Saturday, January 28, 2012

Annotated State of the Union Address, part II

My comments are in blue.

Over the years, a parade of lobbyists has rigged the tax code to benefit particular companies and industries. Those with accountants or lawyers to work the system can end up paying no taxes at all. But all the rest are hit with one of the highest corporate tax rates in the world. It makes no sense, and it has to change.

So tonight, I’m asking Democrats and Republicans to simplify the system. Get rid of the loopholes. Level the playing field. And use the savings to lower the corporate tax rate for the first time in 25 years – without adding to our deficit.

The thing about the corporate tax is that it is largely passed on to the consumer -- something to think about when arguing about whether to increase or decrease it. Certainly taking away grotesque loopholes is a good idea, as is ceasing to reward companies that transfer their operations overseas.
To help businesses sell more products abroad, we set a goal of doubling our exports by 2014 – because the more we export, the more jobs we create at home. Already, our exports are up. Recently, we signed agreements with India and China that will support more than 250,000 jobs in the United States. And last month, we finalized a trade agreement with South Korea that will support at least 70,000 American jobs. This agreement has unprecedented support from business and labor; Democrats and Republicans, and I ask this Congress to pass it as soon as possible.

The Republicans have been screaming about China, but history shows that negotiating with the Chinese is far more productive than threatening them. After all, they hold more of our debt than any other country, and are our second-largest trade partner (after Canada).  China is also an important source of solar and wind energy products -- and inexpensive ones at that.
Before I took office, I made it clear that we would enforce our trade agreements, and that I would only sign deals that keep faith with American workers, and promote American jobs. That’s what we did with Korea, and that’s what I intend to do as we pursue agreements with Panama and Colombia, and continue our Asia Pacific and global trade talks.

To reduce barriers to growth and investment, I’ve ordered a review of government regulations. When we find rules that put an unnecessary burden on businesses, we will fix them. But I will not hesitate to create or enforce commonsense safeguards to protect the American people. That’s what we’ve done in this country for more than a century. It’s why our food is safe to eat, our water is safe to drink, and our air is safe to breathe. It’s why we have speed limits and child labor laws. It’s why last year, we put in place consumer protections against hidden fees and penalties by credit card companies, and new rules to prevent another financial crisis. And it’s why we passed reform that finally prevents the health insurance industry from exploiting patients.

Industries do not like to be regulated; many tend to throw financial support to the Republicans to oppose most regulations in a knee-jerk way, whether they protect miners or oil workers from on the job injuries, or all of us from severe environmental damage. 

In fairness, however, we have to weigh the damage that a large hydroelectric project may do to an obscure creature like a snail darter against the good that such a project will do to thousands of other organisms -- such as ourselves -- by eliminating dangerous pollutants caused by burning fossil fuels. 

Also, we have to realize that so-called "clean fuels" may not be as clean as is claimed. If the cost of making coal "clean" is taken into account (as well as the dangers of mining it), coal becomes a very expensive fuel indeed. Similarly, atomic energy still has the same problem it always has had: No one knows what to do with radioactive waste. I haven't heard Obama or the Republicans suggest which area in which state we're going to dump all that  stuff.

Now, I’ve heard rumors that a few of you have some concerns about the new health care law. So let me be the first to say that anything can be improved. If you have ideas about how to improve this law by making care better or more affordable, I am eager to work with you. We can start right now by correcting a flaw in the legislation that has placed an unnecessary bookkeeping burden on small businesses.

What I’m not willing to do is go back to the days when insurance companies could deny someone coverage because of a pre-existing condition. I’m not willing to tell James Howard, a brain cancer patient from Texas, that his treatment might not be covered. I’m not willing to tell Jim Houser, a small business owner from Oregon, that he has to go back to paying $5,000 more to cover his employees. As we speak, this law is making prescription drugs cheaper for seniors and giving uninsured students a chance to stay on their parents’ coverage. So instead of re-fighting the battles of the last two years, let’s fix what needs fixing and move forward.

Yes: the correct strategy is to ask people exactly which part of healthcare reform they would like removed. Do they want to get rid of keeping their kids on their insurance? Do they want their healthcare rationed by income or the whims of big insurance companies? If they don't like the "individual mandate" but don't want to be bumped because of "pre-existing conditions," they ought to be ask how insurance companies can afford to insure only sick people. The Republicans ought to explain why they supported (even invented) the idea of an individual mandate, but now oppose it.

