The World Is Flat . . . and So Is This SOTU Speech

by Douglas Holtz-Eakin

For the record, I’m a dedicated tax junkie and former editor of the National Tax Journal. But something is wrong when one of the biggest applause lines in a State of the Union address is a call for revenue-neutral corporate tax reform.

Perhaps it was a reflection of the bipartisan seating pattern, which may have stopped waves of partisan applause from building. But I think it was more a reflection of the oddly schizophrenic character of the speech.

Leading up to the president’s speech I thought that there were three possible avenues he could take. He could deliver a “vision speech” that aggressively articulated a vision for addressing America’s vulnerabilities — inadequate job growth and dangerous debt projections driven by burgeoning spending, and the foreign-policy weakness stemming from these — and the policy solutions consistent with that vision. Put differently, he could have chosen to breathe a vision into the budgetary frameworks laid out by his own fiscal commission. Objectively, this would have been a big-risk/big-return speech depending on whether his vision was widely applauded.

Paul Ryan gave that speech. Three cheers.

Alternatively, he could have done a roundup of the past year’s accomplishments, “checked the box” with various political constituencies, listed progressives’ legislative priorities for the next year, and committed his efforts to meeting those goals. This would have had a different big return (from the progressive base) and a different big risk (convincing Americans he’s out of touch with their hopes and concerns).

Instead, we got mostly a series of broad, sweeping vision statements followed by narrow, more-of-the-same policy prescriptions. Take for example innovation. The president praised the government’s widely recognized role in funding basic research. But in the next paragraph, he switched to “research and development” (not the same) and targeted on vague progressive agenda items like clean energy, information technology, and biomedical research. Why those, when the president acknowledged that “none of us can predict … what the next big industry will be”?

Why should 80 percent of electricity come from “clean energy”? How do we get there? Why should 80 percent of Americans have access to high-speed rail? These are proposals, but not a vision of any sort.

On the biggest item on the domestic policy agenda — controlling debt — the president promised a five-year freeze on non-security spending. Super underwhelming.

First, the out-year freezes really don’t have any bite unless he commits to discretionary spending caps, which he has not. Second, the “freeze” bakes into the cake the elevated spending since 2008. A more defensible freeze would acknowledge Republicans’ desires to get back to business-as-usual funding and then freeze spending. Finally, this is a tiny part of the problem. If he is unwilling to actually cut here, where is the seriousness on the budget problem in general?

So I got really excited at the big moment teeing up his entitlement reforms: “Now, most of the cuts and savings I’ve proposed only address annual domestic spending, which represents a little more than 12 percent of our budget. To make further progress, we have to stop pretending that cutting this kind of spending alone will be enough. It won’t.”

And then … nothing.

To be fair, most of these addresses disappoint. And there were nuggets of promise in the emphasis on education, and the acknowledgment that corporate profits are not a bad thing and that corporate tax reform is desirable. But there was little in specifics and it was countered by the pro forma attacks on oil companies and banks, and the stone-walling of fixing the health-care mistake.

In the end, this speech did little to change the landscape.