From the Expert: Recapping Obama’s State of the Union

State eNews Issue #39 | February 3, 2010

President Barack Obama’s State of the Union speech, with its strong jobs and middle-class families themes, seemed to echo the famous Clinton campaign war room posting, “It’s the economy, stupid.”

The speech first took inventory of the jobs created or saved via the stimulus funding to states—nearly 2 million people would otherwise be unemployed, Obama said.

Next, the president urged the U.S. Senate to approve the jobs bill already passed by the U.S. House. The $174 billion federal jobs bill includes roughly $50 billion for public works projects and $30 billion to help state and local governments avoid laying off workers. The bill also includes additional money for unemployment insurance and to extend COBRA health benefits for the jobless. According to The Hill News, the Senate is considering a scaled-down jobs bill containing $80 billion in spending.

Obama Speaks to Middle-Class Families

Finally, President Obama proposed a number of initiatives to create jobs and provide other financial assistance to address what he called the growing anxieties of middle-class families. With the release of the president’s budget Feb. 1, there are budget numbers to go with many of these initiatives. They include:

  1. Extending the “making work pay” tax cut in the Recovery Act another year, helping 110 million American families;

  2. Providing $30 billion to community banks to provide the credit necessary to keep small businesses afloat;

  3. A new tax credit for more than 1 million small businesses that hire new workers or raise wages;

  4. Increasing Pell grant funding by $17 billion and putting it on firm financial footing by making annual funding mandatory;

  5. Reducing student loan debt and providing forgiveness for those in public service jobs;

  6. Raising the child care tax credit from 20 percent of costs to 35 percent for most families and increasing child care subsidies for working families, as well as expanding Head Start and Early Head Start programs;

  7. Encouraging savings through access to retirement savings accounts and a tax credit to start a nest egg; and

  8. Increasing refinancing help for homeowners.

States See Help Too

The president’s budget proposal makes clear that he intends to continue to provide federal assistance to states as they experience unprecedented budget shortfalls. The Center on Budget and Policy Priorities reports that states are already projecting budget shortfalls for the 2011 fiscal year of $102 billion, but that the figure is likely to reach $180 billion. These gaps come on top of cuts already made by states in the last two years and revenue holes plugged by the roughly $140 billion that was available to states through the federal stimulus package.

In his State of the Union speech, Obama called for a three-year freeze in domestic discretionary spending, beginning in 2011. But Medicaid, the big gorilla of shared federal-state spending, as well as Medicare and Social Security, are exempt from this freeze. In fact, the president included $25 billion to extend the enhanced Medicaid match rate to states under the Recovery Act another six months to July 2011. This same proposal was passed by the U.S. House in their versions of health care reform and the jobs bill.

For other domestic programs, which total about one-eighth of the federal budget, Obama proposes to freeze overall spending for three years and thereafter hold growth to the rate of inflation. Rather than proposing across the board action, the president’s budget eliminates or cuts 120 specific programs for a savings of $20 billion in the 2011 fiscal year. These savings allow for spending increases for high priority education, energy and infrastructure programs.

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