Now, the final step – a critical step – in winning the future is to make sure we aren’t buried under a mountain of debt.

We are living with a legacy of deficit-spending that began almost a decade ago. And in the wake of the financial crisis, some of that was necessary to keep credit flowing, save jobs, and put money in people’s pockets.

But now that the worst of the recession is over, we have to confront the fact that our government spends more than it takes in. That is not sustainable. Every day, families sacrifice to live within their means. They deserve a government that does the same.

This is not really correct. It's the size of the deficit that matters, not deficits themselves. We had fairly large deficits before Clinton took office, but we eliminated them by the time he left office. The problem is that now we are accumulating debt so fast that if it continues this way we will never be able to pay it off before we go bankrupt. But it doesn't have to be done tomorrow or even next year. There is nothing like a recovery to help with turning things around. More people working and more products being sold will generate more tax revenue and fewer unemployment benefits being paid. Taxing millionaires so that they share the same tax burden as the rest of us will help. These things  won't solve the problem themselves, but they will help. Containing medical expenses is crucial, and continuing in anything like the way we were before "Obamacare" will be ruinous. In the long run, our only hope is a single-payer plan. We will eventually have it since there really is no alternative; whether we get to it soon enough to avoid disaster is the question. Nevertheless, all the other industrialized countries pay less for their healthcare and have healthier (and happier) citizens; we must learn from them, not sneer at them.

So tonight, I am proposing that starting this year, we freeze annual domestic spending for the next five years. This would reduce the deficit by more than $400 billion over the next decade, and will bring discretionary spending to the lowest share of our economy since Dwight Eisenhower was president.

This freeze will require painful cuts. Already, we have frozen the salaries of hardworking federal employees for the next two years. I’ve proposed cuts to things I care deeply about, like community action programs. The Secretary of Defense has also agreed to cut tens of billions of dollars in spending that he and his generals believe our military can do without.

Could we have some explanation of why cutting the incomes of federal employees is a fair idea? Sure we can do it, but that doesn't mean it's right to do it. As long as there's one highly profitable industry that gets a tax break, or one wealthy citizen who is not shouldering a fair tax burden, why should we cut the salary of a worker simply because that person is a federal employee? Doing this sends the message that somehow working for our  -- our! -- government is not quite valuable. This is part of the Republican propaganda position that "government is the problem." Government is the problem mostly for people who want to cheat or endanger the rest of us. Government was not the problem when we fought WWII or protected our elderly with Social Security and Medicare. Government was not a problem when we abolished child labor and sweatshops or when we cleaned up our air, rivers, lakes and harbors. Working for our government and being paid a decent and fair wage for doing so is a very honorable thing for an American to do. Why should we be freezing  government wages simply because we can?

I recognize that some in this Chamber have already proposed deeper cuts, and I’m willing to eliminate whatever we can honestly afford to do without. But let’s make sure that we’re not doing it on the backs of our most vulnerable citizens. And let’s make sure what we’re cutting is really excess weight. Cutting the deficit by gutting our investments in innovation and education is like lightening an overloaded airplane by removing its engine. It may feel like you’re flying high at first, but it won’t take long before you’ll feel the impact.

Now, most of the cuts and savings I’ve proposed only address annual domestic spending, which represents a little more than 12% of our budget. To make further progress, we have to stop pretending that cutting this kind of spending alone will be enough. It won’t.

The bipartisan Fiscal Commission I created last year made this crystal clear. I don’t agree with all their proposals, but they made important progress. And their conclusion is that the only way to tackle our deficit is to cut excessive spending wherever we find it – in domestic spending, defense spending, health care spending, and spending through tax breaks and loopholes.

This means further reducing health care costs, including programs like Medicare and Medicaid, which are the single biggest contributor to our long-term deficit. Health insurance reform will slow these rising costs, which is part of why nonpartisan economists have said that repealing the health care law would add a quarter of a trillion dollars to our deficit. Still, I’m willing to look at other ideas to bring down costs, including one that Republicans suggested last year: medical malpractice reform to rein in frivolous lawsuits.

To put us on solid ground, we should also find a bipartisan solution to strengthen Social Security for future generations. And we must do it without putting at risk current retirees, the most vulnerable, or people with disabilities; without slashing benefits for future generations; and without subjecting Americans’ guaranteed retirement income to the whims of the stock market.

