President Obama must figure he has nothing to lose Tuesday night during his annual State of the Union address: so naturally he will take credit for the recent upward trajectory of the U.S. economy, and why not propose higher taxes on the wealthiest Americans and new fees on the biggest Wall Street banks.
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It’s a time-honored tradition for presidents to take credit for whatever positive momentum the economy may be experiencing at the time of the State of the Union address. And the timing of this year’s State of the Union is pretty good for Obama in that sense.
Two bright spots include the recent surge in U.S. labor markets and the dramatic decline in the price of oil, both of which have boosted consumer confidence and are expected to contribute to maintaining economic momentum into 2015.
With the December jobs report showing another 252,000 new jobs created last month and the unemployment rate slipping to 5.6%, the lowest level in over six years, the U.S. labor market ended 2014 on a roll. About three million Americans returned to the workforce in 2014, and the U.S. created more jobs last year than in any since 1999.
Obama will undoubtedly tout these numbers during his speech Tuesday night and suggest that his policies helped stabilize the economy following the 2008 financial crisis. Fair enough, that’s what presidents do.
But what will probably get less attention in his speech is the fact that these strong job creation numbers have yet to translate into higher wages for most Americans, a point not lost on the Federal Reserve as central bankers wait for higher wages to push inflation to the Fed’s target rate of 2%.
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Obama Should Address Weak Wage Growth
One of the reasons cited for the long-standing pressure on wages has been the poor quality of many of the jobs created since the recovery began in 2010. Millions of Americans have returned to the workforce since the Great Recession ended, but many of those jobs have been in low-paying service positions, or at temporary or part-time jobs.
Wages will rise when employers find it difficult to fill good-paying jobs with quality workers. There is a dearth of those positions right now, so employers don’t have to raise wages to attract qualified workers.
Obama on Tuesday night should address how America plans to create those higher quality jobs.
Meanwhile, the price of a barrel of oil has plummeted about 60% since the summer, driving the cost of gasoline at the pump down to its lowest level in the U.S. since 2009. A glut of supply combined with weakened global demand has led to the plunge in energy prices, factors Obama can’t take credit for. But presidents always benefit when lower gas prices put more money in consumers’ pockets.
The White House over the weekend told various media outlets that the president will use Tuesday night’s speech to propose a handful of measures that would raise taxes on the wealthiest Americans and impose new fees on U.S. banks with assets of more than $50 billion. The revenues raised by these proposals would be earmarked for helping middle-class families.
These proposals will certainly go over well with Obama’s liberal Democratic base and will provide a starting point and rallying cry for Democratic candidates heading into the 2016 elections, but they’re also almost certainly dead-on-arrival in the new Republican-controlled Congress.
Speaker of the House John Boehner, (R-Ohio), issued the following statement Monday regarding the proposed new tax measures: “More Washington tax hikes and spending is the same, old top-down approach we’ve come to expect from President Obama that hasn’t worked. Republicans are offering better solutions focused on helping small businesses grow and hire, and helping families improve their lives.”
Basking in the Applause
In any case the proposals would eliminate a tax break now allowed on inheritances, a move the White House says would potentially contribute hundreds of billions of dollars in new tax revenue over time; increase to 28% the total top capital gains rate on couples with incomes above $500,000; and impose the new fee on big banks.
Combined, the White House said these measures would generate $320 billion in new revenues over the next decade.
What will likely draw the most applause Tuesday night is the president’s laundry list of ways he plans to spend the added revenues. For instance, an estimated 24 million working couples would receive a $500 “second earner” tax credit targeting families in which both spouses work.
The additional revenues would also allow the federal government to expand the child tax credit to up to $3,000 per child under the age of five, a plan that would benefit an estimated five million families now paying for child care.
In addition, there are proposed tax reforms that would consolidate six overlapping education tax breaks into two; expand the Earned Income Tax Credit to workers without children and to non-custodial parents; and help Americans contribute to their retirement savings by automatically enrolling in Individual Retirement Accounts many workers who don’t currently have access to retirement plans through their employers.
Objectively speaking, these are all admirable goals and Obama will bask in the applause as he reels off his wish list tomorrow night. In all probability, the applause will last longer than the life of any of these measures in Congress.