Last night, the President delivered his annual State of the Union speech to members of Congress and to the nation. Each year, this is the President’s opportunity to address Congress and the nation about how we’re doing as a country and what his particular agenda will be for the coming year.
You can read the speech here (there are even little breaks throughout marked as “applause” in case you want to pretend like you were actually there).
As with every year, here’s the fun stuff first:
- The State of the Union speech, as delivered, was just under 7,000 words (by contrast, the Declaration of Independence – not counting the signatures – is 1,337 words in length).
- The word “tax” appeared 17 times in the speech; that is on par with the number of times that the President has used the term in 2010 and 2011 but exactly half of the number of times he used the word in 2012.
- The President used the word “economy” 13 times and the word “budget” 5 times.
- The word “save” was used 3 times and the word “revenue” was used 2 times; in contrast, the words “spend” or “spending” were uttered 5 times.
- The word “deficit” appeared a whopping 11 times.
- The word “Congress” was used 17 times while “bipartisan” was said 5 times.
The speech hit all of the notes that we would expect in a second-term president. As a result, at times, it was a bit reminiscent of President Obama’s campaign stumps. Consider this bit:
It is our unfinished task to restore the basic bargain that built this country — the idea that if you work hard and meet your responsibilities, you can get ahead, no matter where you come from, what you look like, or who you love.
In fact, the theme of protecting the middle class was evident throughout – especially when it came to taxes.
Follows are my comments on the tax-related provisions of the speech. I’ll save the immigration and other issues for my much more knowledgeable colleagues. To make it easier for you, I’ve emphasized the specific tax provisions by bolding them.
The budget was, not surprisingly, a significant focus in the President’s speech. In fact, almost all of the references to taxes were made in the first half of the speech; the President did not refer to taxes at all in the last third of his speech. He led off with the obvious: the recent tax deal – with a tweak at Congress over the debt ceiling:
Over the last few years, both parties have worked together to reduce the deficit by more than $2.5 trillion — mostly through spending cuts, but also by raising tax rates on the wealthiest 1 percent of Americans. As a result, we are more than halfway towards the goal of $4 trillion in deficit reduction that economists say we need to stabilize our finances.
Now we need to finish the job. And the question is, how?
President Obama’s answer is obvious: it’s tax reform. How to accomplish that is the complicated part. While the President called for tax reform, the details were a bit fuzzy:
Most Americans — Democrats, Republicans, and independents — understand that we can’t just cut our way to prosperity. They know that broad-based economic growth requires a balanced approach to deficit reduction, with spending cuts and revenue, and with everybody doing their fair share. And that’s the approach I offer tonight.
Since President Obama has, over the last year, successfully moved the health care bill through the Congress – and then through the courts – he focused on provisions of the Affordable Care Act. He suggested additional proposals:
Already, the Affordable Care Act is helping to slow the growth of health care costs. (Applause.) And the reforms I’m proposing go even further. We’ll reduce taxpayer subsidies to prescription drug companies and ask more from the wealthiest seniors. (Applause.) We’ll bring down costs by changing the way our government pays for Medicare, because our medical bills shouldn’t be based on the number of tests ordered or days spent in the hospital; they should be based on the quality of care that our seniors receive. (Applause.) And I am open to additional reforms from both parties, so long as they don’t violate the guarantee of a secure retirement. Our government shouldn’t make promises we cannot keep — but we must keep the promises we’ve already made. (Applause.)
And, of course, there was the obligatory reference to loopholes and tax breaks:
To hit the rest of our deficit reduction target, we should do what leaders in both parties have already suggested, and save hundreds of billions of dollars by getting rid of tax loopholes and deductions for the well-off and the well-connected. After all, why would we choose to make deeper cuts to education and Medicare just to protect special interest tax breaks? How is that fair? Why is it that deficit reduction is a big emergency justifying making cuts in Social Security benefits but not closing some loopholes? How does that promote growth? (Applause.)