Fixing Social Security is a trivial problem to solve: we've worked on it since Reagan was president: raise or eliminate the upper cut-off on income so that everyone including rich folks pay the FICA tax on their entire income. (Now, only poor and middle class people pay their share.)
And if we truly care about our deficit, we simply cannot afford a permanent extension of the tax cuts for the wealthiest 2% of Americans. Before we take money away from our schools, or scholarships away from our students, we should ask millionaires to give up their tax break.

It’s not a matter of punishing their success. It’s about promoting America’s success.

Let's remember that when we do this we are not increasing their taxes but simply restoring them to the level that they were under Ronald Reagan. With those taxes the millionaires were happy to invest and grow very much richer under Clinton. They didn't need the extra tax breaks that Bush gave them, and we should restore things to they way they were.
In fact, the best thing we could do on taxes for all Americans is to simplify the individual tax code. This will be a tough job, but members of both parties have expressed interest in doing this, and I am prepared to join them.

A lot of this talk about the complicated tax code is humbug, although many people feel uncomfortable with filling out the IRS forms. Politicians try to pander by demonizing the IRS, even though most folks have a pretty straightforward filing. A lot of the tax code is written to promote fairness -- e.g. various deductions for medical, mortgage and childcare expenses. If you benefit from these deductions, you certainly can't complain about the time you spend claiming them. Similarly, businesses are allowed to take all sorts of deductions which save them money; they likewise can't complain. If you want a very simple tax form and simple laws, then you have to agree to forgo specialized breaks to which you are now entitled.

Preventing big business and the wealthy from getting unfair or undeserved tax breaks is not the same as "simplifying the tax code," and it is dangerous to confuse the two.

Of course it is outrageous that lobbyists for the investment industry have convinced lawmakers that some ways of making money are more "valuable" than others and need to be encouraged by tax breaks -- sort of "social engineering via tax policy". The example that is most egregious is the capital gains tax, which enables quite a few people to pay a low tax rate  (15%) on some or all of their income simply because it is from investments. Firefighters, police, teachers, Warren Buffet's secretary, and even members of the military are apparently not as valuable as those who make money by having money. This arrogant claim is finally being aired publicly, and it is safe to say that most people -- even some investors -- are unhappy with this policy. Furthermore, as Warren Buffet has pointed out, it is unnecessary to encourage investment since people do it because they like to or are good at it -- after all, people don't become musicians or physicists because they get tax breaks.

.... (Some bombast eliminated)

Now, we have made great strides over the last two years in using technology and getting rid of waste. Veterans can now download their electronic medical records with a click of the mouse. We’re selling acres of federal office space that hasn’t been used in years, and we will cut through red tape to get rid of more. But we need to think bigger. In the coming months, my administration will develop a proposal to merge, consolidate, and reorganize the federal government in a way that best serves the goal of a more competitive America. I will submit that proposal to Congress for a vote – and we will push to get it passed.

.... (Some more bombast-trimming here.)

Look to Iraq, where nearly 100,000 of our brave men and women have left with their heads held high; where American combat patrols have ended; violence has come down; and a new government has been formed. This year, our civilians will forge a lasting partnership with the Iraqi people, while we finish the job of bringing our troops out of Iraq. America’s commitment has been kept; the Iraq War is coming to an end.

The timetable for leaving Iraq was, in fact, negotiated by then-president George Bush. It's nice that we are being congratulated for getting out of a war we never should have entered. Let's not forget that millions of people in the U.S. and millions more abroad, protested vigorously when it became clear that Bush intended to invade Iraq. It is even likely that a majority of Americans actually opposed our intervention. It was only after some American troops were killed that the usual jingoism of supporting our troops and high-held-heads took over and lead to the deaths of thousand more.

Of course, as we speak, al Qaeda and their affiliates continue to plan attacks against us. Thanks to our intelligence and law enforcement professionals, we are disrupting plots and securing our cities and skies. And as extremists try to inspire acts of violence within our borders, we are responding with the strength of our communities, with respect for the rule of law, and with the conviction that American Muslims are a part of our American family.

We have also taken the fight to al Qaeda and their allies abroad. In Afghanistan, our troops have taken Taliban strongholds and trained Afghan Security Forces. Our purpose is clear – by preventing the Taliban from reestablishing a stranglehold over the Afghan people, we will deny al Qaeda the safe-haven that served as a launching pad for 9/11.

Let's hope so, but it is unlikely.
(... more stuff deleted here)
In Pakistan, al Qaeda’s leadership is under more pressure than at any point since 2001. Their leaders and operatives are being removed from the battlefield. Their safe-havens are shrinking. And we have sent a message from the Afghan border to the Arabian Peninsula to all parts of the globe: we will not relent, we will not waver, and we will defeat you.

