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Obama likely to make economic recovery a centerpiece of State of the Union address Obama’s budget proposal will take aim at the wealthy
(about 10 hours later)
For the past year and a half, White House officials have debated how much they could trumpet the nation’s recovery, especially when so many Americans have not felt any change in their own economic outlook. President Obama plans to propose raising $320 billion over the next 10 years in new taxes targeting wealthy individuals and big financial institutions to pay for new programs designed to help lower- and middle-income families, senior administration officials said Saturday.
“There’s always been a tension between things are in fact getting better and people are not feeling great,” said Wade Randlett, a Silcon Valley entrepreneur and major Democratic donor. “One is economic fact, and the other is polling, which always catches up over time.” In his State of the Union address Tuesday night, Obama will propose raising the capital gains and dividend tax rates to 28 percent for high earners; imposing a fee on the liabilities of about 100 big financial institutions; and greatly broadening the amount of inherited money subject to taxes.
Now the president is so comfortable with the idea of talking up the economic recovery that his advisors have branded it — “America’s resurgence” — and made it a regular talking point in Obama’s stump speeches and weekly radio addresses. And it’s likely to be a centerpiece of the State of the Union address on Tuesday. Obama will also seek to boost private retirement savings by requiring employers without 401(k) plans to make it easier for full-time and part-time workers to save in individual retirement accounts, which could assist as many as 30 million people. The administration would provide small employers tax credits to cover costs.
The economic recovery has freed the president to push for more ambitious domestic policies, many of them designed to help those in the poor and middle class who are still lagging behind. In the past week alone he has announced new proposals on paid sick leave, free community college tuition and expanded broadband access. And while he might have trouble pushing those through the GOP-controlled Congress, Obama could still end up defining some of the key issues for the elections in 2016. Senior administration officials said that the package would highlight the president’s desire to boost taxes on the nation’s wealthy households and help lower- and middle-class families. New tax credits would help those in need of child care and households with two earners, they said, while other proposals — such as covering community college tuition — would help students.
“The battle for the next American agenda is already on,” said Donald A. Baer, chief executive of Burson-Marsteller and formerly chief speechwriter for President Clinton. “There’s this effort to define a new growth and share agenda — growth but not only growth alone and sharing the growth but not just sharing the wealth.” He said Obama’s college and broadband access are examples of proposals that could both add to growth and give poor and middle class people the tools to increase their share in it. The moves would “eliminate the biggest tax loopholes and use the savings to let the middle class get ahead,” said one of the senior administration officials who spoke on the condition of anonymity during a conference call with reporters to describe the plan before the president’s speech. This person also said that 99 percent of the impact of the tax increases would fall on the top 1 percent of earners.
But Obama still has to balance his rhetoric — between optimism and caution — by talking up the strong recovery while acknowledging that wage growth remains weak. The ambitious — and controversial — proposals demonstrate the White House’s increasing confidence about the trajectory of the U.S. economy. For the past year and a half, it has debated how much it could trumpet the recovery when so many Americans have not felt any change in their own economic outlook.
But the plan drew immediate fire from Republican — and could face criticism from some Democrats — who have in the past increased the amount of money exempt from inheritance taxes they branded “death taxes.” Most Republicans have long opposed increases in capital gains rates, and many favor eliminating the tax altogether.
“This is not a serious proposal,” wrote Brendan Buck, a spokesman for House Ways and Means Committee Chairman Paul Ryan (R-Wis.) in an e-mail late Saturday. “We lift families up and grow the economy with a simpler, flatter tax code, not big tax increases to pay for more Washington spending.”
“Slapping American small businesses, savers, and investors with more tax hikes only negates the benefits of the tax policies that have been successful in helping to expand the economy, promote savings, and create jobs,” Senate Finance Committee Chairman Orrin G. Hatch (R-Utah) said in a statement Saturday night.
“The president needs to stop listening to his liberal allies who want to raise taxes at all costs and start working with Congress to fix our broken tax code.”
The administration tried to head off some of that attack by asserting that elements of the package resembled proposals endorsed by Republicans. Officials also said that the capital gains tax rate was 28 percent during President Ronald Reagan’s terms in office. The Obama administration would also seek to limit the impact of the tax increases by saying the higher capital gains and dividend rates would apply only to couples earning more than $500,000 a year.
Officials said that the relatively low capital gains tax rate with a top rate of 20 percent has enabled the 400 highest-earning taxpayers — with $139 million or more of income — to pay an average rate of 17 percent when the top income tax rate is 35 percent.
