Bush tax cuts for the wealthy and on dividends and capital gains won’t be extended. That means 2010 is the last year for the 35% top rate for individuals and for the 15% top rate on dividends and on capital gains. Those rates will go up to at least 39.6% and 20% respectively.
A jobs bill of roughly $150 b. will be on his desk in the next month or so. It will include a new tax credit for jobs created by small businesses and for increased wages to existing workers. It will extend unemployment benefits, COBRA health benefits, and provide more money to state and local governments to avoid laying off police, fire, first responders, and teachers. Neither House nor Senate bill includes bonus depreciation yet, but he called for it for all businesses, large and small. The House bill would be partially paid for with $75 b. of TARP.
Community banks would get $30 b. of TARP to lend to small businesses.
Tax increases for multinationals that export U.S. jobs. He reiterated last years proposal to limit deferral of offshore income, which went nowhere in Congress last year and will probably go nowhere this year.
Banks: A tax on liabilities to repay taxpayers and to limit risk. No more detail, just reiteration. One of the loudest applause lines of the night was “…we all hated the bank bailout. I hated it. I hated it. I hated it. You hated it. It was about as popular as a root canal.”
Financial regulatory reform must have teeth, or he’ll veto it: “Now, the House has already passed financial reform with many of these changes. And — and the lobbyists are trying to kill it. Well, we cannot let them win this fight. And if the bill that ends up on my desk does not meet the test of real reform, I will send it back until we get it right. We’ve got to get it right.”
Student loans: He called once again for the removal of subsidies for private lenders to make student loans and for a $10,000 higher education tax credit. Repayments would be limited to 10% of income, and the loan would be forgiven after 20 years, or, in the case of public service, after 10 years.
Energy: Nuclear and offshore drilling backed. Mr. Obama backed the green energy initiatives he’s always back, without mentioning ethanol this time. He called for “building a new generation of safe, clean nuclear power plants in this country” and for “making tough decisions about opening new off-shore areas for oil and gas development.”
Climate Change: Mr. Obama called for a “comprehensive energy and climate bill.” He acknowledged those who question whether a weak economy can weather a climate change bill and those who question the scientific evidence of climate change, and he called for passing climate change because it’s “the right thing to do for our future, [and] because the nation that leads the clean-energy economy will be the nation that leads the global economy, and America must be that nation.”
Health reform: President Obama vowed to fight for health insurance reform in a lengthy and impassioned part of his speech. He concluded by offering to consider proposals from either party as long as they lowered premiums, lowered the deficit, covered the uninsured, strengthened Medicare, and stopped insurance company abuses.
Deficit reduction commission will be created by executive order. Despite his promise that this will be no ordinary commission, it will have a tough job getting the Senate to take up its recommendations without having any authority under law.
Statutory PAYGO: He called upon the Senate to pass this amendment tomorrow on the debt limit bill, H.J.Res.45. It will probably pass and become law along with a $1.9 tr. debt limit increase to $14.294 tr. That should be enough to last until a year from now.
Discretionary spending freeze to save $250 b. over the next 10 years. That’s just over 4% of the underlying $6 tr. baseline. There are plenty of exceptions, defense, homeland security, veterans benefits, education, and probably some more we haven’t seen yet.
Trade: Mr. Obama called for a doubling of U.S. exports over the next five years through a new initiative and for enforcing trade rules and for “shape[ing] a Doha agreement.” No details here.
War: Iraq combat troops to come home by August.
New bioterror and infectious disease initiative. No details. Washington was stung by a Washington Post article by a respected former CIA official claiming we still have hardly any capability to deal with a bioterror attack.
Broken government: Mr. Obama offered a surprisingly frank discussion of how Americans have lost faith in their government in Washington. He challenged Congress to take responsibility, to lead on the tough issues, and to make the hard decisions. It sounded good, but it will take a lot more than eloquence to restore faith in Washington.