Jan. 26 (Bloomberg) -- President Barack Obama embraced much of the business community’s agenda last night, calling for progress on stalled trade pacts, investments in roads and education, reworking the corporate tax code, and freezing discretionary spending to cut the deficit.
The pledges in the State of the Union address by Obama, who tussled with business groups during the first two years of his term, match requests by chief executive officers from Verizon Communications Inc., Honeywell International Inc. and JPMorgan Chase & Co. in a report they presented to the administration last month.
Obama “has put an olive branch out to business, and it seems like a sincere offer,” said Jim Kessler, vice president for policy at the Third Way, a Washington-based policy group that describes itself as moderate. “The president seems to be focused on growth and making business a partner, not a foil.”
With Republicans taking control of the House of Representatives and U.S. growth still sluggish, Obama said his proposals were aimed at creating jobs and reorienting the economy to confront challenges from abroad.
Instead of pushing contentious issues such as health-care legislation and overhauling financial regulation, as he did in the first two years of his term, Obama focused on investments for growth, which should garner support from corporate leaders, Kessler said.
Profits, Stocks Up
“Corporate profits are up and the economy is growing again, but we have never measured progress by these yardsticks alone,” Obama said in his speech. “At stake is whether new jobs and industries take root in this country, or somewhere else.”
To help “maintain America’s leadership in a rapidly changing world,” Obama called for Congress to extend tax credits to fund college education, proposed joining with business to expand wireless access and pledged to work with states to curb medical malpractice costs, a longstanding demand of some Republicans.
While Obama echoed themes espoused by the Business Roundtable and U.S. Chamber of Commerce in recent weeks, he proposed them with his own twist: Instead of reducing corporate taxes, he proposed cutting the rate while closing loopholes so the net effect on the budget would be zero. The president also called for ending $4 billion a year in tax subsidies to oil and gas producers.
And though he urged Congress to approve a free-trade agreement with South Korea in the coming months, he didn’t give a deadline for pacts with Colombia and Panama. Multinational companies led by Caterpillar Inc. have pushed for speedy implementation of those deals as well.
“Since November, President Obama has taken important steps -- including his recent order for a comprehensive regulatory review -- signaling that he is ready to change direction and focus on what is necessary to drive a vigorous recovery,” John Engler, president of the Business Roundtable, said in a statement. The Washington-based group presented its plan to cut taxes and spur trade to Obama last month on behalf of members such as Verizon, JPMorgan and Honeywell.
Obama said the nation faces a “Sputnik moment.” It was a reference to the Soviet Union’s launch of the first satellite in 1957, a wake-up call that spurred a surge in U.S. spending for math and science education, and created the National Aeronautics and Space Administration.
Today, fewer than half of U.S. students are proficient in science, renewing questions about the country’s global competitiveness, the Education Department said this week, citing the 2009 National Assessment of Educational Progress.
The president pledged to add 100,000 teachers of science, engineering and mathematics within 10 years. He also asked Congress to make permanent a tuition tax credit that he said was worth $10,000 for four years of college.
He repeated his call to replace President George W. Bush’s No Child Left Behind Law, and to give schools more flexibility in demonstrating academic progress.
The threat of too few technology graduates, such as computer scientists and software programmers, worries Dale Meyerrose, vice president of cybersecurity for federal contractor Harris Corp., a communications-equipment manufacturer and computer-network management company based in Melbourne, Florida.
“How long is it going to be before we are held hostage by having to get either technology or skills from some place other than our own country?,” Meyerrose said in an interview before the speech.
Meyerrose, former chief information officer at the U.S. Office of the Director of National Intelligence, which oversees information sharing among intelligence agencies, said of the last “half dozen” highly technical people Harris hired, none was a U.S. citizen.
Obama will find a natural ally in U.S. businesses who share his concern about the lagging academic performance of U.S. students relative to peers in China and India, said Jack Jennings, president of the Center on Education Policy, a Washington-base group that advocates for public education.
“Business people have been saying for a long time that the U.S. should pay more attention to what other countries are doing in education,” Jennings said in an interview after the speech.
As part of his technology push, Obama said he wants to increase U.S. research and development as a share of the economy to its highest levels since President John F. Kennedy began the space program in the 1960s.
Obama proposed extending high-speed Internet access to more citizens, saying the U.S. lags behind many other nations in providing broadband to the public. “South Korean homes now have greater Internet access than we do,” he said.
To close the gap, Obama called for providing high-speed wireless access to 98 percent of all Americans in five years, “where farmers and small business owners will be able to sell their products all over the world” and patients can have face-to-face video chats with doctors.