The proposal to impose a 7 basis point fee on financial institutions with assets of more than $50 billion will also run smack into opposition from big banks and insurance companies. The administration compared the fee with a proposal by former House Ways and Means Committee chairman Dave Camp (R-Mich.) for an excise tax on large financial institutions. And last week, the House Budget Committee’s ranking Democrat, Rep. Chris Van Hollen (D-Md.), proposed a 0.1 percent surcharge on financial market transactions.
One of the senior administration officials Saturday said that the goal of the proposed fee from the White House was to discourage big financial institutions from excessive borrowing. He said that despite banking revisions after the 2008-2009 financial crisis, highly leveraged financial institutions “still pose risks to the broader economy,” adding that “this fee is designed to make that activity more costly.”
The economic recovery has freed the president to push for more ambitious domestic policies, many designed to help those in the poor and middle class who are still lagging behind. In the past week alone, Obama has announced new proposals on paid sick leave, free community college tuition and expanded broadband access. And while he might have trouble pushing those through the GOP-controlled Congress, Obama could still end up defining key issues for the elections in 2016.
“The battle for the next American agenda is already on,” said Donald A. Baer, chief executive of Burson-Marsteller and formerly chief speechwriter for President Bill Clinton. “There’s this effort to define a new growth and share agenda — growth but not only growth alone, and sharing the growth but not just sharing the wealth.” He said Obama’s college and broadband access are examples of proposals that could add to growth and give poor and middle-class people the tools to increase their share in it.
But Obama has to balance his rhetoric — between optimism and caution — by talking up the strong recovery while acknowledging that wage growth remains weak.
“There’s always been a tension between things are in fact getting better and people are not feeling great,” said Wade Randlett, a Silicon Valley entrepreneur and major Democratic donor. “One is economic fact, and the other is polling, which always catches up over time.”
Now the president is so comfortable with the idea of talking up the economic recovery that his advisers have branded it — “America’s resurgence” — and made it a regular talking point in Obama’s stump speeches and weekly radio addresses. And it is likely to be a centerpiece of the State of the Union address.
In bragging about performance, Obama administration officials point to factors including the best streak of job growth since the 1990s, a recovery in the housing market and healthier balance sheets for households, companies and the federal government. And they have contrasted that performance with the anemic economies of Europe and Japan as evidence that the United States has regained its global economic dominance in what Obama has called a “breakthrough year for America.”In bragging about performance, Obama administration officials point to factors including the best streak of job growth since the 1990s, a recovery in the housing market and healthier balance sheets for households, companies and the federal government. And they have contrasted that performance with the anemic economies of Europe and Japan as evidence that the United States has regained its global economic dominance in what Obama has called a “breakthrough year for America.”
But wages have been a stubborn reminder of the recovery’s shortcomings. In November, average hourly private sector nominal wages inched up 6 cents but in December they actually fell 5 cents. After adjusting for inflation, wages for the entire year crawled up 0.7 percent, a modest amount in an economic recovery. But wages have been a stubborn reminder of the recovery’s shortcomings. In November, average hourly private-sector nominal wages inched up 6 cents, but in December, they fell 5 cents. After adjusting for inflation, wages for the entire year crawled up 0.7 percent, a modest amount in an economic recovery. It is a point that has been featured prominently in comments by Sen. Elizabeth Warren (D-Mass.), who has emerged as a leader of the Democratic Party’s liberal wing.
“The December decline in earnings is a reminder that more progress is still needed to overcome the decades-long challenge in this area that preceded the crisis,” Jason Furman, chairman of the president’s Council of Economic Advisers, wrote on Jan. 9. “I’m feeling better about the economy, but I don’t think we have in place a set of policies that will assure that this recovery will be either sustained or fully inclusive,” said Lawrence H. Summers, a former top adviser to Obama, former Treasury secretary and now a professor at Harvard University. “That’s why I think more needs to be done.”
It’s a point that has featured prominently in comments by Sen. Elizabeth Warren (D-Mass.), who has emerged as a leader of the Democratic Party’s liberal wing. But mainstream economists and even some Republicans are also talking about ways to address stagnant incomes and poverty. The White House typically aims its messages directly at the middle class, but, partly in response to Warren, Obama administration officials are more comfortable talking about how some of its proposals benefit poorer Americans.
“He should say that we’re still a long way from an economy that works for everybody,” said Arthur Brooks, president of the conservative American Enterprise Institute, who said that Warren’s “diagnosis is right, but her prescription is worse.” “We’re on offense on minimum wage and the environment,” Randlett said. “That’s the kind you only do when you have the leash of good economics.”
