State of the Union: Obama Targets Middle-Class

By White HouseFOXBusiness

President Obama on Tuesday in his sixth State of the Union address took his message directly to middle-class Americans, proposing an array of programs and reforms intended to pull more of that vast demographic swath into the strengthening economic recovery.

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Lifting the fortunes of middle-class Americans will come at the expense of the wealthiest, however, as the tax breaks and other financial credits targeting the former will be paid for by higher taxes on the latter and new fees on the largest U.S. banks.

“At this moment -- with a growing economy, shrinking deficits, bustling industry, and booming energy production -- we have risen from recession freer to write our own future than any other nation on Earth.  It’s now up to us to choose who we want to be over the next fifteen years, and for decades to come,” the president said, according to excerpts released by the White House ahead of the speech.

“Will we accept an economy where only a few of us do spectacularly well?  Or will we commit ourselves to an economy that generates rising incomes and chances for everyone who makes the effort?” he asked.

Obama also urged Congress to pass cybersecurity legislation and called for a bi-partisan energy policy rather than focusing on “a single pipeline,” clearly referencing the controversial Keystone Pipeline, which he has opposed.

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“No foreign nation, no hacker, should be able to shut down our networks, steal our trade secrets, or invade the privacy of American families, especially our kids," the president said.

Taking his message directly to voters -- primarily his base of progressive Democrats -- was almost certainly a key element of the president’s strategy since most of his proposals will undoubtedly get short shrift from the new Republican-controlled Congress.

"...we have risen from recession freer to write our own future than any other nation on Earth.  It’s now up to us to choose who we want to be over the next fifteen years, and for decades to come."

President Obama

Some analysts suggested the president could have created a better environment for negotiation with Congress on his tax reform proposals if he hadn’t so clearly targeted his base during the speech.

As the proposals stand, however, they are likely “dead on arrival” in Congress, said Jay Ritter, a finance professor at the University of Florida.

Ritter said many Republicans in Congress will likely reject tax reform proposals that “focus more on wealth redistribution than economic efficiency.”

“Many Republicans are reflexively anti-new taxes, so some of these proposals will be non-starters,” Ritter said. “The president hasn’t created a situation that is conducive for coming to an agreement quickly. It’s a lot easier to get a compromise if you start out with a legitimate offer.”

Iowa Republican Senator Joni Ernst hinted at the cool reception with which Obama’s proposals would be met in Congress in excerpts provided of her official rebuttal: "Let's iron out loopholes to lower rates -- and create jobs, not pay for more government spending."

For the past two weeks the president has been touring the country announcing and touting proposals that were included in Tuesday’s State of the Union address. The measures would raise $320 billion in revenues over the next decade by raising taxes on the wealthiest Americans and by imposing new fees on the biggest U.S. banks.

The revenues raised by these proposals would be earmarked for expanding tax credits and educational benefits for the middle class. In addition, the president called for raising the minimum wage nationwide and establishing new trade deals with Asia and Europe to create more export-related jobs.

Of course, there were political overtones to the proposals. The idea of raising the top capital gains and dividends tax rate to 28% from 23.8% on couples with incomes above $500,000 is popular with Democrats who are looking beyond Obama's tenure to the 2016 elections.

The president’s proposals would also eliminate a tax break now allowed on large inheritances, a move the White House says would potentially contribute hundreds of billions of dollars in new tax revenue over time.

Nearly all of the proceeds raised by these taxes and fees on the wealthiest and largest banks would be earmarked for middle-class relief. 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, the president proposed tax reforms that would help Americans who don’t currently have access to retirement plans through their employers contribute to their retirement savings by automatically enrolling them in Individual Retirement Accounts. The reforms would also expand the Earned Income Tax Credit to workers without children and to non-custodial parents.

The president said his administration’s programs aimed at lifting the middle-class have helped spur the ongoing economic recovery which has seen stock markets rise, the deficit shrink and U.S. labor markets gain considerable momentum in the past 12 months.

The December jobs report showed another 252,000 new jobs were created last month and the unemployment rate slipped to 5.6%, the lowest level in over six years. About three million Americans returned to the workforce in 2014, and the U.S. created more jobs last year than in any since 1999.

“So the verdict is clear.  Middle-class economics works.  Expanding opportunity works.  And these policies will continue to work, as long as politics don’t get in the way,” he said.

“In fact, at every moment of economic change throughout our history, this country has taken bold action to adapt to new circumstances, and to make sure everyone gets a fair shot. We set up worker protections, Social Security, Medicare, and Medicaid to protect ourselves from the harshest adversity.  We gave our citizens schools and colleges, infrastructure and the Internet -- tools they needed to go as far as their effort will take them,” he added, according to the excerpts.

“That’s what middle-class economics is -- the idea that this country does best when everyone gets their fair shot, everyone does their fair share, and everyone plays by the same set of rules.”

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