Of course, if you read the blog, you know this is a pet peeve of mine. Politicians on both sides of the aisle love to crow about reducing loopholes and tax breaks for special interests. And yet, the Tax Code continues to balloon because no one actually wants to do the work. It’s easy to talk about loopholes because they sound terrible but nailing down which loopholes (and what even qualifies as a loophole in the first place) is something that hasn’t been tackled yet by our government.
But we clearly like to talk about it:
The American people deserve a tax code that helps small businesses spend less time filling out complicated forms, and more time expanding and hiring — a tax code that ensures billionaires with high-powered accountants can’t work the system and pay a lower rate than their hardworking secretaries; a tax code that lowers incentives to move jobs overseas, and lowers tax rates for businesses and manufacturers that are creating jobs right here in the United States of America. That’s what tax reform can deliver. That’s what we can do together. (Applause.)
…And there was your Buffett rule reference.
To be fair, I believe that the President does want reform. I think that Congress wants reform. I just think they’re incapable of moving it forward. Both sides are calling for a compromise, but they are currently miles apart, a fact that President Obama acknowledged in his speech:
I realize that tax reform and entitlement reform will not be easy. The politics will be hard for both sides. None of us will get 100 percent of what we want.
Again, lots of references to tax reform but not a lot of specifics. That’s not completely a criticism: I don’t think the State of the Union address is the best platform to delve into details on every topic. But I do think that it’s important to take care not to bandy about big ideas without following up. And with tax reform, that’s kind of where we are these days: at the big ideas stage. Neither the President nor Congress has advanced any significant tax reform efforts (the one exception being the “permanent” fix to the federal estate tax which I suspect we’ll eventually discover isn’t quite so permanent).
Talks on spending were fairly muted. There were references to improving infrastructure with careful notice to include public/private partnerships:
And to make sure taxpayers don’t shoulder the whole burden, I’m also proposing a Partnership to Rebuild America that attracts private capital to upgrade what our businesses need most: modern ports to move our goods, modern pipelines to withstand a storm, modern schools worthy of our children. (Applause.) Let’s prove that there’s no better place to do business than here in the United States of America, and let’s start right away.
And a reference to tax credits for education:
Through tax credits, grants and better loans, we’ve made college more affordable for millions of students and families over the last few years. But taxpayers can’t keep on subsidizing higher and higher and higher costs for higher education. Colleges must do their part to keep costs down, and it’s our job to make sure that they do. (Applause.)
I won’t focus on immigration – again, leaving that for my more experienced colleagues in that field – but I will point out that the President did hit upon a sore spot for many taxpayers: what is considered a “free ride” for immigrants who, the perception is, are not paying taxes. The President linked tax compliance to immigration reform measures:
Real reform means establishing a responsible pathway to earned citizenship — a path that includes passing a background check, paying taxes and a meaningful penalty, learning English, and going to the back of the line behind the folks trying to come here legally. (Applause.)
Finally, one of the most talked (and tweeted) about issues of the night: raising the minimum wage. The President noted that his administration had put tax safeguards in place at the bottom of the income scale but claims that isn’t enough:
Even with the tax relief we put in place, a family with two kids that earns the minimum wage still lives below the poverty line. That’s wrong.
That relief, referred to as “trickle-up” across the web, is a big push for the administration. The proposal being floated would increase the current federal minimum wage from $7.25/hour to $9/hour. It’s sure to have resistance from small business owners who feel the most immediate effects of wage increases for employees. The additional cost to employers would be nearly $4,000 per year per full-time employee: don’t forget that employers also contribute payroll taxes on wages. In a tough economy, that promises to be a hard sell.
The President clearly anticipates this, noting:
We’ll give new tax credits to businesses that hire and invest.
The address then steered away from financial matters and onto more emotional ones like gun control, homeland security, and our military. There was not another word about taxes.
Was it an effective speech? It depends on who you ask. The speech was, of course, clearly panned by Republicans with up and coming Sen. Marc Rubio (R-FL) leading the charge saying that the President’s “solution to virtually every problem we face is for Washington to tax more, borrow more and spend more.” Democrats, in contrast, gave the speech high marks.