Freezing domestic spending probably wouldn’t reduce the $80 billion the federal government spends on information technology every year because such technology boosts efficiency and can help reduce the deficit, said Alan Balutis, a former chief information officer at the Commerce Department.
“How else could agencies deal with increased efficiencies, do more with less, meet ongoing citizen demands with reduced staff, and so on, without the application of technology?” Balutis, now director of the Internet Business Solutions Group for Cisco Systems Inc. in Washington, said in an e-mail.
Obama’s embrace of innovation helped to make the address “a great speech,” Gary Shapiro, president of the Arlington, Virginia-based Consumer Electronics Association, said in an interview. Obama’s call for expansion of high-speed wireless Internet service was “extremely positive,” said Shapiro, whose association includes device makers.
Obama said he will intensify efforts to repair the nation’s roads, bridges and mass-transit systems, calling the work necessary to create jobs and compete with nations that have made those investments.
The president said he will look to attract more private capital for big projects. Details on the spending and programs won’t be provided until the president’s budget is presented next month, White House press secretary Robert Gibbs said before the speech.
“We will put more Americans to work repairing crumbling roads and bridges,” Obama said. “We will make sure this is fully paid for, attract private investment and pick projects based on what’s best for the economy, not politicians.”
The federal Highway Trust Fund, which pays for road and transit projects from sales taxes on fuel, is on course to run out of money by 2014, according to the Congressional Budget Office. House Republicans have proposed reducing federal spending to 2008 levels.
The administration’s transportation plan calls for more investment in high-speed rail.
“Within 25 years, our goal is to give 80 percent of Americans access to high-speed rail, which could allow you to go places in half the time it takes to travel by car,” Obama said in the speech.
“We have to fix what has decayed and invent what we need for America in 2050,” said Ron DeFeo, chief executive officer of construction-equipment maker Terex Corp. based in Westport, Connecticut.
Obama said he seeks to increase U.S. electricity from “clean” power sources to 80 percent by 2035, part of a plan to cut reliance on fuels such as oil while expanding the use of nuclear energy and natural gas.
The president failed last year to push energy and climate-change legislation through Congress, forcing him to find new ways to reduce U.S. dependence on foreign oil and limit greenhouse-gas emissions linked to climate change. Obama said he will seek to boost renewable-energy investment by more than 85 percent, funded partly by ending about $4 billion a year in tax subsidies to fossil-fuel producers led by oil and gas.
“The president’s clean-energy goals are highly ambitious, but likely achievable with aggressive technology policy,” Paul Bledsoe, a former White House energy aide in the Clinton administration, said in an interview.
Obama, unlike last year, didn’t mention expanding offshore oil and gas development. The American Petroleum Institute, a Washington-based trade group for oil and gas companies, called the omission a “missed opportunity.’
‘‘The president focused on job growth through federal spending but was silent on one of the best ways to create jobs: allow more energy development,’’ Jack Gerard, the group’s president, said in an e-mailed statement.
‘‘Natural gas and renewables are important components of our energy mix, but we will need our nation’s vast oil resources for decades to come.”
“The president has had it in for the oil, gas and coal industries,” Representative James Sensenbrenner, a Wisconsin Republican, said after the speech. Obama’s proposal would drive up the costs for energy and make U.S. companies less competitive, he said.
The president’s call to end tax preferences for oil, gas and coal producers renews an appeal that failed a year ago.
Obama also will set a goal of putting 1 million advanced-technology vehicles on U.S. roads by 2015, setting the U.S. on a path to cutting oil consumption by 785 million barrels by 2030.
SPENDING FREEZE, DEFICIT
Obama’s call for a freeze on discretionary spending drew skepticism from Republicans.
“It freezes in place an extraordinary increase in spending that’s occurred over the last two years,” said Mitch McConnell of Kentucky, the Senate minority leader. Senator John Thune of South Dakota said Obama’s proposal would still leave government bloated, having grown at 10 times the rate of inflation in the last two years.
“That’s probably not going to inspire a lot of people who are serious about -- who want to see meaningful efforts to reduce spending and reduce the debt,” Thune said.
House Republicans are proposing to slash spending to 2008 levels, which would fall short of the estimated $165 billion, five-year savings from Obama’s plan, according to Stan Collender, a former congressional budget analyst.
“If nothing else changes and the economy performs as anticipated and we freeze spending for five years it would have a not-insignificant impact on the budget deficit,” said Collender, managing director at Qorvis Communications in Washington. “Add to that revenues from economic growth and you can get 65 percent of the way to eliminating the deficit.”
