Jan. 26, 2011
Article II, Section 3 of the U.S. Constitution requires the President to “from time to time give to the Congress Information of the State of the Union, and recommend to their Consideration such Measures as he shall judge necessary and expedient.” President Obama's 2011 “State of the Union” address covered a broad range of policy and budgetary issues. NPP looks at the numbers behind some of the major topics covered by the President.
Extend Bush Era Tax Cuts/Reduce Social Security Payroll Tax – In December 2010 the President and the Republican leadership in Congress agreed to extend the Bush era tax cuts for all taxpayers by another two years. The package also extended unemployment benefits by thirteen months, and cut the Social Security payroll tax by 2 percent, from 6.2 percent to 4.2 percent through 2011. The cost of the bill was estimated at $858 billion. According to an analysis by the Center on Budget and Policy Priorities for every dollar spent on the Social Security payroll tax cut, $1.09 of additional GDP is created. Yet for every dollar not earned as revenue by extending the Bush tax cut package, the economy gains only $0.35 – a net loss. Additionally, the Social Security payroll tax cut replaced the “Making Work Pay” credit, which means an actual tax hike for those making less than $20,000 a year.
Eliminate Federal Subsidies to Oil Companies – The President proposed eliminating federal subsidies to the oil industry to generate new funds for other government initiatives. According to estimates by the Center for American Progress, subsidies to the oil industry, which come mostly in the form of tax loopholes and breaks, will cost the United States $20 billion over the next five years. Exxon Mobil, which made over $7 billion in the third quarter of 2010 alone, did not pay any corporate income tax last year. Instead, they got a $156 million refund.
Promote Clean Energy Technology – President Obama set a goal that 80% of energy consumed in the United States be from clean energy sources by 2025. NPP's recent publication What's at Stake? analyzed the cost to convert each state to wind or solar energy, and what percentage of that change would be covered by the wars in Iraq and Afghanistan. Read the report to see how large those investments in clean energy will need to be.
Rebuild the Nation's Infrastructure – The President noted that "our own engineers graded our nation’s infrastructure, they gave us a 'D.'" In fact, according to the American Society of Civil Engineers, 26% of our bridges are structurally deficient or functionally obsolete , 33% of our major roads are in poor or mediocre condition , and the water systems that serve 10% of the U.S. population are in serious need of repair. President Obama proposed “[putting] more Americans to work repairing crumbling roads and bridges. We’ll make sure this is fully paid for...." Yet the President did not specify how this work would be funded. ASCE estimates that the total cost to meet our infrastructure needs is $2.2 trillion and that federal stimulus funding will cover only eight percent of the cost.
Invest in Education – According to NPP's analysis of 2009's tax expenditures, only two cents of every federal tax dollar goes to education. The President did not propose any new funding for schools – he mentioned his Race to the Top program, which provides a pool of money ($1.35 billion requested for FY 2011) in competitive grants. Yet in the second round of grant awards under Race to the Top only 10 states out of the 46 who applied were awarded funding.
Reform Health Care – The Patient Protection and Affordable Care Act of 2010 (PPACA) – the official name of the 2010 health care reform law – was mentioned briefly. President Obama picked out a flaw “that has placed an unnecessary bookkeeping burden on small businesses.” He was referring to a provision which requires businesses to issue a 1099 tax form to every person or business from whom they buy more than $600 worth of goods or services in a year. The Republican leadership in the House began the new Congress by working to repeal the entire bill – something the President said he is not willing to do. See NPP's recent blog “The Politics of Health Care Policy” for more on the health care debate.
Freeze on “Non-Security Related” Discretionary Spending for Five Years – The President proposed saving $400 billion over ten years by freezing the portion of the discretionary budget not related to security – defense, homeland security and veterans benefits. The President acknowledged that “non-security” discretionary accounts for only 12 percent of all federal spending, and that “we have to stop pretending that cutting this kind of spending alone will be enough. It won’t.” The President estimated savings of $40 billion a year (based on $400 billion in savings over ten years) from the proposed spending freeze is only 1% of the government's annual budget, and the ten-year total of $400 billion is only 2% of the $14 trillion debt we have today. Further, the proposed freeze actually amounts to a spending cut due to the erosion of purchasing power caused by inflation. Meanwhile, the $78 billion in defense spending reductions proposed by Secretary Gates will not reduce the deficit, as Pentagon spending is still expected to grow faster than inflation.
Stay Tuned for NPP's analysis of the forthcoming President's Budget request for FY2012. Look for a multi-year review with ample state-level data. Expect a release the week of February 14, 2011.