Coming during an election year, President Obama’s State of the Union address was supposed to be a kinetic affair, the opening salvo in Obama’s battle to retain the White House. While making the case for his reelection, the president was expected to offer a bold political vision for leading the country. But the remarks he offered last night were surprisingly tame, an aimless blend of populist gimmicks, class warfare, and outright contradictions that made the soaring oratory of Obama’s 2008 election seem like a distant memory.
Rather than the politics of renewal, Obama dealt in the politics of envy. At the heart of his speech was the theme of economic unfairness. As the president told it, the rich are not paying their fair share. The result is a “country where a shrinking number of people do really well, while a growing number of Americans barely get by.” The claim came courtesy of billionaire investor Warren Buffet, who has repeatedly bemoaned the fact that he pays a lower tax rate than his personal secretary. But what might have been simply a tendentious talking point has apparently become the heart of Obama’s reelection campaign, as the president paid symbolic debt to Buffet by seating his secretary, Debbie Bosanek, in the gallery with First Lady Michelle Obama. That set the stage for Obama to voice his support for the so-called “Buffet rule,” which would require Americans making over $1 million a year to pay a minimum tax of 30 percent.
The idea that secretaries are paying more in taxes than their billionaire bosses is certainly sensational. It’s also, for the most part, false. Under America’s progressive tax structure, the overwhelming majority of high-income earners pay the top rate of 35 percent. True, there are some minor exceptions, such as the case of Buffet. Not unlike Mitt Romney, most of Buffet’s income comes from investments like capital gains and dividends, which are taxed at 15 percent. That might seem to be a lower rate that Buffet’s secretary pays. In reality, however, most investment income is taxed twice. For most high-earners, the 15 percent capital gains tax on investments comes in addition to a corporate tax rate of 35 percent. Altogether, the effective tax rate for investment income in America is a sizeable 44.75 percent. Given that low-income earners pay little to nothing in taxes, it should come as no surprise that, according to the Tax Policy Center, a full 60 percent of Americans pay a lower effective rate than Buffett does. That includes most secretaries.
Obama did his best to distort that reality. He insisted, for instance, that he was simply asking a “billionaire to pay at least as much as his secretary in taxes,” which he called “common sense.” A better description might be “extremely misleading.” Quite apart from the fact that tax rates for the rich are not as low as the president suggests, it’s ludicrous to claim that billionaires are not paying as much in total taxes as their secretaries. Not even Warren Buffet has suggested anything of the sort. It is surely a sign of the shallowness of the president’s domestic policy agenda that he sees stoking class resentment as his best appeal to American voters.
And not just class resentment. When not assailing the rich, Obama lashed out at America’s global competitors, most notably China. His affirmations of American greatness were interspersed with crude protectionism that left one to wonder whether he truly believed in America’s ability to succeed in the free market. Thus he announced the creation of a Trade Enforcement Unit to monitor Chinese goods entering the United States, applauded his administration for slapping a tariff on Chinese tires, and condemned companies for outsourcing jobs. To be sure, that rant did not prevent Obama from calling for the emergence of “the next Steve Jobs.” That would be the same Steve Jobs whose Apple has long outsourced jobs to China.
Such cognitive dissonance pervaded the president’s address. For instance, he claimed that “my education reform offers more competition, and more control for schools and States,” this even as his administration ended Washington D.C.’s highly successful school voucher program. Elsewhere he touted the promise of “American-made energy” and “American oil production,” without bothering to explain why his administration just last week blocked the Keystone oil pipeline from proceeding. Most jarring to the ear was Obama’s defiant exclamation of “No bailouts, no handouts, and no cop-outs.” It was catchy line, save for the fact that it was spoken by the president who extended the bailouts for banks and auto manufacturers, who signed into law a $787 billion stimulus package, and whose budgets have repeatedly included increases in welfare spending – including a 2011 budget request that would have increased welfare spending by 42 percent since 2008. It’s no wonder that Newt Gingrich has gotten applause lines by dubbing Obama the “Food Stamp President.” Based on Obama’s record, it’s true.
Partly due to the substantive shortcomings of the president’s remarks and partly due to the weakness of the current field of Republican presidential hopefuls, the most compelling part of the president’s address came just after it, when Indiana Gov. Mitch Daniels delivered the Republican response. Striking a contrast with Obama’s class warfare themes, Daniels laid out a vision of real renewal, one where society was divided not into “haves and have nots” but into “haves and soon-to-haves.” To that end, Daniels endorsed the entrepreneurial spirit to achieve what government policies have not, while also calling for meaningful entitlement reform to restore the country’s financial footing. It may have been President Obama who declared that “America is back.” But it was Gov. Daniels who offered a credible vision to make that something more than another empty promise.