Lawrence Summers, a former top adviser to Obama, said the country still needs more infrastructure investments, a higher minimum wage and a more progressive tax code.
“I’m feeling better about the economy, but I don’t think we have in place a set of policies that will assure that this recovery will be either sustained or fully inclusive,” said Summers, also a former Treasury Secretary and now a professor at Harvard University. “That’s why I think more needs to be done.”
There is no reason to expect Republicans on Capitol Hill, who have rejected such proposals before, to support those measures now. But a raise in the minimum wage and new infrastructure spending plans will likely occupy a prominent place in the largely aspirational State of the Union address anyway.
“He is the most persistent person I have ever met, so I’m sure he won’t give up on infrastructure,” said his former economic adviser Alan Krueger, an economics professor at Princeton University.
The White House typically aims its messages directly at the middle class, but, partly in response to Warren, Obama administration officials are now more comfortable talking about how some of its proposals benefit poorer Americans.
Council of Economic Advisers member Betsey Stevenson told reporters Wednesday that instituting paid leave policies — like the one California adopted six years ago, and that the president is asking Congress to pass — is particularly important for working-class parents.
“Importantly, implementing paid leave in California helped lower-income women who were less able to afford taking unpaid leave prior to the law under [the Family and Medical Leave Act] to take time off to care for and bond with their infants,” Stevenson said.
In some cases Obama is now willing to use his executive authority to push for changes, such as allowing federal workers to take advanced sick leave to care for a new child or an ill parent, in a way he wasn’t last year. When asked about the timing of the new policy, Stevenson said the president “worked to figure out what was going to be within his capabilities, and expanding access to advanced sick leave is something that is within his capabilities. And that’s why he’s taking that action now.”
Now is also a good time because in his seventh year in office, Obama can argue that the country has come a long way. White House officials hope to remind the public that the policies the administration pursued during the depths of the 2009 recession are now bearing fruit.
“He’s not getting much credit for it, but turning around the economy with some very tough decisions was important,” said James Thurber, director of American University’s Center for Congressional and Presidential Studies.
Jim DeMint, the president of Heritage Foundation, agrees that some of the administration’s first-term policies have had a powerful impact — but not in a good way. “Domestically,” DeMint said of the president’s lasting imprint, “it’s just an unprecedented intervention through the force of government into the private sector.”
Obama is also likely to talk on Tuesday about his foreign policy goals, which the economy has boosted, as well.
A rising economy not only “makes everything else a little bit easier [for] all the other policies he’d want to be launching,” according to Duke University political science professor Peter Feaver, it also strengthens his hand internationally.
During the first year or two when Obama attended international meetings, Feaver recalled, he was subjected to “very lengthy, painful diatribes” about how the American economy was dragging down its overseas partners.
“You don’t get those anymore because the U.S. economy is being seen as the hand to lift all others,” Feaver said. “That puts the president is stronger position not just vis-à-vis our friends, but vis-à-vis our enemies.”
Falling oil prices have also been a gift for Obama, putting cash in the hands of consumers. But they also add pressure on oil-dependent countries such as Russia and Iran that the United States is trying to persuade to alter their policies on Ukraine and nuclear issues.
Obama’s negotiating position with Russian President Vladi­mir Putin might be stronger, but it’s unclear what the stronger economy means for his relations with the GOP congressional leadership. Rep. Tom Cole (R-Okla.), who is close to House Speaker John Boehner (R-Ohio), said in a recent interview that if the president wants to pursue a major fiscal deal on something like entitlement reform, “this is the chance to actually do that.”
Cole acknowledged it remained unclear if either congressional Republicans or the president were willing to buck some in their own parties enough to forge such a compromise. For Obama, he noted, it would mean throwing his lot in with the opposition.
“If you’re really going to want entitlement reform, most of those votes are going to come from Republicans,” he said. “You’re still going to have to take some of the blame, because Republicans voted for the thing.”
Tough and potentially unpopular proposals like taking on Social Security — or a gasoline tax — will not be in the State of the Union. But Obama will undoubtedly run through a laundry list of other issues, chief among them the Affordable Care Act, where he can point to millions of newly insured Americans and slowing health-care costs, achievements now threatened by a court challenge waiting before the Supreme Court.
Even with the usual guests in the balcony with their personal stories of woe and triumph, the speech could be long and wonky. But the president won’t be shying away from ambitious proposals.
“We’re on offense on minimum wage and the environment,” Randlett said. “That’s the kind you only do when you have the leash of good economics.