It is interesting the different ways Pakistan and Iran are referred to. Pakistan has nuclear weapons and has certainly been guilty of all sorts of coddling of both Al Qaeda and the Taliban. Yet this seems to produce nothing close to the bipartisan sabre-rattling that is directed against Iran (see below). Wouldn't it be wonderful if some intrepid reporter actually asked Obama and others why this is so -- and waited and followed up until there was an actual answer?
American leadership can also be seen in the effort to secure the worst weapons of war. Because Republicans and Democrats approved the New START Treaty, far fewer nuclear weapons and launchers will be deployed. Because we rallied the world, nuclear materials are being locked down on every continent so they never fall into the hands of terrorists.

Because of a diplomatic effort to insist that Iran meet its obligations, the Iranian government now faces tougher and tighter sanctions than ever before. And on the Korean peninsula, we stand with our ally South Korea, and insist that North Korea keeps its commitment to abandon nuclear weapons.

This is just a part of how we are shaping a world that favors peace and prosperity. With our European allies, we revitalized NATO, and increased our cooperation on everything from counter-terrorism to missile defense. We have reset our relationship with Russia, strengthened Asian alliances, and built new partnerships with nations like India. This March, I will travel to Brazil, Chile, and El Salvador to forge new alliances for progress in the Americas. Around the globe, we are standing with those who take responsibility – helping farmers grow more food; supporting doctors who care for the sick; and combating the corruption that can rot a society and rob people of opportunity.

Of course the Republican candidates in Florida are screaming about Cuba and Castro and Venezuela and Chavez; Obama chooses not to mention them here. His actual policy has been one of admirable restraint.

Recent events have shown us that what sets us apart must not just be our power – it must be the purpose behind it. In South Sudan – with our assistance – the people were finally able to vote for independence after years of war. Thousands lined up before dawn. People danced in the streets. One man who lost four of his brothers at war summed up the scene around him: “This was a battlefield for most of my life. Now we want to be free.”

We saw that same desire to be free in Tunisia, where the will of the people proved more powerful than the writ of a dictator. And tonight, let us be clear: the United States of America stands with the people of Tunisia, and supports the democratic aspirations of all people.

We must never forget that the things we’ve struggled for, and fought for, live in the hearts of people everywhere. And we must always remember that the Americans who have borne the greatest burden in this struggle are the men and women who serve our country.

The speech ends with the usual which you can read for yourself. As a State-of-the-Union address it wasn't bad. The economic news is largely mediocre so is largely omitted. In comparison with the idiocy of the Republican "debates" (which have largely not been debates about issues but about who is less like the fictional European-Socialist-who-hates-all-we-value-about-America and is also not white like the candidates) it is full of optimism, good will, and good sense. Roughly speaking, there is more of these qualities in Obama's little finger than in the entire B-Team of Republican contenders for his job.


  1. The average millionaire already has a much higher burden than "the rest of us". The top 1% in 2009 paid 24% of their AGI in taxes. The top 50% of the country paid 12%. Between 25 and 50%, the average person paid 5.5%.

  2. This is largely correct. We do have a progressive tax code, and rightfully so. But there is more to the story, which I will address in a blog soon. For the moment, compare the tax returns of two people: Newt Gingrich (wealthy, but most of his income from his businesses and lectures) and Mitt Romney (very wealthy, with almost all of his income from capital gains). Newt pays twice the tax rate that Mitt pays.

    Also, check out the graph of "effective tax rates" here:,-Gingrich,-Obama-Buffett-tax-rates

  3. So the top 1% pay 2-4x as much as everybody else, but they still aren't paying their fair share? Ridiculous.

    And what does Romney vs. Gingrich have to do with the rest of the real world? You do realize that Romney, as a business owner, pays the corporate tax rate of 35%, and then on top of that pays the capital gains rates on the distributions he takes out of the business. So he's actually paying a lot higher all-in rate than Newt. Same thing for Buffet.

    The reason why investment income is taxed at a lower rate than wages is because it is a double tax. Your investment is at-risk capital that only materializes if a fund invests wisely.

    I don't remember hearing about John and Teresa Heinz Kerry's effective rate being such a big issue in the 2004 campaign. But I guess President Obama would rather talk about Romney's success because he doesn't have much else to run on.