Obama also called for a bipartisan solution to strengthening Social Security without “slashing benefits” for current or future retirees, an idea that didn’t satisfy advocates on either side of the issue.
Nancy Altman, co-chairman of the Strengthen Social Security Campaign, said Obama “left open the door for significant cuts to Social Security’s already modest benefits, a change that goes against the will of most Americans.”
Chuck Blahous, who was director of President George W. Bush’s Social Security commission, called Obama’s warning about slashing benefits “unnecessary.”
If reform is going to happen, said Blahous, “at some point the president needs to start explaining the real benefits of reform instead of lending legitimacy to groundless fears.”
Obama sided with companies such as Goldman Sachs Group Inc. and FedEx Corp. and called on Congress to pass the long-stalled free-trade agreement with South Korea. The administration renegotiated that deal in December in order to meet the demands of Ford Motor Co., and the deal now is backed by both Ford and the United Auto Workers union.
“This agreement has unprecedented support from business and labor; Democrats and Republicans, and I ask this Congress to pass it as soon as possible,” Obama said in his speech.
He stopped short of meeting the demands of Republicans such as House Ways and Means Committee Chairman Dave Camp and companies such as Caterpillar that he submit to Congress two other agreements, with Panama and Colombia, which were originally signed by the administration of his predecessor George W. Bush.
“‘‘Frankly, I am disappointed by the lack of an action plan or commitment to move the long-stalled Colombia and Panama trade agreements,’’ Camp of Michigan said in a statement. Without them, ‘‘we will only lose ground to our foreign competitors.’’
South Korea is the bigger prize for many U.S. companies, as total trade with that nation topped $80 billion in the first 11 months of 2010, compared with $25 billion for Colombia and $5.8 billion for Panama, according to U.S. Commerce Department data.
‘‘The Korean market is six times larger than the Colombian market, and so that’s where the bulk of the benefits would be,’’ Stephen Biegun, vice president for international governmental affairs at Ford, said yesterday.
Obama included defense among the areas likely to see cuts as the U.S. tries to pare its deficit, with reductions likely to affect military contractors such as Lockheed Martin Corp. and General Dynamics Corp.
The president gave no specifics. Defense Secretary Robert Gates on Jan. 6 announced the administration’s plan for $78 billion in Pentagon spending reductions over five years.
‘‘He was a lot more lenient on defense than I had expected,’’ said Mackenzie Eaglen, a research fellow in national security for the Heritage Foundation, a policy group in Washington. ‘‘I would argue a lot of members of Congress want to cut defense a lot more than President Obama right now.’’
Defense contractors will benefit from the same initiatives Obama proposed for business generally, including a reduction in corporate taxes, spending on technology and an emphasis on exports, said Philip Finnegan, an analyst who tracks defense companies at Teal Group in Fairfax, Virginia.
‘‘A lot of major defense and aerospace firms are also major technology firms,’’ Finnegan said, citing Lockheed and Northrop Grumman Corp.
Overhauling health care, a highlight of Obama’s address to Congress a year ago, received scant mention last night. The president defended the legislation, which the Republican-controlled House of Representatives voted to repeal this month, in a largely symbolic gesture.
He reiterated the early benefits of the overhaul, such as requiring health insurance companies to cover pre-existing conditions. He reiterated that the overhaul will slow the increase in medical costs and that repealing the measure would add to the U.S. deficit.
‘‘Still, I’m willing to look at other ideas to bring down costs,” including medical malpractice reform “to rein in frivolous lawsuits,” echoing language used by his political opponents critical of the new health-care law.
Republicans will have a tough time rolling back the law because the new insurance regulations “have made people’s confidence in their coverage greater,” said Randall Abbott, a senior consultant at Towers Watson & Co., a New York-based consulting firm.
Obama’s plan to invest in infrastructure dovetails with job-creation spending proposals by union leaders such as AFL-CIO president Richard Trumka. The 11-million member AFL-CIO has called for spending billions of dollars on schools and highway repairs.
Labor unions oppose Obama’s push for a freeze in federal spending, Trumka said in an e-mailed statement after the speech.
“We firmly believe that we should not be cutting government spending when the economy is so weak,” he said.
Unions also want Obama to “stick to his campaign promises” to improve trade deals, he said.
Labor’s agenda for Obama’s State of the Union was different from its wish list in his first two years in office. With Democratic allies no longer controlling the House and with Obama adopting a more pro-business stance, unions have shifted from pressing him to take action that could increase their ranks.
To contact the reporter on this story: Mark Drajem in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Joe Winski in Washington at email@example.com.