Obama's State of 'The One' Speech Preview

No president has ever been more desirous of a large prime-time audience than Barack Obama, and the president will get his biggest audience since his inauguration with his first State of the Union address tonight. These speeches are almost always too long and boring, not even counting the dozens of standing ovation interruptions that will be led by Speaker Nancy Pelsoi and Vice President Joe Biden.


Already the Obama administration has released a list of initiatives to be highlighted in the speech, suggesting it is not totally tone-deaf to the public’s growing concerns over the huge jumps in federal spending the last two years and the record annual federal deficits ($3 trillion in total for fiscal years 2009 and 2010).

Obama will endorse a three-year freeze on some areas of federal discretionary spending, representing about a sixth of the federal budget. It is worth noting that during his campaign for the presidency, Obama repeatedly attacked such a plan. After the three-year period, the total amount of spending in these categories could increase no faster than the general inflation rate for the next seven years.

Considering that Obama proposed a 7.3% increase in these categories of spending  just a few months back, the change, if adopted, will save some money — in total about $250 billion over the next ten years. Put another way, the increase in the federal debt during this period will now be only $8.75 trillion, rather than $9 trillion, and the accumulated federal debt at the end of the ten-year period will be about one percent less than it would have been without the “freeze” at just over $21 trillion.

This modest effort should not cheer the hearts of deficit hawks concerned with the overall level of federal spending (now well over a quarter of GDP) that is creating annual deficits and total debt that will make the country a permanent debtor nation, at the mercy of purchasers of our bonds. But Obama will have the platform. He will spin himself as a serious and committed deficit hawk who needed to spend a lot last year to save the country from a second great depression caused by the policies of his predecessor.


To cement this notion, Obama will point to how bad things were when he took office — the monthly job losses, declining GDP, falling stock market levels, etc. — and tell the American people that, while much more needs to be done on the jobs front, the great crisis has been averted.

It will be important to add up the cost of new spending initiatives announced in the speech, many of which will be labeled as programs for the hard-pressed middle class. Without a doubt, the cost of the new programs will dwarf any purported savings from the freeze on discretionary spending accounts.

In 2009 and 2010, federal tax revenues will be barely half of federal spending. The left’s answer to the spending versus taxation gap is to significantly increase taxes and to make the federal tax rates much more progressive (with far higher tax rates on higher-income Americans). The president and liberals in Congress share this goal, but the State of the Union address is not a suitable venue to propose raising income tax rates. (In fact, if Congress does nothing, income tax rates will rise for all Americans who pay them after 2010 and many will be added to the tax roles, with the expiration of the 2001 Bush tax cuts).

In general, many American do not believe taxes will only go up for the other guy. However, Obama seems to believe that he can grab the populist mantle by demagoguing the rich Wall Street bankers who, Obama believes, profited so handsomely while honest hard-working Americans suffered these last few years. Obama always needs villains or scapegoats to cover for his own failures, and with the Bush-is-bad argument losing its resonance, Wall Street bankers will have to be the villains of the day.


Obama will also likely offer a twofer to address the voters’ concerns over short-term job losses and long-term deficits: some targeted tax cuts to employers, including small businesses, to encourage more hiring, and the creation of a bipartisan commission to make recommendations on longer-term approaches to deficit reduction. If such a commission were established with rules similar to those for military base closing commissions, Congress would need to accept or reject the entire package of recommendations coming from the commission.

The Democrats are clearly looking for Republican cover for any recommendations that suggest large tax increases or major cuts in entitlement spending. But in the end, it is hard to believe that Democratic senators and congressmen will vote to approve any serious recommendations that would cut their ability to spend money, particularly on popular entitlement programs, which they see as their job.

In any case, Obama will try to send the message tonight that he is the mature, principled, responsible leader looking out for the long-term financial future of the country.

If there is any mystery in the president’s remarks, it is what he will say about the health care reform effort. It appears that the president and Democratic leaders in Congress are unwilling to throw in the towel and seek a smaller and more bipartisan bill. In short, they have come too far to allow their failure to pass a bill even with complete control of both houses of Congress to be acknowledged. Instead, they will attempt one more time to jam this unpopular bill through by having the Senate version of the bill passed by the House and sent directly to the president, with a second bill containing fixes to the Senate bill passed via the reconciliation process in both houses. This would require only 51 votes in the Senate (no GOP filibuster possible).


Americans by a large majority hate the process that accompanied the health care reform effort: the bribes, the closed sessions, the payoffs to major lobbying groups (the latest a $60 billion deal for the unions), and the complexity (the unread 2,000-page bills). They want the effort killed. The health care reform effort in substance was a major redistribution effort — getting seniors and wealthy Americans to subsidize  health care for lower income Americans without insurance. Since the 85% of Americans with insurance would not benefit from this, and some would now be asked to pay for the expansion of coverage of others, the bill could not be successfully sold for what it was — namely, a giant redistribution program.

Instead, the bill was sold as a way to protect Americans against sinister greedy insurance companies. The other selling point was that only with this reform effort would health care costs begin to come down. Most Americans had little trust that spending hundreds of billions more each year would bring their health care costs down ($2.5 trillion would be spent in the first ten years after the program was fully in place). It is hard to see a way for the president to successfully resell to the public the mishmash in the Senate bill with some new special interest fixes. But if the president believes in anything other than himself, it is in redistribution.

And he may still trust that he can play a shell game on this bill, arguing to the public that he is so noble he will risk his second term for this great achievement. Seeing how the president tries to thread this needle may be the only interesting part of the address.



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