Courage And The State Of The Union

Let the bidding begin--for votes, that is. With the federal budget headed for its first surplus in three decades, and in an election year, no less, President Clinton and Republican leaders in Congress are falling over one another to come up with popular ways to use the extra money. The Republicans are calling for big tax cuts, eliminating any holding period for capital gains, killing the "marriage penalty," and reducing inheritance taxes. The Democrats are acting true to form as well, by calling for spending more money on Medicare coverage, child tax credits, food safety, and education.

Trouble is, polls show that, except for education, most Americans don't much want any of these things. The tax cuts and spending proposals are hot-button issues only to the tiny activist core within each political party. They appear to have little resonance with the vast majority of Americans. We have a suggestion: When President Clinton delivers his State of the Union Address on Jan. 27, he should play down the budget surplus. If the few billions in surplus dollars are truly burning a hole in his pocket, take half and pay down a bit of the nation's $5 trillion debt. Take the other half and cut marginal tax rates across the board. The first would have nice symbolic value and tend to lower interest rates and promote economic growth. The second would allow taxpayers to keep more of their earnings and also promote growth, not the special interests of voting blocks.

The President should use the opportunity afforded by his State of the Union speech to address two very serious Main Street concerns that are at the top of their worry list: anxiety over retirement and globalization's impact on jobs and income. Every poll shows that the younger you are, the less you believe that Social Security will be there when you need it. The President, who doesn't have to worry about a reelection battle, should show the courage to lead an honest debate on the options to fix Social Security and Medicare so they are able to provide for boomers, Gen-Xers, and generations to come.

The President should also use the public occasion to deliver on a promise made during the debate over the North American Free Trade Agreement: to rebuild the government's chaotic job-training system. An effective, simple program, based on giving the unemployed vouchers they can use for education and training at community colleges and elsewhere, would go a long way toward alleviating growing worries over globalization. This one is a freebie: Washington already spends about $7 billion on 140 job-training programs, nearly all ineffective. Clinton should eliminate them, put the cash into vouchers, and let workers, who generally know what skills they need, buy them on the open market. Unless Clinton can provide redress for those getting squeezed, he will forever face opposition to fast-track trade legislation, expanded funding for the International Monetary Fund, and other proposals that finance U.S. economic leadership in the world.

President Clinton has taken risks to promote trade, but has done a dismal job in showing Americans why the U.S. must lead the global economy. By trying to provide the financial security and workplace skills for a global economy, he can then ask all the people to support America's role in expanding free markets. The State of the Union Address is a good place to begin.

Before it's here, it's on the Bloomberg Terminal.