A disappointing, confused State of the Union

Raymond Keating Chief Economist, Small Business & Entrepreneurship Council
Font Size:

President Barack Obama’s State of the Union address started out with some promise, but in the end, while it did not necessarily surprise, it did disappoint.

The promise, or hope, occurred when the president declared: “We have to make America the best place on Earth to do business…The first step in winning the future is encouraging American innovation. None of us can predict with certainty what the next big industry will be or where the new jobs will come from. Thirty years ago, we couldn’t know that something called the Internet would lead to an economic revolution. What we can do — what America does better than anyone else — is spark the creativity and imagination of our people… In America, innovation doesn’t just change our lives. It is how we make our living. Our free enterprise system is what drives innovation.”

Bravo, Mr. President!

Unfortunately, what followed was a terrible misunderstanding of what’s needed to spur innovation, growth and jobs, and to improve our competitiveness and make the U.S. “the best place on Earth to do business.”

First, the president focused on government, specifically, more spending on research, development and infrastructure with taxpayer dollars. Leaving behind the acknowledgement that it’s difficult to predict the next great industry, the president preached the so-called wonders of government spending to do just that — that politically driven spending “in biomedical research, information technology, and especially clean energy technology … will strengthen our security, protect our planet, and create countless jobs for our people.” Of course, we’ve heard this countless times before, and we’re still looking for new jobs to count.

The president paid particular attention to high-speed rail systems. He said, “Within 25 years, our goal is to give 80 percent of Americans access to high-speed rail. This could allow you to go places in half the time it takes to travel by car.” Really? Faster trains. That’s the president’s great idea? In reality, government-funded rail systems of all types and sizes are notorious for being costly to create and operate, and under-utilized.

Meanwhile, while talking up the miracles of government spending, the president also called for a five-year domestic spending freeze. Hmmm. Any spending freeze is welcome. But it represents only 12 percent of a runaway federal government budget. And while mentioning the need to deal with entitlement spending, no clear direction was offered by the president.

On the other side of the federal budget equation, the president fell back into his class warfare ways by explicitly calling for a tax increase on upper-income earners. He said, “And if we truly care about our deficit, we simply cannot afford a permanent extension of the tax cuts for the wealthiest 2 percent of Americans.” In reality, though, if we care about our economy, then tax increases do not make any sense. In particular, higher income, capital gains and dividends tax rates on entrepreneurs and investors would discourage the risk-taking that spurs growth and jobs.

But the president did speak of simplifying the corporate tax code, and bringing down the corporate income tax rate. That makes sense, particularly given how high the U.S. corporate tax rate is compared to those of our competitors. But such reform cannot be used as a vehicle to increase taxes overall, as was proposed by the president’s budget commission.

On the regulatory front, the president reiterated his recent call to review regulations so as to ease their burdens on business. Unfortunately, that brief mention in the State of the Union led to a defense of Obamacare, which ranks as a regulatory and tax nightmare for businesses and the economy.

Finally, there was movement forward, and then back, by the president in terms of trade. He called on Congress to approve the South Korea trade pact. That certainly would be a plus for U.S. businesses and consumers. However, he failed to put the Panama and Colombia trade agreements before Congress for a vote. Instead, he spoke of his intention to “pursue agreements” with these nations. Of course, those agreements already were done under the Bush administration. Unfortunately, it looks like the influence of labor unions over the Obama administration continues to prevent it from pursuing a comprehensive, aggressive free trade agenda. U.S. opportunity in the international marketplace will continue to suffer as a result.

In the end, what we heard in the State of the Union was a conflicted President Obama. Given the new post-November political realities, his rhetoric needed to change. Unfortunately, his policy positions either have remained the same, or have become more confused.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is titled Warrior Monk: A Pastor Stephen Grant Novel.