating with Congress on raising the debt ceiling and cutting spending. Although Obama said he will not negotiate the budget as part of the debt ceiling debate, Tea Party-Republicans see this as a potential source of leverage to get the White House to make key spending concessions. However, Obama won't engage in a debate that could recreate the 2011 debt ceiling crisis. (Sources: WSJ, Lack of Grand Bargain Complicates Obama's Priorities, January 1, 2013; Newsday, Obama Priorities for 2013, December 31, 2012; Meet the Press, Obama Interview)
Through the SOTU, Obama is trying to steer the national debate away from austerity measures, which will restrict economic growth. The recession in Europe is one example of what happens with extended budget cutting. Here in the U.S., the economy contracted in the fourth quarter 2012 thanks to cuts in defense spending. That's because government spending is a component of GDP. Cut spending, and you cut growth.
If implemented, most of Obama's measures would stimulate growth and job creation. However, they also need to be balanced with future budget cutting and deficit reduction. Obama could follow the example of the Federal Reserve's QE4 program, and set a growth and unemployment. He could quantify budget cuts that will take place once GDP hits 4% and unemployment drops to 6%. This would curb economic expansion at the right place in the business cycle, and prevent an asset bubble. It would also coordinate fiscal policy with monetary policy, making both that much more powerful in preventing both inflation and recession.
Did Obama Succeed with the Priorities from the 2012 SOTU?:
In past SOTUs, Obama focused primarily on jobs. In 2012, he presented an economic blueprint to create jobs and reduce income inequality. His proposal to maintain the the 2010 tax cuts on incomes below $250,000 was implemented with the fiscal cliff bill (although the threshold was raised to $400,000). He did not extend the payroll tax cut, but kept extended unemployment benefits for another year.
Of course, Obama's main priority in 2012, although not stated in the SOTU, was to get reelected. Although it was a close race, his larger-than-expected majority means he will have a little bit of political capital to push for his 2013 priorities. Article updated February 13, 2013
Compare Obama's 2013 State of the Union Address to Other SOTUs: