Wonkbook: What the State of the Union won’t do

at 08:35 AM ET, 01/24/2012


U.S. President Barack Obama. (Andrew Harrer - BLOOMBERG)
Tonight, President Obama will answer the question that all of America is obsessed with: Is the state of our union strong? Weak? Confused? Lovelorn? Obsessed with vampire novels? All of the above?

Here's my guess: The state of our union is unlikely to be substantially affected by a speech. That's what history tells us, anyway. In 2010, Gallup went back and looked at post-SOTU polling for the last five presidents. Jimmy Carter's average bump was...negative one percent. Perhaps surprisingly, Ronald Reagan did no better. Nor did George W. Bush. George H.W. Bush, however, did worse -- he tended to lose four points in the polls when he delivered a State of the Union address. The only recent president who consistently benefited from the speech was Bill Clinton, who gained, on average, three points. "These speeches rarely affect a president's public standing in a meaningful way, despite the amount of attention they receive," concluded Gallup.

The real importance of the State of the Union is that it lays out the White House's agenda for the next year. But that matters more in years when the White House has some chance of passing its agenda through Congress than in years when it doesn't. Last year, for instance, Obama exhorted Americans to win the future by investing in scientific research, clean energy and infrastructure. But as Glenn Kessler details, Obama's proposals languished in the divided Congress. Instead, Congress spent much of its time almost letting the government shut down, almost defaulting on the national debt, and almost letting the payroll tax cut and unemployment insurance expire. Forget winning the future. In 2011, we almost lost the present.

Which isn't to say you can safely ignore tonight's speech. First, the Obama administration, mindful of the mess that Congress made in 2011, has been looking for areas in which they can maximize their executive authority. The recent recess appointments and government reorganization proposals are two examples of that campaign. More are likely to be unveiled in tonight's speech. Second, Obama is up for reelection this year -- perhaps you've heard? -- and tonight's speech is likely to offer the first widely watched instance of the president setting up the contrast between him and his opponents. Expect that part of the speech to borrow heavily from his address in Osawatomie, Kansas.

Top stories

1) Mitt Romney released two years of his tax returns, report Lori Montgomery, Jia Lynn Yang and Philip Rucker: "Mitt Romney offered a partial snapshot of his vast personal fortune late Monday, disclosing income of $21.7 million in 2010 and $20.9 million last year -- virtually all of it profits, dividends or interest from investments. None came from wages, the primary source of income for most Americans. Instead, Romney and his wife, Ann, collected millions in capital gains from a profusion of investments, as well as stock dividends and interest payments. The couple gave away $7 million in charitable contributions over the past two years, including at least $4.1 million to the Church of Jesus Christ of Latter-day Saints...The Romneys sent somewhat less to Washington over that period, paying an estimated $6.2 million in federal income taxes. According to his 2010 return, Romney paid about $3 million to the IRS, for an effective tax rate of 13.9 percent."

@amaeryllis: I just can't sleep, I'm too excited that my marginal tax rate is twice Mitt Romney's.

@petersuderman: NEWS: Mitt Romney is rich.

2) Republican candidates clashed during last night's debate, report Jeff Zeleny and Jim Rutenberg: "Mitt Romney leveled a searing attack against Newt Gingrich’s character and raised pointed questions about his ability to lead during a debate here Monday evening, taking urgent steps to slow Mr. Gingrich’s rising momentum in the fight for the Republican presidential nomination. For the first time, Mr. Gingrich strode onto the stage as an indisputable equal to Mr. Romney after dislodging him from his confident perch as the front-runner. Mr. Romney dug into his rival’s tenure as House speaker and the ensuing years, when he advised companies like the mortgage giant Freddie Mac, a period for which Mr. Romney branded him as 'an influence peddler in Washington.' Mr. Gingrich, who swept into Florida after a commanding victory in the South Carolina primary on Saturday, painted Mr. Romney’s attacks as desperate and riddled with inaccuracies. He embraced his confrontational style and defended himself forcefully, but his responses came without the bombast that has delighted crowds throughout the race."

@ezraklein: I'd be surprised if this debate substantially changed any dynamics in the campaign.

3) Gingrich’s contract with Freddie Mac was released, reports Dan Eggen: "GOP candidate Newt Gingrich, who has said he never lobbied on behalf of his consulting clients, reported to a top lobbyist with Freddie Mac as part of a $25,000-a-month contract, according to records released late Monday. The one-year contract overseen by Freddie Mac executive Craig Thomas represents only a portion of the former House speaker’s long relationship with the mortgage giant, which spanned eight years and resulted in at least $1.6 million in fees for Gingrich’s empire...The 15 pages of documents released late Monday consisted primarily of contractual boilerplate, along with signature pages laying out the $300,000 annual fee. The 'scope of services and fees' consists of a single paragraph with no details."

