Senator Rand Paul Delivers State of the Union Response

State of the Union: Fact Checking the President

January 23, 2012

AP/ABC News - President Barack Obama's array of plans in his State of the Union speech was light on a key piece of context — namely, that his hands are so tied until after the election that it is doubtful many if any of them can be done in the remainder of his term. There can be little more than wishful thinking behind his call to end oil industry subsidies — something he could not get through a Democratic Congress, much less today's divided Congress, much less in this election year.

A look at Obama's rhetoric Tuesday night and how it fits with the facts and political realities of the day:

OBAMA: "We have subsidized oil companies for a century. That's long enough. It's time to end the taxpayer giveaways to an industry that's rarely been more profitable, and double-down on a clean energy industry that's never been more promising."

THE FACTS: This is at least Obama's third run at stripping subsidies from the oil industry. Back when fellow Democrats formed the House and Senate majorities, he sought $36.5 billion in tax increases on oil and gas companies over the next decade, but Congress largely ignored the request. He called again to end such tax breaks in last year's State of the Union speech. And he's now doing it again, despite facing a wall of opposition from Republicans who want to spur domestic oil and gas production and oppose tax increases generally.

OBAMA: "Our health care law relies on a reformed private market, not a government program."

THE FACTS: That's only half true. About half of the more than 30 million uninsured Americans expected to gain coverage through the health care law will be enrolled in a government program. Medicaid, the federal-state program for low-income people, will be expanded starting in 2014 to cover childless adults living near the poverty line.

The other half will be enrolled in private health plans through new state-based insurance markets. But many of them will be receiving federal subsidies to make their premiums more affordable. And that's a government program, too.

Starting in 2014 most Americans will be required to carry health coverage, either through an employer, by buying their own plan, or through a government program.

OBAMA: "Tonight, I want to speak about how we move forward, and lay out a blueprint for an economy that's built to last - an economy built on American manufacturing, American energy, skills for American workers, and a renewal of American values."

THE FACTS: Economists do see manufacturing growth as a necessary component of any U.S. recovery. U.S. manufacturing output climbed 0.9 percent in December, the biggest gain since December 2010. Yet Obama's apparent vision of a nation once again propelled by manufacturing — a vision shared by many Republicans — may already have slipped into the past.

Over generations, the economy has become ever more driven by services; not since 1975 has the U.S. had a surplus in merchandise trade, which covers trade in goods, including manufactured and farm goods. About 90 percent of American workers are employed in the service sector, a profound shift in the nature of the workforce over many decades.

The overall trade deficit through the first 11 months of 2011 ran at an annual rate of nearly $600 billion, up almost 12 percent from the year before.

OBAMA: "On the day I took office, our auto industry was on the verge of collapse. Some even said we should let it die. With a million jobs at stake, I refused to let that happen. In exchange for help, we demanded responsibility. We got workers and automakers to settle their differences. We got the industry to retool and restructure. Today, General Motors is back on top as the world's number one automaker. Chrysler has grown faster in the U.S. than any major car company. Ford is investing billions in U.S. plants and factories. And together, the entire industry added nearly 160,000 jobs."

THE FACTS: He left out some key details. The bailout of General Motors and Chrysler began under Republican President George W. Bush. Obama picked up the ball, earmarked more money, and finished the job. But Ford, which Obama mentions as well, never asked for a federal bailout and never got one. It's managed to get along on its own. Also, as part of its restructuring, Chrysler is not really a U.S. automaker anymore. Italian automaker Fiat now owns a 30 percent share, and it will eventually go to 51 percent under terms of the U.S. bailout and its bankruptcy restructuring.

OBAMA:

"I'm sending this Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low interest rates. No more red tape. No more runaround from the banks. A small fee on the largest financial institutions will ensure that it won't add to the deficit, and will give banks that were rescued by taxpayers a chance to repay a deficit of trust."

THE FACTS: The Obama administration has announced a number of programs to salvage the housing market, which continues to be a drag on the U.S. economy. Today, the president was referring to a plan he announced in October from the front porch of a home in Las Vegas, which has one of the highest foreclosure rates in the country. The president's plan would allow struggling homeowners who have mortgages backed by Fannie Mae or Freddie Mac to refinance without getting a new appraisal or a full credit check. The program would also eliminate some risk-based fees for borrowers.

The proposal would alter the $75 billion Home Affordable Refinance Program, or HARP, which was launched in 2009 to help distressed homeowners.

If a homeowner has a mortgage of $250,000 at a 6 percent interest rate, they would be able to take advantage of record low interest rates and refinance their home. If they got a rate that's 4.5 percent or lower, the homeowner would save $250 a month, or $3,000 a year. Given that there are 4 million homeowners who are backed by government-sponsored entities, the administration says the program can help millions of Americans.

But the initial HARP program fell short of its initial goals, with only about 900,000 homeowners taking advantage of it, far less than what the administration had hoped. Additionally, many homeowners who took advantage of the program ended up defaulting again on their mortgage.

The president tonight touted this new proposal as having no red tape or runaround from banks, but there are a number of caveats in his program. Only those who signed a mortgage before May 31, 2009, and have not refinanced previously under the Home Affordable Refinance Program are eligible for the new scheme. The loan-to-value ratio has to be greater than 80 percent. Borrowers must also have good credit and must have kept up with their mortgage payments, with no late payment in the past six months and no more than one late payment in the past 12 months.

Some economists calculate that it would only benefit 1 million households, a relatively small number given that more than 6 million homeowners are facing foreclosure or have delinquent payments. Others say the restrictions are too stringent and automatically cut out those under-water homeowners who have bad credit.

