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2011 Obama State of the Union Address

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2011 Obama State of the Union Address
U.S. President Barack Obama (Photo:Michal Czerwonka/Getty Images)

2011 Obama State of the Union Address:

Each year, the President sets his intention for the coming year with the State of the Union Address. (Read A Summary of Obama's 2012 State of the Union here.) The focus for President Obama's 2011 SOTU speech was job creation. However, most analysts agreed the speech focused on long-term solutions, such as education. An aggressive, immediate job creation stimulus program was missing. Instead, newly-elected Republican majority in the House, which was focused on reducing government spending.

Background: Economic Climate Was Still Not Strong:

Obama gave his speech during a time when the economy was slowly recovering from the financial crisis. He tried to boost consumer confidence, which was still below the critical 100 level. Confidence was low thanks to a 9.5% unemployment rate, a sluggish housing market and a $14 trillion federal debt.

Summary of the Major Points:

Obama's 2011 State of the Union address was a good indicator of the priorities in the FY 2012 Federal budget, which was released in early February. Obama's speech was supposedly to create jobs, but the actual specifics were weak. Obama said he would add 100,000 math and science teachers within 10 years and make the tuition tax credit permanent. In continuation with the ARRA stimulus program, he vowed to expand public works projects.

Obama also agreed to reduce the corporate tax rate, but suggested closing loopholes so the net effect on the budget would be zero. He also proposed freezing the discretionary spending budget at current levels, which he said "would reduce the deficit by more than $400 billion over the next decade." He also called for the expiration of the Bush tax cuts for income over $250,000. Contrary to his campaign pledges, which were anti-free trade, he agreed to approve a free-trade agreement (FTA) with South Korea.

Obama Continued His Green Focus:

Obama's goals was to cut oil consumption by 785 million barrels by 2030. As he mentioned in earlier speeches, Obama promised to boost renewable-energy investment by more than 85%. He would partly fund this by ending the $4 billion-a-year in tax subsidies to oil and gas producers. He also continued his promise to add 1 million alternative energy vehicles by 2015.

Economic Impact:

The immediate impact of Obama's business-friendly speech was the Dow went above 12,000 for the first time since 2008. Other impacts won't be so clear. Although the speech was supposed to be focused on job creation, it was primarily long-term. Improving education will make America more competitive, reducing the need to outsource jobs. Only half of our students are science-proficient. However, it doesn't immediately help today's unemployed. Public works projects will provide a boost to construction worker, but research shows this isn't the most cost-effective way to create jobs.

Obama's deficit reduction plans won't put a real dent in the $14 trillion debt. His proposal to reduce tax loopholes in the corporate tax rates isn't specific enough to know how it will really affect the budget. The best news was his reversal on free-trade agreements. Studies have shown that FTAs, like NAFTA, drive economic growth.

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.

What Obama Left Out of His Speech:

Instead of Obama's plan to keep spending at 2012 levels, House Republicans proposed slashing spending to 2008 levels. This would reduce the deficit by even less than Obama’s plan, according to Stan Collender, a former congressional budget analyst. Obama also did not really protect Social Security benefits, which the Republicans had targeted as a way to reduce the deficit. Obama did not specify how much of the defense budget he would trim above the 2% cut already being proposed. FTAs with Colombia and Panama were also left out.

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