President Obama's first State of the Union address was supposed to be a victory lap for health care reform. Instead, it's likely to become another attempt to lay out a blueprint to get the economy back on track.
In recent days, the White House has taken much of the surprise out of the speech. It's known that Obama is going to talk about proposals unveiled earlier this week to benefit middle-class Americans. The president will also mention that he's going to ask Congress to freeze non-defense discretionary spending for three years, beginning in 2011. And of course, he'll likely explain how he expects health care reform to move forward. (See "The State Of Health Reform")
Obama promised change when he arrived on Pennsylvania Ave., but the most notable sign of change during the last year is that he--not George W. Bush--now owns the nation's economic problems. Wednesday night the president gets a chance to chart a new course on the road to recovery. We suggest a few ways he might best proceed:
Admit that it's not possible to do everything at once. In 2009 the president proposed to reform health care, overhaul the nation's financial rulebook, establish a cap-and-trade system to limit carbon emissions and pass a massive stimulus bill. So far, only the latter has been accomplished, and with unemployment at 10%, many people wonder whether the $787 billion was spent wisely. To change the course of debate, the Obama administration would be better off prioritizing just two things: muzzling congressional spending and getting Americans back to work, full-time.
Cut the populism. In recent weeks, Democrats have taken aim at Wall Street bonuses, and the administration has proposed levying a tax on banks like Goldman Sachs, JPMorgan Chase and Morgan Stanley to cover bailout losses caused by General Motors, Chrysler and American International Group. "Populist ideas like restricting bank compensation simply do little to 'move the needle' with the economy, jobs or the massive federal deficit," says Len Blum, a managing partner for Westwood Capital in New York. "And focusing on issues that don't move the needle does little to build confidence."
Dispense with cap-and-trade. Critics of climate change legislation, which still hasn't passed the Senate, argue that it picks winners and losers. It's also guaranteed to raise energy prices. "I think that the only way to make progress in this area is to basically throw away the legislation that's already been written and start from scratch," says James Bartis, a senior policy researcher on energy at the RAND Corporation. Many economists and analysts, including Bartis, think a carbon tax would be a simpler way to achieve the same end: creating a financial incentive not to pollute.
Ensure that financial regulatory reform doesn't go the way of the health care overhaul. The Democrats' health care bills have been described as Rube Goldberg plans that try to be all things to all interest groups. Financial regulatory reform, now more than a year in the works, also seems like a feast for lobbyists. Both sides of the aisle are calling for financial regulatory overhaul. If the administration wants to count financial overhaul among its victories, it will need to work with both Republicans and Democrats.
Focus on the middle class. The tax burden threatens to get worse for the middle class. According to the Congressional Budget Office, "lawmakers would have to significantly increase revenues, decrease projected spending, or enact some combination of the two" to keep future deficits and debt from harming the economy. The administration is already proposing spending cuts, and it's touting plans to make the middle class feel better off. Obama is expected to talk about tax policy Wednesday. A restructuring of tax laws and a plan to create jobs for middle class Americans could help turn around the economy.
Plug the private sector. The government has stepped in to support the economy, but long-term economic growth is going to come from the private sector. Last year's stimulus package, which included tax breaks for businesses, was a start, but there's much more work to be done. A sure sign that Americans are still excited about innovation: don't be surprised if the most talked about news story Wednesday comes not from Washington, but from Silicon Valley, where Apple is expected to unveil its long-awaited tablet computer.
