President Obama focused about 80% of his State of the Union Address on the economy, offering proposals designed to create jobs, make the United States more competitive with other developed nations and reduce future budget deficits. Those goals can conflict, however.
Here's a look behind the rhetoric:
Statement:
"Cutting the deficit by gutting our investments in innovation and education is like lightening an overloaded airplane by removing its engine. It may make you feel like you're flying high at first, but it won't take long before you'll feel the impact."
•Reality check: This is the central thesis of Obama's speech — that the United States needs to invest in clean energy technology, a crumbling physical infrastructure and education in order to compete better with developing nations such as China and India.
The president says any investments should not increase the deficit, but he didn't say how to do that, other than by eliminating billions of dollars in tax breaks to oil companies. House Transportation Committee Chairman John Mica, R-Fla., has mentioned using money left over from the $814 billion stimulus law passed in 2009. Ed DeSeve, the White House point man on stimulus implementation, said in October that only $110 billion remained unspent, including $45 billion in tax cuts.
And the Highway Trust Fund — which also helps pay for mass transit — can't pay for current transportation needs without raising the gas tax, now 18.4 cents-a-gallon, the Congressional Budget Office says. At the current rate of spending and gas tax collections, CBO analyst Chad Shirley wrote last week, the highway account "would be unable to meet its obligations sometime during fiscal year 2012."
"Big-government advocates have a history of calling nearly all government spending 'investment,' because it sounds better," says Brian Riedl of the conservative Heritage Foundation. "It's very dangerous to claim these investments will pay for themselves."
Statement:
"Now that the worst of the recession is over, we have to confront the fact that our government spends more than it takes in. That is not sustainable."
•Reality check: Obama revised last year's proposal to freeze domestic spending, excluding Social Security, Medicare and Medicaid, defense, homeland security and veterans programs. Now he wants five years, not three. But by exempting so much, the freeze would apply to only about $500 billion of a $3.8 trillion budget — "a fairly narrow part," White House economic adviser Gene Sperling admits.
The White House claims the freeze would save $400 billion over 10 years. It says the part of the budget to be frozen, measured as a share of the nation's economy, is lower than it's been in a half-century.
Republicans want to cut spending much more. House GOP leaders, led by Speaker John Boehner, want to cut $100 billion this year and about $1.5 trillion over 10 years by reverting to 2008 spending levels. Conservative Republicans led by Rep. Jim Jordan of Ohio want to go further, saving $2.5 trillion over 10 years by reverting to 2006 spending levels.
"Over the years, a parade of lobbyists has rigged the tax code to benefit particular companies and industries. … Those with accountants or lawyers to work the system can end up paying no taxes at all. But all the rest are hit with one of the highest corporate tax rates in the world. It makes no sense, and it has to change."
•Reality check: By focusing only on corporate taxes, the president is putting off a more sweeping overhaul of the tax code called for by his bipartisan fiscal commission and other panels.
He would eliminate or reduce many of the tax breaks inserted into the tax code for specific industries and use the money to lower the 35% corporate tax rate, which is the highest among 31 developed countries ranked by the Organization for Economic Cooperation and Development.
Lower rates might be good for most corporations — but fewer than 6 million businesses, or 18% of the nation's total, file as corporations. More than 23 million, or 72%, are sole proprietorships, while 3 million more, or nearly 10%, are partnerships. "I am certain that they do not want to be left out of tax reform," says R. Bruce Josten, an executive vice president of the U.S. Chamber of Commerce.
Statement:
"Most of the cuts and savings I've proposed only address annual domestic spending, which represents a little more than 12% of our budget. To make further progress, we have to stop pretending that cutting this kind of spending alone will be enough. It won't."
•Reality check: Beyond his proposed domestic spending freeze, which comes with lots of exclusions, Obama didn't take the lead on broader deficit reduction. He spoke about the need to protect Social Security for future generations and to get further savings in health care beyond those envisioned in the overhaul signed last year, but there were no specifics.
Budget watchdogs had hoped Obama would embrace specific proposals from the bipartisan commission that last month voted 11-7 for major spending cuts, tax increases and changes to Social Security and Medicare. The federal budget deficit stands at $1.3 trillion, and the accumulated national debt is $14.1 trillion.
"A spending freeze is a step in the right direction, but it is only one element of the long-term fiscal plan we need," says Pete Peterson, chairman of the Peter G. Peterson Foundation, a fiscal watchdog group. "We cannot become more of an investment economy if we don't have future resources to invest."
Statement:
"To help businesses sell more products abroad, we set a goal of doubling our exports by 2014 — because the more we export, the more jobs we create at home. Already, our exports are up."
•Reality check: Obama called for doubling U.S. exports in five years during last year's State of the Union address. He's on track so far: U.S. exports in the first 11 months of 2010 were up 17%, according to numbers released this month by the U.S. International Trade Administration.
The White House claims that recent export deals with China will "support" 235,000 jobs. It says the pending free trade agreement with South Korea will support another 70,000, and that business deals inked with India last fall will create 50,000.
Those figures are based on a Commerce Department formula that translates export dollars into jobs, according to John Murphy of the U.S. Chamber of Commerce, who says the figures are conservative. The AFL-CIO says the figures for South Korea are inflated.
Statement:
"Because the American people deserve to know that special interests aren't larding up legislation with pet projects, both parties in Congress should know this: If a bill comes to my desk with earmarks inside, I will veto it."
•Reality check: Obama's stance on earmarks has evolved since he was first elected to the Senate. Obama has called for increased disclosure of earmarks, which he claimed as a senator, but the veto threat is his toughest stance yet.
"To me, it's the smart political play," says Steve Ellis of the budget watchdog group Taxpayers for Common Sense. With House Republicans already pledging an earmark moratorium, Obama's stance puts additional pressure on the Senate not to load up spending bills with pet projects.
Two points, one fiscal, one political: Earmarks represent only about $16 billion, or less than 0.5% of the $3.8 trillion budget, so eliminating them won't accomplish much. And Senate Majority Leader Harry Reid, D-Nev., on Tuesday called wiping out earmarks "a lot of pretty talk, but it is only giving the president more power. He's got enough power already."
USA TODAY
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