Welcome to Wonkblog's footnoting of President Obama's fourth State of the Union address. Think of this as real time context and analysis for the various facts and figures that will come up in tonight's address. Stay here for live updates! Some related reading: the state of the union in graphs, what political science says about the annual speech and how the length of the address keeps on growing.
President Obama forcefully called for a vote on gun control legislation, invoking those killed by gun violence in Newton, Conn. and Aurora, Colo.
Will it happen? House Democrats introduced gun control legislation last week, but Republican leadership says they want the Senate to act first. Sen. Diane Feinstein (D-Calif.) introduced in late January a bill that would reinstate the the assault weapons ban that passed in 1994. Observers say it does have the votes to pass the Senate.
From the annals of thrilling voting news, here's Obama: "I’m announcing a non-partisan commission to improve the voting experience in America."
When I talked to various voting experts back in November, shortly after the election, here are a couple ideas they kicked around for shortening those interminable lines: 1) Modernize voter registration. 2) Make sure local jurisdictions keep their polling stations well-equipped. 3) The Senate could actually confirm nominees to head up the Election Assistance Commission. 4) Expand early voting. 5) When all else fails, declare some states an election disaster area.
No doubt the commission will come up with more--though that fifth one seems awfully toxic.
Obama's speech included a big shout-out to renewable energy sources like wind and solar. And he even has a proposal for them.
From the White House fact sheet: "To once again double generation from wind, solar, and geothermal sources by 2020, the President has called on Congress to make the renewable energy Production Tax Credit permanent and refundable, as part of comprehensive corporate tax reform, providing incentives and certainty for investments in new clean energy."
This tax credit is currently set to expire at the end of 2013, so Obama's proposal would certainly be a big boon for renewable energy. But not all clean-energy advocates think that these subsidies should be permanent. Last year, a report by Brookings and the Breakthrough Institute argued that these subsidies should phase out over time, in order to drive technological improvements in wind and solar.
“The goal shouldn’t be to simply subsidize industries endlessly,” report co-author Jesse Jenkins told me earlier last year. “It should be to improve innovation so that the subsidies can phase out over time.” That means investing in more R&D and rewarding technological improvements.
Forget the economic debate about whether the minimum wage destroys jobs. Does it actually improve the plight of the worst off, at a reasonable price? Depends on your definitions, but economist Adam Ozimek makes a smart point. According to a 2007 study by the CBO, an increase in the minimum wage to $7.25, like that eventually passed that year, would increase wages by $11 billion, of which $1.6 billion went to poor families. By contrast, increasing the Earned Income Tax Credit for large families (as happened in the stimulus bill) and for single people would cost $2.4 billion, of which $1.4 billion would go to poor families. The EITC option costs one fifth as much to society but does about as much good for poor families. That suggests that if you want to help families escape poverty, wage subsidies are a more cost-effective option than the minimum wage.
Here's a map of state minimum wages:
Obama's proposed minimum wage of $9.00 per hour would be higher than every state's save for Washington's, which sits at $9.19 per hour. But the new federal wage would also be indexed to inflation, so it would go up every year.
President Obama wants to raise the minimum wage to $9, up from from $7.25. The White House argues in its fact sheet that this would "restroe the inflation-adjusted value of the minimum wage back to where it was in 1981." So what did the minimum wage look like back in 1981? Here's a chart from Bloomberg that looks at the minimum wage - both inflation adjusted and nominal - over time. In 1981, it was significantly higher than where it was today - although lower than the level from the late 1960s.
Obama boasted of how his administration has ramped up border security, "putting more boots on the southern border than at any time in our history,
He's right that there's been a historic increase in the number of border agents, with border crossing hitting a 40-year low last year, as the American Immigration Lawyers Association points out in a new report. However, it's far from clear that our border is more secure, as the government only has a limited ability to measure success. And the number of arrests on the border has recently been on the rise.
Tonight President Obama attacked Congress for failing to pass most of his American Jobs Act. What did they pass?
Not much. The bill cost a total of $447 billion. Of that, $245 billion went to halving the payroll tax for employers and eliminating it for new hires and pay increases, $50 billion went to infrastructure investments, $35 billion to hiring teachers, firefighters, and police and preventing layoffs, and $30 billion to rebuilding schools. The rest went to a variety of projects, including an infrastructure bank and aid to veterans.
So what passed? Well, the payroll tax holiday continued in 2012, but it was about half the size of the cut Obama proposed. Breakaway bills including funding for infrastructure, teacher and police hiring, and schools failed to break filibusters in the Senate. The only things to pass were a program to help veterans get hired, a law instructing the SEC to ease regulations on venture capital and angel investment firms that use Kickstarter-like "crowd funding" to help startups raise money, and a bill repealing a 3 percent withholding requirement to applied to certain health sector businesses. Calling that "scraps" would be generous. So Obama is generally correct that, good policy or not, the American Jobs Act was not enacted in any great measure.
