Tuesday night, the President delivered his annual State of the Union address before a joint session of Congress. Article II, Section 3 of the US 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.” Presidents have historically sent a written State of the Union to Congress, but every president since Woodrow Wilson has chosen to deliver it in person.
With the government operating on a continuing resolution instead of an actual budget, and control of the House of Representatives changing hands, President Obama had the weighty task of uniting the country and rising above the partisan fray while pushing for specific legislative items. Let's take a look at the numbers behind some key budget talking points from the speech.
The President began by praising the package of tax cuts he and the Republican leadership collaborated on in December. The cost of the bill was estimated at $858 billion and not all parts are created equally. Each major provision of the bill was analyzed by the Center on Budget and Policy Priorities (with Mark Zandi of Moody's). They found, for example, that 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.
To fund his vision of a future with clean energy and well-funded students, the President proposes that Congress “eliminate the billions in taxpayer dollars we currently give to oil companies.” The Center for American Progress estimates that 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 (they got a $156 million refund).
President Obama called for 80% of energy consumed to be from clean energy sources by 2025. As part of our brand new publication, What's at Stake?, we 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 our report to see how large those investments in clean energy will need to be.
Education was a major focus in this State of the Union address. According to our 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. In the second round of grant awards under Race to the Top only 10 states out of the 46 who applied were awarded funding. In an era of teacher pay freezes, layoffs, and school closures, this may be too little too late, especially for the 36 states who got no funding from the program.
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 is 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 last week's blog for more details on the health care debate.
Our growing debt featured prominently in every section of the speech, from what programs the government should not cut to how the President proposed to fund new ones. Toward the end of the speech, the debt got a turn in the spotlight. President Obama acknowledged that lowering the debt will require more than cutting non-security related discretionary spending, which accounts for only 12% of the entire federal budget. 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.
For Fiscal Year 2011, the President proposed spending $3.8 trillion dollars to meet all costs of the federal government. His proposed savings of $40 billion a year (based on $400 billion in savings over the next ten years) from a freeze on domestic spending is only 1% of the 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.
The Republican response was not as long or specific as the President's address. Rep. Paul Ryan (R-WI), head of the House Budget Committee, noted that President Obama has added over $3 trillion to the debt since taking office. The Congressional Budget Office puts the number at $2.7 trillion added to the debt during the President's first two years in office, compared to President George W. Bush's $4.4 trillion over eight years – the current record high. To see details of Rep. Ryan's plan visit his “Roadmap for America's Future.” It includes proposals such as privatizing Social Security and providing tax credits for those who purchase health insurance.
The State of the Union is a chance for the President to bring the country together to support high-minded, long term goals to create a brighter American future. It is also an opportunity for the President to announce his policy agenda and explain it to the American people directly – without interpretation by Congress or the media. Next month, Congress will resume debate on the budget with Republicans in power in the House of Representatives. It remains to be seen how much of the address' rhetoric of bipartisanship and cooperation will carry over.