The Economic State of the Union

It’s no picnic for a president to present the State of the Union address when the economy is teetering on recession. In normal economic times, standard procedure is to tout the great economy and his role in its success. Though Bush can spin the economy with the best of them, even he, to his credit, didn’t do much of that last night (there was, of course, some spin, exposed below).

Early on, he cited wage stagnation, slowing job growth, and "concern about our economic future" taking place "at kitchen tables across our country." These were all presented in gilded phrases ("Wages are up, but so are prices for food and gas," which is one way to say real wages are down; they fell about 1 percent for most workers last year). But for once, Bush recognized that the extent of economic anxiety among American families was high enough that he could not fall back on platitudes about "strong fundamentals."

To address the shaky economy, the president stressed bipartisan efforts by his team and House negotiators on the $150 billion stimulus package. He then signaled to the Senate, in so many words, not to "load up the bill" and slow the process.

(Though details just started trickling out, there is reason to worry that the bill could be in trouble, because the Senate changes are quite extensive. Some are very good: the extension of unemployment benefits, for example. Also, the rebates will reach some poor elderly persons left out of the House bill. But the rebates appear to no longer be capped and thus may be less effectively targeted.)

There wasn’t much else for the president to say about the economy. He couldn’t point out that most families were better off than when he gave his first SOTU address. Median family incomes are actually just about where they were in 2001. He did brag about a record 52 months of job gains, but with unemployment on the rise I can’t imagine this reached many listeners.

It’s also the case that the Bush jobs record is uniquely weak. I hope this isn’t the case, but I suspect we are near the end of the current business cycle, i.e., a recession is either underway or soon will be. Over the last three cycles -- the 1970s, 1980s, and 1990s -- job growth was 17 percent, 21 percent, and 21 percent. Over this cycle, at least through last month, it’s been 4.5 percent. Add that observation to the fact that income inequality increased faster over the last few years than over any period since 1979 -- poverty was higher in 2006 than in 2000 -- and it becomes a no brainer as to why the president doesn’t get a lot of love on the economy, at least from the bottom 80 percent or so.

So, it makes sense that, beyond pushing the stimulus package, he had little to say about the economy. The fact is, Bushonomics -- which I’d characterize as large supply-side tax cuts, deregulation, with no regard to fiscal constraints -- has failed, and that is important for two reasons.

First, I could be proven wrong, but I’m confident that the Bush tax cuts will not be made permanent. He called for that again tonight -- no surprise -- and even offered a misleading statistic, suggesting that allowing the cuts to sunset as planned would raise the taxes of 116 million people by an average of $1,800. Of course, the tax cuts were so heavily tilted toward the rich that a broad average like this is not at all representative of what the typical, middle-class family would face. In fact, they’d pay less than half this amount. But it’s also worth noting that the supporters of sunsets, largely Democrats, are very careful to stress that they plan to preserve the middle-class tax cuts. I'm not saying this is great tax policy, though it's probably reasonable election-year tax policy.

It’s hard to envision a congressional majority going along with making the Bush cuts permanent. I’m not sure it’s widely recognized, but it would take a major, very expensive bill (something like $1 trillion over 10 years) to make this happen, i.e., it would have to be legislated as a new round of big tax cuts. But with the war coming in at $170 billion last year, the stimulus with a price tag of around $150 billion, health-care deficits looming over the horizon, and some highly visible Democratic presidential candidates that are solidly against making the cuts permanent, we may have finally reached Bush-tax-cut fatigue.

The other reason this is important is that the Republican front-runners are all (excepting Huckabee, who may be fading) running on Bushonomics, and making the tax cuts permanent is their centerpieces (McCain adds rhetoric about spending cuts, but he’s vague and not too convincing). In recent weeks, with the threat of recession, they’ve been talking a bit less about it, and even, depending on the crowd, sounding a populist theme or two, but they haven’t altered their core platforms. They’ve hitched their economic wagons to Bush’s, and that will likely prove to be a big political mistake.

As I listened to the president call for permanent tax cuts, it felt like a tired ritual, a feckless plea for one more chance to give the goodies up to his people before he leaves the stage. I know the president and his team will be around for a while longer, but amid the stultifying air of this ritual, the repetition of this and other tired mantras, I felt something new and exciting: the sense that the Bush era is winding down. There’s a flicker of light at the end of the tunnel, and it’s truly radiant.

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