The State of the Union I'd Like to See
President Obama will deliver his State of the Union speech next week. Here is the State of the Union address I would like to see:
My fellow Americans,
I come to you today to talk about economic mobility, the defining challenge of our time. Some of the rich are getting richer, and we need to understand how we can help others become richer, too.
In previous addresses, I have talked about raising taxes and spending money to help the poor. My main message was that America could help the poor by giving them things.
But this is clearly not working. During the Great Recession we spent over a trillion dollars in stimulus funds and gave the unemployed 99 weeks of unemployment insurance. Now, four and a half years into the recovery, GDP growth is around 2%, the percentage of Americans employed or looking for work is at 1978 levels, and 20% of households are on food stamps.
This evening I am going to lay out a better way, and I intend to devote the last three years of my presidency to implementing it.
What we first need to understand is that there is nothing wrong with inequality. We have one of the widest ranges of income in the world, and yet people flock to live here. They could go to Norway, or Haiti, or France, where there is more equality. But, given a choice, people come to America. They don’t mind the inequality, they just want to find a job and earn their way up — and see their children earn their way a little higher.
Take Felicity, sitting next to Michelle up in the gallery. Felicity has an MA in engineering from one of the leading universities in the world. A British citizen, she could legally work anywhere in the European Union, such as Finland or Sweden or Denmark, renowned for their equality. But Felicity wants to come to America because of the opportunities.
One of the things I hope to do this year is to sign an immigration reform bill to make it easier for people like Felicity to come here. Immigrants help grow our economy by founding firms that hire native-born Americans. Their skills keep firms operating here, hiring Americans, rather than going offshore.
And hiring more Americans is what economic mobility is all about. Getting rid of barriers to entry, so anyone can work who wants to, would help people get their foot on the first rung of the career ladder. Then, if we increase GDP growth to a steady 4% rather than 2%, we would have more job openings so people could move up that career ladder.
In the past, I supported raising the federal minimum wage from $7.25 to $10.10 an hour. But after looking at the teen unemployment rate, 20% in December, compared to an overall rate of 6.7%, I’ve changed my mind. The African American teen unemployment rate is even higher at 36%. Young people ages 20 to 24 face an unemployment rate of 11%.
Fewer than 3% of American workers make minimum wage, but half of them are under 25. These are the people who would be affected by an increase in the minimum wage.
Take Richard, a teen who worked for minimum wage at a bike store last summer. He’s seated the other side of Michelle up in the gallery. He started out the summer making $7.25 an hour and ended the summer making $8.00 — because he worked so hard that he got a raise, not because we raised the minimum wage. Richard learned to show up on time, use the cash register, fix bikes, and sell the right bike to people from 3 to 70 years old. Most important, he learned how a small business works.
Someday, Richard may be an entrepreneur hiring other workers. But if his current boss had to pay him $10.10, he never would have been hired in the first place. There are millions of teens like Richard, and the best way to help them, and a future generation of entrepreneurs, is not to raise the minimum wage.
Rather than raise the minimum wage, I want to encourage all states to keep the Labor Department’s teen minimum wage — $4.25 an hour for 90 consecutive days — to encourage employers to hire teens this summer.
Today I’m also asking Congress to modify Obamacare (I’ve grown fond of the name) by repealing the employer penalty for not offering adequate health insurance. The penalty can be $2,000 per worker per year for businesses with more than 49 workers (the first 30 are exempt). So if you’re a small business owner with 49 workers, and you don’t offer the right kind of health insurance, you could face a fine of $40,000 a year for hiring that 50th employee. So you think long and hard about whether to expand above 49.
Unfortunately, the law has many unintended anti-employment consequences such as encouraging business owners to hire more part-time workers — those working less than 30 hours a week — without paying the fine. I’ve decided that’s no way to grow jobs in the economy. And without growth in jobs, there is no upward mobility.
We’ll find another way to pay the $140 billion over 10 years that CBO projects from employers in penalties. One option is to eliminate tax breaks and grants for alternative energy projects. These just serve to make electricity more expensive for ordinary American families. The lowest fifth of income earners spend about a quarter of their incomes on energy and gasoline, and they don’t need higher prices — as last week’s cold spell reminds us.
As I’ve said before, and I’ll continue to say it, in order to attract more businesses to locate in America and improve mobility we need competitive corporate tax rates. Our federal and state corporate tax rates, at 39%, are way above the 24% average of our industrial competitors. U.S. multinationals are holding $1.7 trillion abroad because 39% would vanish if they brought it home. If even some of the $1.7 trillion could come back, it would stimulate the economy.
Sweden and the U.K. both have combined federal and state rates of just over 20%. I want to work with Congress to beat both of them — let’s go for a 10 % rate. This means that more companies would come back to this country, creating jobs for Americans. More jobs — more upward mobility. That is the name of the game.
Part of the solution to income inequality is how you look at the problem. Some people see a poor child, and they assume she will always be poor, trapped in permanent inequality.
Here in America we have numerous examples of corporate executives who started small. Just take two. GM’s new CEO Mary Barra began working at GM as a college intern. She worked her way up through numerous departments to the top job. And Doug McMillon, who will take over as Walmart CEO next month, started out as a teen unloading trucks at a Walmart distribution center. Doug and Mary are both up in the gallery, in front of Michelle.
When I see a poor child, I see a future American limited only by her own imagination, not by the limited vision of those who would label her as permanently unequal. She may work her way up the corporate career ladder like Doug and Mary. Or she may decide to become a teacher or a preacher, or an astronaut or app designer.
All Americans are seeking a better life, and my job is to help them. Over the next three years I will work to improve economic mobility by increasing opportunities in America.
Good night, and God bless America.
Diana Furchtgott-Roth, former chief economist of the U.S. Department of Labor, directs Economics21 at the Manhattan Institute. You can follow her on Twitter here.