The following was featured on Marketwatch.com
The political clans gathered last night to hear President Obama make a political speech in front of a Joint Session of Congress. The purpose of the address was to put forth his newest program to shake off the economic doldrums of the country. With the President shouting, “pass this bill”, Republicans all looked like Jabba the Hut while Democrats mindlessly applauded.
As a prelude to grading his plan, it is evident the country is beset with more than a few economic woes. Unemployment lingers above 9 percent. The Federal Government has taken on a Mount Everest of new debt and trillions more to come. Housing prices and markets in most areas are in the dumper. Interest rates are low but borrowing is difficult even as the banking system has been flooded with money by the Federal Reserve. Many companies have huge cash hordes but complain about business uncertainly and over regulation. In addition to the dire economic situation, the political process is almost broken and cheap, inane political rhetoric and acts rule the day.
With the election less than 14 months away and polls going in the wrong direction, Mr. Obama has decided to now seize the reins of leadership and guide the country out of its rut. However, he enters the battle with few arrows in his quiver and no bullets in the bandoleer. He is a victim of his own actions, inactions, and firm belief only government provides the solutions.
As usual, the focus here is on the tax portions of the plan (albeit with details to come) with comments on the rest. Mr. Obama now suggests:
Increase the two percent reduction on employee social security wage base—Last year Congress installed a 2 percentage-point reduction on the social security wage base of $106,800 from the old 6.2% rate to 4.2% for one year. From the liberal’s point of view, this was better than an income tax rate reduction since only about fifty percent of workers actually pay income tax. However, as an economic matter, the reduction of the rate to put money in the pockets of people was a good but not great idea.
Now the President wants to add to that by cutting the overall rate in half. So much for the sanctity of the Social Security Trust Fund. It must be noted this is not a huge new cut but an enlargement of the existing cut. Net Paychecks will not dramatically increase, but for budget purposes, the cost is around $175 billion. I have advocated the extension since last spring, not for its positive effect but for the fact if not extended for its negative effect. I am not sure about this much of a decrease and most economists would say the impact on employment would be minimal. This is not great tax policy and raises the issues again about the funding, integrity and support of Social Security. He gets a B plus here.
Tax cuts for business--Businesses would get the same 3.1-point percent reduction on taxes on the first $5 million of their payroll, a limit that directs the benefit toward smaller firms. The full 6.2 percent employer contribution would be waived on the first $50 million net increase in a company’s payroll. Tax relief for small business is welcome but this is not large enough make any real difference and probably misdirected. It is more of a windfall for business than a jobs creator. He gets a B minus here.
Revenue measures and the deficit—Mr. Obama wants to offset the cost of the $450 billion short-term jobs measure by raising taxes and maybe spending cuts in later years. He mentioned millionaires and oil companies in the text of his speech. Mr. Obama will provide a “more ambitious” plan to reduce the deficit by Sept. 19 that would cover the cost of his proposals as well as stabilize the nation’s debt. This is a total cop out and shows the political nature of his presentation. This 10-year budget approach is intellectually dishonest, bogus slight of hand and is used to dupe those who do not understand the process. It is like Wimpy wanting to pay for his hamburger on Tuesday if you give it to him today. The president also did not mention all the expiring tax provisions like R & D credit, AMT fix and energy subsidies in his proposal, the totals of which are in the billions. He gets an F here.
Extension of Unemployment Benefits— An unsavory topic as benefits for the long-term unemployed seem endless. They cannot go on forever, but I am sympathetic to those that have lost jobs and are really seeking new ones. Mr. Obama proposed granting states authority to pay benefits to people who have been jobless more than six months while training for jobs at businesses along with a one-year continuation of extended unemployment benefits due to expire. A six-month extension would have been better. The cost is $62 billion. Extended benefits cover jobless workers for up to 99 weeks. Wow, that is 1 less than a 100. He gets a C for this but it is shaky.
Infrastructure Spending—This is more stimulus part duex and a non-starter with House Republicans. The original stimulus was mildly useful but misdirected, largely wasted and used on a litany of pent up liberal proposals. Perhaps, this may do some good on certain projects but not going to help now as any impact is years away. He gets a C here.
Infrastructure Bank— This is not worth describing but I had to mention this $10 billion proposal because it is idiotic and reflective of the industrial policy mentality of the Administration. He gets an F here also.
Aid to State and Local Governments-- The original stimulus was quite generous to state and local governments. It was counter-productive by giving them the ability and excuse not to address bloated spending. This is all about keeping the unions happy and employed. Not going to happen in the House. The state and local jurisdictions are just beginning to make the tough and necessary decisions. He gets a D minus here.
Trade agreements—There are three trade treaties awaiting consideration by the Democrat controlled Senate- Panama, Columbia and Korea. They have been waiting approval for some time. I am not sure if they have even formally been sent up for ratification. No help or even marginal help here. He gets a C minus for being so tardy
The Obama solutions are the same ones as they were in 2009. There are not really any new approaches and I doubt any real help save for the employment tax reductions. This entire exercise seems to be totally political. Look like a leader, a concerned friend of the people and then blame the other side. Point the finger and say I am “less bad” than the other guys and hope the voters will believe it. Sad, sad, state of affairs. In presenting his plan as “pass it now”, “take it or leave it” or bear the electoral consequences, Mr. Obama takes a risk Watch out what you wish for, Mr. President.
Ultimately, I think Congress will take some positive action, particularly if more bad news is coming but it will not be the ad hoc adoption of this plan. Oh, forgot the Super Committee will save the day.