State of the Union Recap

Last night in his State of the Union address, President Obama hailed a new era of bipartisan cooperation, focusing on America's competitiveness to "win the future." He focused on the need to invest in innovation, education, infrastructure, as well as getting out from under our "mountain of debt." We released a statement last night giving our initial reaction to his proposals.

In his speech, the President offered a few specifics regarding reducing the deficit. He proposed a five-year freeze on non-security discretionary spending that he said would save $400 billion over 10 years. He also expressed the need to reform the tax system by eliminating many of the tax expenditures that complicate the system, which he said could be used to lower the corporate rate without adding to the deficit and simplify taxes for Americans [see our ideas for reforming tax expenditures here]. He stated he would veto any bill that came to his desk containing earmarks, and he called attention to finding additional ways to control health care costs. Finally, he advocated revamping federal agencies to make government more efficient.

These deficit reducing measures are a start, but much more will be required to address our fiscal problems. The President will have to be much more specific when he releases his FY 2012 budget recommendations the week of February 14. We've laid out what we would like to see in the President's budget here. We would like him to use the Fiscal Commission's recommendations as a starting point for the fiscal policy discussion. While he stopped short of that in the speech, he did call attention to the work the panel did. In discussing how cutting non-security discretionary spending will not be enough, he said:

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.

He also endorsed Defense Secretary Gates' spending cuts, acknowledging that defense will have to be on the table. Additionally, he touted the Republican-supported medical malpractice reform as a way to further reduce health care costs. As the President acknowledged, controlling health care costs will be critical to getting our fiscal house in order, see our ideas here.

The President also called for Social Security reform that shores up its long-term finances, though he offered little guidance on how it should be achieved. See our ideas here. He asked Republicans and Democrats to work together to find a long term solution, stating:

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.

The President also proposed an ambitious agenda to improve the long-term economic competitiveness of the U.S., though he did not explain how these investments would square with his other goal of reducing deficits and debt. Again, we will have to wait for the White House FY 2012 budget next month to see specifics. In the meantime, tell Washington your thoughts on our fiscal situation with CRFB's video contest.

Balancing an economic growth strategy with fiscal consolidation will be a critical test for the President and Congress. It will require bipartisan collaboration and an honest debate on our national priorities and fiscal outlook. Devise your own plan using CRFB's online debt simulator here.

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