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State of the Union Reveals Stark Contrast Between President and GOP Visions 

Peter Lefkin 

 

2/25/2013 

Peter Lefkin, head of government and external affairs at Allianz of America, breaks down the president’s address, highlighting the political implications of his legislative agenda and the fierce sparring over deficits and spending that lies ahead.
The president’s state of the union is as close as the United States gets to a regal ceremony. It is steeped in tradition. All the key dignitaries are invited: the House of Representatives, the Senate, Supreme-Court justices, the Joint Chiefs of Staff for the U.S. military, along with distinguished guests such as foreign ambassadors and national heroes.

There’s a lot of fanfare and theatrics that go with it. Political commentators weigh in with instant analysis. Lawmakers tweet from their seats. The president’s party applauds at almost every punch line, while the opposing party, in this case the Republicans, limit their applause to the most agreeable of policy goals. It’s sort of like a wedding in some ways: people gossip about hairstyles, clothes, who’s sitting together and who’s had a face lift. There’s also fierce competition for an aisle seat among legislators pining for a brief embrace with the president on national television. Politicians have been known to arrive in the chamber as many as nine to 12 hours before the event begins to get the best seat.

Wish List

President Obama’s address did not deviate too much from the standard script. Like presidents before him who have served for several years, he made the case that while all is not perfect, things have improved under his watch. Playing to the core constituencies of the political activists of his own Democratic party, he asked Congress for a litany of items ranging from immigration reform, public-infrastructure spending, gun control, climate-change legislation and raising the minimum wage to $9 an hour. With the exception of perhaps immigration reform, a lot of these proposals are unlikely to pass in Congress. President Obama’s wish list was longer than some of his predecessors. But it was consistent with past presidential speeches in that his words were designed to draw support from different political constituencies—regardless of whether they would be acted upon later.

The president’s speech followed his Jan. 21 inauguration address, which drew criticism for being too partisan and for betraying his own personal disregard for Congress. During last year’s campaign, President Obama used Congress as a foil, sometimes annoying even some Democrats who felt that he failed to differentiate between the U.S. Senate, controlled by his party, and the House, controlled by the Republicans. Emphasizing that he was prepared to take executive action on his own if Congress did not come forward with legislation, the president further alienated Republicans, many of whom were already disenchanted by his decision to push a liberal agenda instead of delivering a unifying message.

The president and congressional Democrats have asserted that earlier efforts to engage the Republicans on issues such as health-care reform, the economic stimulus package and the Dodd-Frank Act were rejected without consideration. And that there is no reason for them to extend a hand across the aisle only to have it once again chopped off. Republicans obviously disagree and nostalgically point to the last six years of the more centrist Clinton administration, when Republicans controlled Congress. At the time, they were able to come up with agreements on a host of matters including welfare reform, the Gramm Leach Bliley Act and significant spending cuts. Republicans offer these examples as proof of their willingness and their track record for meeting Democrats halfway—provided the chasm isn’t too wide.

The one exception for a compromise might be immigration reform, which is in both parties’ political interest to reach common ground. The biggest challenge will be to keep the political extremes from thwarting a deal that has broad support from the political middle.

Foreign policy seems to have gotten short shrift. The president excoriated North Korea’s and Iran’s pursuit of nuclear weapons, but never clearly articulated any action steps beyond what’s currently being done. On Iran, he spoke about the importance of diplomatic efforts, but also said no options are off the table to neutralize the threat. He also didn’t provide any details on the Israeli-Palestinian dispute, the civil war and atrocities in Syria. His most popular line was, “Our war in Afghanistan will be over” with the U.S. mission in that country being reduced from 66,000 soldiers to 32,000 soldiers during the next 12 months. The soldiers that stay will be providing support services. However, nothing was said about Iraq where the U.S. has been mired in conflict for the last 10 years.

Attention Deficit

Not surprisingly, the nation’s burgeoning deficit did not get the attention it deserved. President Obama spoke about stabilizing the deficit, but provided no blueprint for reducing it. He favors higher taxes on upper-income individuals as a way to pay for new government programs, and to avert the expected $85 billion sequester that would cut domestic and defense spending in March. But there’s staunch resistance from Republicans on this brand of reform.

Republicans are still smarting from the tax increases that were allowed to take place for upper-income individuals to avert the fiscal cliff in January. Many Republicans reluctantly voted for the tax increases in order to ensure that taxes on middle-class Americans would not go up. However, they remain unhappy by their choice and have vowed not to increase revenues in any significant way unless it is firmly coupled with major changes in the U.S. entitlement spending for Social Security, Medicare and Medicaid, something that has been resisted by the president and congressional Democrats.

Adding fuel to the fire were comments made by House Democratic Minority Leader Nancy Pelosi (D-CA) on one of the Sunday talk shows, where she said that the United States does not suffer from a spending problem—despite the fact that the annual deficit has exceeded $1 trillion for each of the past four years. The president, while avoiding details in this State of the Union address, has indicated that he would be prepared to reduce health-care spending by lowering payments to drug companies and making wealthier senior citizens pay more for their Medicare benefits.

Cross-Country Tour

The president is expected to follow the State of the Union address by once again making his appeal to the American public for support, as he travels around the country seeking to promote his agenda. He has been criticized by Republicans for doing this, but it’s become a fairly common practice for presidents over the last 20 years. The president is emboldened by his November election victory, viewing it as a mandate for progressive action. He’s more confident in his ability to achieve this goal by generating support directly from the American people rather than trying to work with Republicans, whom he believes have no interest in meeting him halfway.

Much like the fiscal-cliff debate, the next few months are not going to be pleasant. I normally don’t make predictions on Washington political outcomes because lawmakers tend to wait until the last minute and then pass an agreement that satisfies no one, kicking the can down the road. But I think there’s a 50/50 chance that a sequester occurs. If it doesn’t happen, then the issue will be handled with yet another eleventh-hour stopgap. House Republicans have been burned by offering their own proposals first, and this has prompted House Speaker John Boehner to say that they will not introduce any new legislation on the deficit and sequester until something has first been approved by the Senate.

Suffice it to say, politics are fully at work in Washington and the perceived inability of the nation to rationally address its problems is not sitting well with the American people.
The material contains the current opinions of the author, which are subject to change without notice. Statements concerning financial market trends are based on current market conditions, which will fluctuate. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Forecasts and estimates have certain inherent limitations, and are not intended to be relied upon as advice or interpreted as a recommendation.

 

Allianz Global Investors Distributors LLC, 1633 Broadway, New York NY, 10019-7585, us.allianzgi.com, 1-800-926-4456.

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