@lynnsweet: Just read Newt's Freddie Mac consulting contract: the real scandal is that the are no specific duties for that $25,000-per-month fee.

4) The Summers memo that framed early economic decisions for the Obama administration has been made public, reports Ryan Lizza: "Marked 'Sensitive and Confidential,' the document, which has never been made public, presents Obama with the scale of the crisis. 'The economic outlook is grim and deteriorating rapidly,' it said. The U.S. economy had lost two million jobs that year; without a government response, it would lose four million more in the next year. Unemployment would rise above nine per cent unless a significant stimulus plan was passed. The estimates were getting worse by the day...This document is the ur-text of economic policymaking for the Obama Administration. Given the importance of this issue for understanding the past few years, I’m making the full document available below...I hope it ignites a lively debate."

The memo shows where Obama's economic team went wrong, writes Ezra Klein: "The economic team clearly thought it was counseling the president to embrace a more aggressive response than anything that had previously been proposed. 'We have become convinced there there is a compelling case for a recovery package considerably larger than the $500 to $600 billion that we were originally contemplating,' the memo reads...But the team made two huge miscalculations -- one political, one economic. The political miscalculation was that 'it is easier to add down the road to insufficient fiscal stimulus than to subtract from excessive fiscal stimulus.' That was clearly untrue, and a direct violation of the earlier stated precept that 'it is better to err on the side of doing too much.' The economic miscalculation was that 'forecasters now expect output to contract at least a five percent annual rate in 2008 Q4.' In fact, the contraction in the fourth quarter of 2008 was 9 percent -- almost double what the forecasters anticipated."

5) A deal to provide mortgage relief is nearing completion, report Nelson Schwartz and Shaila Dewan: "About one million homeowners facing foreclosure could have their mortgage burden cut by about $20,000 each as part of a long-awaited deal taking shape among state attorneys general, federal officials and the nation’s largest mortgage servicers...The agreement could be worth about $25 billion, state and federal officials with knowledge of the negotiations said, with up to $17 billion of that used to reduce principal for homeowners facing foreclosure. Another portion would be set aside for homeowners who have been the victim of improper foreclosure practices, with about 750,000 families receiving about $1,800 each. But bank officials said Monday that the total amount of principal reduction and reimbursement would depend on how many states eventually sign on."

Top op-eds

1) Gingrich's big ideas are bad ones, writes Ezra Klein: "It’s not at all clear why we should care if our presidents are idea-obsessed. The idea that cancer is triggered, at least in part, by common viruses is very interesting, but I wouldn’t want the leader of the free world to spend too much time worrying about it. Same with the idea that William Shakespeare was a pen name for Sir Francis Bacon. Just as having a lot of pens doesn’t make you a great writer, having a lot of ideas doesn’t make you a great thinker. It is quality, not quantity, that should concern us. And the quality of Gingrich’s ideas is often concerning...At the core of Gingrich’s campaign is the most regressive, fiscally irresponsible tax cut proposed by any Republican candidate. And yet he gets to wander around telling people how much more intellectual and substantive he is than his competitors...Being interested in ideas might be a virtue. Being interested mainly in bad ideas isn’t. And too often, bad ideas seem to catch Gingrich’s fancy."

@badler: Unfair that Romney's taking all this fire over his taxes when Gingrich's tax plan would favor people like Romney more than his would.

2) Private equity firms should not get preferential tax treatment, writes James Surowiecki: "At this point, the people who run America’s private-equity funds must be ruing the day Mitt Romney decided to run for President. His fellow Republican candidates, of all people, have painted a vivid picture of private-equity firms--including Bain Capital, where he worked for fifteen years--as job-destroying vultures, who scavenge the meat from American companies and leave their carcasses by the side of the road...If private-equity firms are as good at remaking companies as they claim, they don’t need tax loopholes to make money. If we capped the deductibility of corporate debt, and closed the carried-interest loophole, it would not prevent private-equity firms from buying companies or improving corporate performance. But it would reduce the incentives for financial gimmickry and save taxpayers billions every year. Private-equity firms are excellent at gaming the rules. Time to change them."

@jbarro: Newt: "Mitt, you deserve a huge tax cut." Mitt: "No, very generous of you, but no."