Obama set some big goals on energy efficiency in his speech: "I’m also issuing a new goal for America: let’s cut in half the energy wasted by our homes and businesses over the next twenty years."
That sounds ambitious. Is this even possible? Efficiency geeks certainly think so. Here's one plan from the Alliance to Save Energy to double the "energy productivity" of the U.S. economy by 2030. It involves revamping various regulations and educating consumers on the benefits of efficiency.
From ASE's report: "The U.S. can double its energy productivity by 2030 using cost-effective technologies and practices. ... To achieve this goal and its benefits, some public-private partnerships, and targeted government investments will be needed, and some rules will need to be reformed and strengthened."
President Obama explicitly called for a free trade zone with the European Union, advancing an idea that would more deeply entwine the world's two largest economies. The advocacy of a trade deal with the EU, combined with continued negotiations over a "Trans-Pacific Partnership" that would liberalize trade with the likes of Indonesia, Australia, and Chile, is rooted in two things.
First, the Obama administration has moved on from the failed Doha trade talks of 2001, which aimed to establish a worldwide system of freer trade that included major emerging nations like India and China, but for which global consensus could not be achieve.
It also reflects the administration's desire to deepen ties with nations other than China. In the Pacific, that means deeper ties with other Asian regional rivals of the world's most populous nation; with Europe that means deeper economic connections between the major Western powers. Senior administration officials hope to have a Europe deal in place by the end of Obama's term.
He may face Congressional obstacles, though. As Howard Schneider reports, key senate leaders want to see clear evidence that U.S. businesses will benefit from any deal before signing off on it.
I urge this Congress to pursue a bipartisan, market-based solution to climate change, like the one John McCain and Joe Lieberman worked on together a few years ago. But if Congress won’t act soon to protect future generations, I will. I will direct my Cabinet to come up with executive actions we can take, now and in the future, to reduce pollution, prepare our communities for the consequences of climate change, and speed the transition to more sustainable sources of energy.
So what can Obama technically do? I outlined a few possibilities in this post. For instance: 1) Use the EPA to reduce carbon emissions from power plants; 2) Use the EPA to crack down on methane leaks from natural-gas infrastructure; 3) Order government agencies to take the long view on climate change.
Technically, the Obama administration could circumvent Congress with all these moves. But he might also incur a political backlash, particularly in the Republican House.
The president argued for new legislation that would make it easier for people to refinance their mortgages to take advantage of low interest rates. This is a reflection of one of the hangups in the banking system that has prevented low-interest rate policies out of the Federal Reserve from having their desired effect of boosting economic growth.
With mortgage lending standards tight, it has been hard for people with weak credit or who do not have enough equity in their homes to refinance, even when they could lower their payments considerably by doing so. Efforts to fix that by regulatory fiat, by changing rules by the Federal Housing Finance Agency, have made little progress. So now Obama is asking Congress to make changes to rules governing mortgage finance companies Fannie Mae and Freddie Mac to make it possible.
“Too many families who have never missed a payment and want to refinance are being told no,” Obama said. “That’s holding our entire economy back, and we need to fix it. Right now, there’s a bill in this Congress that would give every responsible homeowner in America the chance to save $3,000 a year by refinancing at today’s rates. Democrats and Republicans have supported it before. What are we waiting for? Take a vote, and send me that bill.”
President Obama took aim at the sequester very early in the speech:
In 2011, Congress passed a law saying that if both parties couldn’t agree on a plan to reach our deficit goal, about a trillion dollars’ worth of budget cuts would automatically go into effect this year. These sudden, harsh, arbitrary cuts would jeopardize our military readiness. They’d devastate priorities like education, energy, and medical research. They would certainly slow our recovery, and cost us hundreds of thousands of jobs. That’s why Democrats, Republicans, business leaders, and economists have already said that these cuts, known here in Washington as “the sequester,” are a really bad idea.
But let's get specific. Here's the OMB's report on exactly how and where the sequester would fall. Here's a White House blog post that tries to make the possible cuts a bit more vivid. Here's Brad Plumer's rundown of the sequester replacements proposed by the White House, the House Republicans, and the House Democrats.
A proposal from Obama's speech: "So tonight, I’m announcing the launch of three more of these manufacturing hubs, where businesses will partner with the Departments of Defense and Energy to turn regions left behind by globalization into global centers of high-tech jobs."
This idea didn't just come out of nowhere. An earlier version of this proposal was outlined by the Brookings Institution's Mark Muro. Here he outlines the logic behind the idea. There's a lot of synergy talk, although it's backed by a bunch of research:
Innovation and its deployment does not happen just anywhere. It happens in places, most notably, within metropolitan regions, where firms and workers tend to cluster in close geographic proximity, whether to tap local supplier networks, draw on local workers, or profit from formal and informal knowledge transfer.