OBAMA: In his State of the Union speech tonight, President Obama said Congress should slow interest rates on student loans because "Americans owe more in tuition debt than credit card debt."

THE FACTS: As of late 2010, that's true. In September, a student aid study reported that Americans owed $830 billion in student loan debt, and $825 billion in credit card debt.

The National Center for Education Statistics says :

"38 percent [of all undergraduates in 2007-08] took out an average of $7,100 in student loans … and 4 percent of students had parents who took out an average of $10,800 in Parent PLUS loans. … 34 percent of all undergraduates took out federal Stafford loans averaging a total of $5,000. Subsidized Stafford loans were received by 30 percent of undergraduates and averaged $3,400, while 22 percent received an average of $3,200 in unsubsidized Stafford loans."

OBAMA: Obama called tonight for America to "stop rewarding businesses that ship jobs overseas, and start rewarding companies that create jobs right here in America."

"Right now, companies get tax breaks for moving jobs and profits overseas," Obama said at in his third State of the Union address Tuesday night. "Meanwhile, companies that choose to stay in America get hit with one of the highest tax rates in the world. It makes no sense, and everyone knows it."

THE FACTS: The president was correct in saying that business can lower their tax rates by fleeing U.S. soil. Of the 34 developed countries that make up the Organization for Economic Cooperation and Development, America has the second-highest corporate tax rate.

U.S.-based companies are taxed at 35 percent by the federal government. Add state taxes to that and the average corporate tax rate is 39.2 percent. Only Japan's is higher at 39.5 percent, according to OECD data from 2011.

But when tax deductions and loopholes are factored into the equation, the U.S. corporate rate falls to roughly 27 percent, according to the Tax Foundation.

And according to a study by the Citizens for Tax Justice and the Institute on Taxation and Economic Policy , 280 of the corporations on the Fortune 500 list paid an average rate of 18.5 percent.

Obama also called for a "basic minimum tax" on every multinational corporation to prevent companies from outsourcing to overseas tax havens. Obama's approach on this issue is virtually the opposite of his GOP presidential rivals. Nearly every Republican presidential candidate has called for U.S. companies that earn profits overseas to be able to bring those profits back to America tax-free.

As the tax code stands now, those companies have to pay the U.S. government the difference between the lower, foreign tax rates and the often higher U.S. tax rate.

The president said he wants to increase tax cuts for American manufacturers and double the deduction for high-tech manufacturers. Manufacturers already receive multiple tax credits and deductions that the lower their collective taxes by about $58 billion annually, the Fiscal Times reports .

As of 2010, tax credits for investing in new facilities focused primarily on energy efficiency. For example, $240 million of deductions were given to corporations who invested in clean coal facilities in 2011.A bout $39 billion worth of deductions went to support investments in machinery and equipment.

Obama: As an example of his record on getting rid of unnecessary federal regulations, President Obama cited the elimination of a rule that classified a milk spill as a type of oil spill.

While the comparison seems odd, it is indeed based in an old federal law. An obscure quirk in an EPA rule called the Oil Spill Prevention, Control and Countermeasures (SPCC) rule classified milk as a type of oil. The logic behind the rule, which went into effect in the 1970s, was that milk fat is a type of animal fat, and is therefore technically a type of oil. In August of 2011 finally altered the rule, resulting in the exemption of milk and milk product containers.

Obama's larger claim he sought to make through the utilization of this milk example, is that he has generally been against increasing regulations. He asserted that he has approved fewer regulations in the first three of his presidency than George W. Bush did in his first three years. This claim is true. In the first 33 months of his presidency Obama approved 613 federal rules, while President George W. Bush had approved 643 in the same time frame, according to an analysis by Bloomberg News.

However that same analysis notes that while the number of regulations approved by Obama alone is smaller, he has approved a larger number of federal rules which carry a price tag over $100 million than his Republican predecessor had at the same point in his presidency. Obama has approved 129 of these rules, while Bush had approved 90.

OBAMA: President Obama has promised quite a lot tonight, but never so much as in this fevered paragraph below.

THE FACTS: We'll take it line by line:

In the next few weeks, I will sign an Executive Order clearing away the red tape that slows down too many construction projects.

The president wasn't the first to say it, but he did admit as much — " Shovel ready wasn't quite as, uh, shovel ready as we thought," he told his Council on Jobs and Competitiveness when they met in Durham, NC, last June. He was referring to the American Recovery and Reinvestment Act, better known as "the stimulus," a plan to spend approximately $787 billion on infrastructure renewal, "creating and saving" millions of jobs in the process. But the building of the roads and rails has been slow. Bickering over contracts and other issues have plagued the program. It is not clear what, if anything, the president can do to stimulate his stimulus. A single executive order hardly seems like it'd be enough.

But you need to fund these projects.

True, but that was what the stimulus money had been meant for, right?

Take the money we're no longer spending at war, use half of it to pay down our debt, and use the rest to do some nation-building right here at home.

Sounds simple, right? Not so fast. When it comes to government, "a penny saved" is often confused with "a penny not spent." The dollars that the U.S. will not spend in Iraq and Afghanistan (as the latter conflict winds down) do not get thrown back into some imaginary pot (Republicans might say, "slush fund") for paying down the debt or building high-speed railways. In fact, the billions authorized by the Federal government for fighting abroad helped to create that debt. Less spending on the war front will surely help with the bottom line, but it is not a newly realized rainy-day fund.