State of the Union 2013: Right Direction, Wrong Speed

By / 2.13.2013

President Obama got off on the right foot in last night’s State of the Union address by putting America’s economic revival at the center of his second-term agenda. That was reassuring, since his second inaugural strangely neglected this crucial subject.

There’s no more urgent national challenge than building new economic foundations for shared prosperity. More than anything else, what happens to the U.S. economy over the next four years will decisively shape history’s judgment of Barack Obama’s presidency.

Last night, the president certainly got the goal right. But it’s fair to ask whether the modest means he proposed are adequate to the task.

On the plus side, the president’s endorsement of corporate tax reform was welcome. Eliminating tax loopholes and subsidies will make for better investment decisions, and bringing down the corporate rate will make doing business in the United States more attractive. We also need to overhaul a worldwide tax system that encourages companies to offshore activities and leaves profits stranded abroad.

President Obama argued persuasively that growth requires new public investments in infrastructure, education and career training, as well as “a level of research and development not seen since the height of the Space Race.” He promised to complete negotiations on the Trans-Pacific Partnership, and launch talks with Europe on a new Transatlantic Trade and Investment Partnership. These trade-liberalizing pacts could give a strong boost to U.S. exports. Obama also offered useful if small-bore ideas for reinforcing positive trends in the manufacturing and housing sectors.

On the minus side, the president offered no clear framework for tax reform. Outsourcing that job entirely to a House and Senate deadlocked along partisan lines doesn’t seem like a promising way to get results. What’s more, with Republicans balking at raising more tax revenue for deficit reduction, the allure of lowering rates through tax reform may be the only way to entice them back to the fiscal negotiating table. Lawmakers aren’t likely to make progress on either front if the White House stands aloof and in effect says: “You guys figure this out.”

Republicans were quick to note that Obama did not say how we would pay for new public investments, and infrastructure geeks like me were disappointed that he didn’t reiterate his call for a National Infrastructure Bank-although he did propose a new “Partnership to Rebuild America” to attract private capital. Maybe this is merely a rebranded bank, but whatever you call it, the new entity needs real project finance expertise to assure private investors that projects will be chosen on the basis of economics, not politics.

Finally, the president offered few ideas for breaking the impasse over energy policy and climate change. He rightly demanded action on climate change, but didn’t have much to offer conservative skeptics in return. He didn’t mention the XL pipeline project, the fate of which he is supposed to decide soon. He also skipped lightly over America’s remarkable shale gas and oil boom, which has turned old assumptions about energy scarcity on their head, and which already is proving to be a boon for the U.S. economy. The president evidently wants to see progress on clean energy and climate change strictly on his own terms, but that’s not how divided government works.

In kicking off his second term, President Obama has put the right issue front and center. But it will take bolder ideas than he proposed last night to get America out of its slow-growth run and back onto a high-growth path.