Obama to Say U.S. Must Reverse Tides of Economic Inequality

Photographer: Pete Marovich/Getty Images

President Barack Obama tonight will say the U.S. must break the economic stagnation of lower- and middle-income Americans. Close

President Barack Obama tonight will say the U.S. must break the economic stagnation of... Read More

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Photographer: Pete Marovich/Getty Images

President Barack Obama tonight will say the U.S. must break the economic stagnation of lower- and middle-income Americans.

President Barack Obama tonight will say the U.S. must break the economic stagnation of lower- and middle-income Americans, calling on Congress to work with him on “concrete, practical proposals” while vowing to act on his own wherever he can.

“The cold, hard fact is that even in the midst of recovery, too many Americans are working more than ever just to get by -- let alone get ahead,” Obama will say in his annual State of the Union address. “Our job is to reverse these tides.”

Excerpts were released by the White House before the speech, scheduled for 9 p.m. Washington time.

On the biggest issues for U.S. companies -- immigration, corporate taxes, trade and transportation spending -- Obama is making a plea for action from a divided Congress.

Obama plans two executive actions intended to assist workers: raising the minimum hourly wage to $10.10 for workers hired under future federal contracts and creating a new retirement savings program for workers whose employers don’t offer a 401(k) plan.

“What I offer tonight is a set of concrete, practical proposals to speed up growth, strengthen the middle class, and build new ladders of opportunity into the middle class. Some require congressional action, and I’m eager to work with all of you,” Obama will say. “But America does not stand still -- and neither will I.”

Election Year

With elections for the House and Senate coming in November, and polls showing the public dissatisfied with the economy and the way Obama is handling his job, the president’s ability to sway lawmakers is diminished. His vow to bypass lawmakers is an acknowledgment of narrower ambitions for his sixth year in office, and a sign that the gridlock that stymied action on key business priorities is likely to continue in 2014.

“Certainly there are things a president can do without Congress, but they are limited by that little document we call the Constitution of the United States,” said Vin Weber, a Republican consultant and former U.S. representative. Executive action mainly has effect “around the edges.”

Obama said that even as corporate profits and equities have risen -- the benchmark Standard & Poor’s 500 Index (SPX) rallied 30 percent last year and is up 165 percent from a bear-market low in 2009 -- circumstances for many middle- and lower-income Americans haven’t changed since the end of the recession.

Unemployment Rate

While the unemployment rate fell to 6.7 percent in December, the first time it dropped below 7 percent since 2008, the U.S. still hasn’t replaced all of the jobs lost during the recession. Only 62.8 percent of working-age Americans are employed or actively seeking work, the lowest mark since February 1978. Almost 4 million people have been out of work for more than six months, three times the pre-recession average.

Real median household income of $51,000 is 8 percent lower than in 2007.

Obama will again urge Congress to raise the federal minimum wage of $7.25 an hour. Lawmakers ignored his plea in last year’s address to raise the wage and congressional elections coming in November won’t make reaching an agreement easier.

In the meantime, he is moving to raise that minimum for low-wage employees of federal contractors performing services and construction. The increase will touch few workers immediately. It will only kick in when new contracts are signed, and it won’t cover existing employees until their contracts are renewed, according to a White House statement.

Republican Critics

Republicans, led by House Speaker John Boehner, criticized the action as costing jobs while helping few workers, and a former Obama aide said it could be challenged in court.

In the Republican response, scheduled for delivery after Obama finishes, Representative Cathy McMorris Rodgers said her party was offering a different vision: “One that empowers you, not the government. It’s one that champions free markets -– and trusts people to make their own decisions, not a government that decides for you.”

The Washington Republican also criticizes Obama’s record on the economy and the president’s health-care law.

Retirement Savings

To boost retirement savings, the administration plans to allow workers to regularly deduct a portion of their pay for deposit into a Treasury account invested in U.S. bonds that would be treated for tax purposes as an Individual Retirement Account, according to Brian Graff, chief executive officer of the American Society of Pension, who has discussed the proposal with the Treasury Department.

The president appears to have authority to start the program without legislation because it would be based on an existing government program that lets workers purchase U.S. savings bonds through payroll deductions, Graff said.

“I don’t expect this to get a lot of pushback,” Graff said. “It’s just a retirement twist.”

Obama also may use executive authority to advance his agenda on the environment and climate change. He also will be making a decision on TransCanada Corp. (TRP)’s Keystone XL pipeline, a project backed by congressional Republicans and opposed by many of his supporters.

More substantial proposals will require congressional action.

Tax Policy

As part of his economic agenda, Obama, 52, has proposed lowering the corporate tax rate to 28 percent from 35 percent -- curtailing tax breaks to offset any revenue loss.

Lawmakers have been stymied on tax policy because they disagree on the details of business tax changes and on whether individual taxes should increase.

On trade, Obama is pursuing deals with 11 Pacific rim nations and with the 28-member European Union. While he doesn’t need congressional approval to complete negotiations, neither treaty may take effect unless Congress has ratified it.

He is seeking so-called fast-track authority for both deals to prevent lawmakers from making changes. That approach is backed by industry groups including the U.S. Chamber of Commerce, the business community’s largest lobby, and the National Association of Manufacturers.

Immigration is one area where leaders in both parties and the business community say they are optimistic about the prospects for legislation this year.

Boehner told his caucus on Jan. 8 that they must address it. The Chamber of Commerce announced plans to increase its advocacy on the issue, while the Business Roundtable, representing chief executive officers of major companies, and a technology group formed by Facebook Inc. CEO Mark Zuckerberg also have been pressing for action.

Jim Manley, a Democratic consultant and former aide to Senate Majority Leader Harry Reid of Nevada, said Obama’s approach is “just dealing with the reality on the ground” when it comes to dealing with Congress.

“The president and his team have been spending far too much time thinking they can negotiate with House and Senate leaders,” Manley said. “I see this now as moderating expectation and trying to focus on what’s doable.”

To contact the reporters on this story: Margaret Talev in Washington at mtalev@bloomberg.net; Mike Dorning in Washington at mdorning@bloomberg.net

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net

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