3) Obama's critics are right, writes David Frum: "You don’t have to vilify President Obama as a Kenyan socialist to recognize that his policies are reorienting the country toward more dependence on the federal government. Through most of the past half century, the federal government has spent about one dollar in five of national income. Right now, it’s spending about one in four. If Barack Obama is reelected and his policies are continued, that one-dollar-in-four ratio will harden into permanent reality, on the way to one dollar in three, with state and local spending on top of that...There is much to admire in Barack Obama the man. But his presidency, especially on the domestic front, has been a bitter disappointment to almost everybody--perhaps above all to those who most desperately needed help from the government he led. It’s time for a new way forward."

4) Restoring America's economic dynamism will require a mix of ideas, writes David Brooks: "If President Obama is really serious about restoring American economic dynamism, he needs an aggressive two-pronged approach: More economic freedom combined with more social structure; more competition combined with more support. As a survey of nearly 10,000 Harvard Business School grads by Michael Porter and Jan Rivkin makes clear, to get companies to locate their plants in the U.S., Obama is going to have to simplify the tax code, cut corporate rates, streamline regulations, make immigration policy more flexible and balance the budget over the long term. To ensure there’s skilled labor for those plants, Obama would have to champion different policies: successful training programs like Job Corps, better coordination between colleges and employers, better treatment for superstar teachers, more child care options and better early childhood education."

5) Economic uncertainty shouldn't excuse inaction, writes Lawrence Summers: "The combination of low real interest rates and low ratios of asset values to cash flows suggests an abnormally high degree of fear about the future. This idea is supported by the recent strengthening in the association between higher interest rates and a stronger stock market...Uncertainty about future growth prospects also correlates with other observations, such as the abnormally large amount of cash sitting on corporate balance sheets, the reluctance of companies to hire, and consumers’ hesitancy about big discretionary purchases of durable goods despite near-record lows in borrowing costs and low capital goods prices. All of this suggests that for the industrial world as a whole, the priority for governments must be to engender confidence that the recovery will accelerate in the US and that the downturn in Europe will be limited."

Indie pop interlude: Cults play "Abducted" on Late Night with Jimmy Fallon.

Got tips, additions, or comments? E-mail me.

Still to come: Obama is pushing back the release of his budget; the IPAB is safe for now; right to work moves forward in Indiana; autonomous cars face hurdles; and a cat takes in the view.

Economy

@mattyglesias: Alternate 2009: Obama nationalizes insolvent banks and appoints turnaround specialist Mitt Romney to reorganize them.

Obama is delaying the release of his 2013 budget, reports Erik Wasson: "President Obama will release his 2013 budget one week late, an administration official said Monday, the third time the administration has missed the legal deadline. Under the law, the budget is to be released on the first Monday in February, but the Office of Management and Budget (OMB) will be releasing the 2013 budget on Feb. 13...The release of the president's budget is the first step in the spending cycle for the federal government. Obama is expected to call for $1.2 trillion in automatic discretionary spending cuts, which were triggered by the failure of the congressional deficit supercommittee, to be replaced with other mandatory program cuts and tax increases. The proposals will be grounded in September recommendations the president made to the supercommittee."

Euro zone leaders are pressing Greece's creditors to accept additional losses, report Charles Forelle and Costas Paris: "Germany and the International Monetary Fund pressed their case at a meeting of euro-zone finance ministers Monday that Greece's private-sector creditors should agree to receive average interest rates of less than 4% in the planned restructuring of Greek debt, deepening a standoff that has delayed the time-sensitive talks. Creditors have pushed for a coupon above 4%...The IMF voiced concerns Monday that the deal being discussed by Greece and the creditors would leave the country with a higher-than-expected debt burden in the years ahead, people familiar with the matter said. That sets up a difficult choice: Press bondholders to accept more losses, or accept that Greece's peers and the IMF will have to kick in more support."

Longform interlude: Luc Sante on Patti Smith.

Health Care

@aaronecarroll: Nice to see that Newt is proud of the on of the greatest unfunded expansions of government into healthcare ever. Just saying.