If properly channeled, these “co-location synergies,” as economist Greg Tassey has dubbed them, will ensure that value added through innovation spreads through and remains within the domestic manufacturing supply chain. Nor is this only a “soft” benefit. Such local synergies—accumulated region by region—can foster greater efficiency within and across manufacturing supply chains and add to the nation’s overall competiveness.
Tonight, President Obama proposed raising the federal minimum wage from $7.25 to $9 an hour, a nearly 25 percent increase. Critics argue that the minimum wage is inferior policy to wage subsidies like the Earned Income Tax Credit, as it artificially increases the price of labor above the market rate. In theory, that should reduce employment. In practice, that's not so clear. Among econometricians, the debate on this topic was kicked off by work done by Berkeley's David Card and Princeton's Alan Krueger, who, perhaps not coincidentally, is currently the head of Obama's Council of Economic Advisers. Card and Krueger studied employment changes following minimum wage increases, notably a 1992 increase in New Jersey and a 1988 increase in California, and found no evidence that they caused a fall in employment, if you compare trends to areas that did not see increases.
That finding, which flagrantly contradicts Econ 101, caused a firestorm so large that Card has stated it "cost me a lot of friends." UC Irvine's David Neumark and the Fed's William Wauscher conducted a literature reviewA in 2007 that found a majority of studies found negative effects on employment — that is, a higher minimum wage meant fewer jobs. They found this was particularly true among low-skilled workers. A more recent study from economists at the London School of Economics and the central bank of Turkey found higher minimum wages increased unemployment. But that finding is far from unanimous, with Berkeley's Laura Giuliano finding no statistically significant effects on employment, and Arindrajit Dube of the University of Massachusetts finding no effects as well. So, if you believe one set of literature, Obama's plan will increase wages without reducing employment. But many labor economists think the plan has real costs.
"Already," President Obama said, "T
Here's what we know for sure: Health care costs have grown more slowly for the past three years than at any point in the past five decades. You can see that in this chart, which shows health care costs growing at the same rate as the rest of the economy since 2009. That's not normal!
President Obama says that, on Medicare, he is "prepared to enact reforms that will achieve the same amount of health care savings by the beginning of the next decade as the reforms proposed by the bipartisan Simpson-Bowles commission."
The Simpson-Bowles commission came up with $480 billion health care cuts in its final proposal (these were across all health spending areas, not just Medicare). President Obama proposed $360 billion in health savings in his most recent budget, with the majority of those drawn from the Medicare program.
How could the President get up to $480 billion in Medicare savings? The Kaiser Family Foundation has a few ideas: It recently put out a compendium of 150 Medicare savings proposals that would cut, in total, $9.4 trillion from the program.
The president says that we've accomplished more than $2.5 trillion in deficit reduction over the last few years, mostly through spending cuts, putting us well on our way "towards the goal of $4 trillion in deficit reduction that economists say we need to stabilize our finances."
That's very close to the Center on Budget and Policy Priorities' own estimates, calculating that Congress and the White House have passed $2.35 trillion in deficit reduction since the beginning of fiscal year 2011, only a bit more than $600 billion of which came from the fiscal cliff deal's new tax revenues.
However, there isn't complete consensus that we need $4 trillion in total deficit reduction, as Obama states. That would stabilize the debt-to-GDP ratio to about 73 percent over the next 10 years, according to the CBPP. But the Peterson Foundation points out that the deficit would rise sharply in the longer term— approaching a 200 percent debt-to-GDP ratio by 2040—if $4 trillion is the ultimate deficit reduction target.
Tonight, Obama will say: "Study after study shows that the sooner a child begins learning, the better he or she does down the road…Every dollar we invest in high-quality early education can save more than seven dollars later on – by boosting graduation rates, reducing teen pregnancy, even reducing violent crime." Is that true?
If anything, it's a lowball figure. The studies that advocates of early childhood education point to most frequently are the Perry Preschool Project and the Carolina Abecedarian Project. Those were two randomized trial, conducted in 1960s Michigan and 1970s North Carolina, respectively. Both found huge economic and social gains to high-quality preschool. The upfront costs of each were relatively high, with Perry costing about $18,000 a year initially, but the return on investment was, as Obama says, enormous. Nobel laureate James Heckman, who has studied the Perry project extensively, estimates that the annual return on investment to the program was 7 to 10 percent, with economic benefits to society — including things like lower incarceration rates, fewer teen pregnancies, and so forth — outweighing costs by something like an 100 to 1 ratio by age 65. Abecedarian was similarly encouraging, with 36 percent of recipients of early childhood ed going to college, compared to 14 percent of non-participants. Head Start, our flagship program for poor Americans, gets lower marks but still has been shown effective in most research.
Currently, the early childhood education system is a patchwork of state programs like those in Georgia and Oklahoma, subsidies like the Child Care and Development Block Grant program and the Child and Dependent Care Tax Credit. The latter two don't even specifically promote education so much as child care, which can be enriching or completely non-educational. The administration is still a little foggy on how they'd change that, but the research suggests there are few better ideas in the realm of domestic policy.