The IPAB looks safe -- for now, reports Joanne Kenen: "Chances are the Republicans -- and a not-insignificant number of House Democratic allies -- won’t be able to kill the Independent Payment Advisory Board this year. But for another year or two, at least, politicians don’t have to lift a finger to block the Medicare cost-control agency from doing anything. For another year or two, it doesn’t have much to do. Or anyone to do it. For now, Medicare spending is actually in check -- far from the runaway train the Medicare board’s creators had worried about. Its recent growth rate, 5 percent in 2010, puts it on a trajectory much milder than experts had expected. That means the health program for the elderly is likely to meet its first fiscal target without any help from the yet-to-be appointed independent board of experts. The later years, of course, are less predictable and depend on the economy, the impact of the health care reform law and the inclinations of future Congresses. But in the short term, IPAB’s start date may not matter that much."

Many states are making little progress on health reform implementation, reports Sam Baker: "A new report from independent researchers could undercut the Obama administration's claims that most states are implementing the new healthcare reform law. The Robert Wood Johnson Foundation and the Urban Institute said Monday that 15 states have made 'little or no progress' implementing a key piece of the new law -- an insurance exchange where individuals and small businesses can buy private insurance. The White House released its own report last week saying 28 states are working toward a state-based exchange. Along with states accepting grants for programs like the review of insurance rates, the figures show that 'all States have taken some action to implement health reform,' the White House said. But the Urban Institute analysis released Monday isn't as upbeat. It says there are major discrepancies in how much progress states have made, and that the most resistant states have the most to lose."

SLIDESHOW: How Roe v. Wade changed abortion rights.

Domestic Policy

Right to work cleared the Indiana Senate, report Mary Beth Schneider and Chris Sikich: "House Democrats remained behind closed doors late Monday, angry that they were blocked from offering more amendments to the controversial 'right to work' bill. This latest breakdown in the House came shortly after the Senate voted 28-22 for its version of the bill, Senate Bill 269...The Republicans who control the legislature had hoped to have the House version of the bill pass and send it to the Senate where it could pass it without amendments, sending it to Gov. Mitch Daniels to be signed in to law. That plan, though, may now be in doubt. Still, today’s vote in the Senate left little doubt that Indiana is headed to being the 23rd state to enact 'right to work' laws, and the first since Oklahoma in 2001."

Adorable animals being adorable interlude: A cat enjoys the view.

Energy

Obama will push for domestic energy production in the State of the Union, report Deborah Solomon and Laura Meckler: "President Barack Obama will use his State of the Union speech on Tuesday to call for an increase in domestic energy production, said people familiar with the plans. Mr. Obama is expected to tout the economic and energy security benefits of increased U.S. oil and gas production, a message unlikely to sit well with some of the President's environmental supporters but which could blunt industry and Republican criticism of his energy policies. Mr. Obama's speech is expected to call for increased oil and gas production and highlight a drop in U.S. oil imports, although some of that decrease stems from reduced demand amid a weak economy. One idea discussed and later dropped was to set a natural gas production goal, those people said. A decision was made not to include the goal in the speech, an administration official said."

Autonomous cars face legal hurdles, reports John Markoff: "Even as Google tests its small fleet of self-driving vehicles on California highways, legal scholars and government officials are warning that society has only begun wrestling with the changes that would be required in a system created a century ago to meet the challenge of horseless carriages...As Google has demonstrated, computerized systems that replace human drivers are now largely workable and could greatly limit human error, which causes most of the 33,000 deaths and 1.2 million injuries that now occur each year on the nation’s roads. Such vehicles also hold the potential for greater fuel efficiency and lower emissions -- and, more broadly, for restoring the United States’ primacy in the global automobile industry. But questions of legal liability, privacy and insurance regulation have yet to be addressed, and an array of speakers suggested that such challenges might pose far more problems than the technological ones."

The outlook for the coal industry is grim, reports Kris Maher: "This year's outlook is grim for the U.S coal industry, which after two years of rising profits has begun closing mines, signaling a new wave of production cutbacks and, possibly, another round of industry consolidation. The country's biggest coal producers, which begin reporting fourth-quarter results on Tuesday with St. Louis-based Peabody Energy Corp., should provide insight into how bad this year could be. Most should meet Wall Street's earnings expectations for the last quarter of 2011 on export gains over a year ago, while tempering investor expectations for 2012, say analysts. The two biggest threats facing U.S. coal companies are the low price of domestic natural gas, which is making thermal coal a less-attractive fuel for their utility-customers, and the shaky economic picture in Europe, which is damping exports of metallurgical coal."

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.

 
Read what others are saying

    Most Read: Business

    DJIA
    2.43%
    NASDAQ
    2.24%
     Last Update: 4:15 PM 12/18/2014(NASDAQ&DJIA) |

    World Markets from      

     

    Other Market Data from      

     

    Key Rates from