Editorial: Mixed signals in Obama speech

The era of big government is not over quite yet, as judged by President Barack Obama's State of the Union speech. Obama is striking a different strategy than the one deployed by President Bill Clinton after voters gave him a mid-term rebuke in 1994. Clinton got busy slashing spending and it contributed to a decade of historic growth and prosperity. Obama is taking more of a hybrid approach.

Tuesday night he promised spending restraint and deficit reduction, and said some very encouraging things about fostering a healthier business climate. At the same time, he is pitching major new spending initiatives and only modest deficit reductions.

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At times, it was like watching a tug-of-war, as the president first argued for more Keynesian stimulus, and then for more fiscal discipline.

First, though, give Obama considerable credit for the tone of the speech. The president recaptured his eloquence on the campaign trail in urging cooperative governing and rallying the nation to unite to solve its problems. He wisely avoided the antagonistic flashes that marred last year's address. And although his depiction of the pace of the recovery was overly exuberant, the country was ready for the president to do a little confidence building.

Elements of his speech also will work to encourage a business community that has been waiting for a sign they have a friend in the White House. Obama proposes reducing corporate income tax rates, which at 35 percent stand among the highest in the world. He'll do so, he says, by closing a myriad of tax loopholes adopted over the years to mitigate the impact of the burdensome tax rate. That's a vital step to improving America's competitiveness.

He also repeated his pledge to get rid of rules and regulations that stifle economic growth, although he built into that promise enough loopholes to allow the federal bureaucracy to ignore it if it chooses.

Still, this is a better direction for an administration that had been tagged as anti-business during its first two years.

The contradictions in the speech, however, will have to be worked out during the upcoming budget process if this is truly to be the start of a new era for Obama.

Specifically, the president committed to vast new spending to expand broadband access, criss-cross the country with high-speed rail lines and boost education performance. He calls these investments, because that's a more palatable word than spending, but they will add to the budget deficit if not offset by cuts elsewhere.

The five-year spending freeze Obama proposes will save about $40 billion a year, not nearly enough to provide the deficit reduction voters demanded in November, let alone allow funding of his new proposals. It's a paltry sum when compared to the $1.1 trillion increase in the federal budget over the past four years.

And keep in mind that the president promised a three-year spending freeze in last year's address, a vow he couldn't keep for even one year. That was driven home with Wednesday's announcement that the deficit has swollen to $1.5 trillion.

The additional round of stimulus spending proposed by the president is an improvement over the first round in that it is more directly targeted at research and development projects that may create jobs. But he is repeating the mistake of trying to pick winning industries, a skill in which government is lacking.

The federal government has also proven to be an inefficient investor of stimulus money. The Detroit News reported this week that delays in awarding $25 billion in loans to companies in the advanced battery industry have placed many of those firms at risk.

Notable for its absence in the speech was a meaningful discussion of curbing entitlement programs. Social Security, Medicaid and Medicare are the big budget busters, and Obama should have used his platform to urge support for the recommendations of his deficit reduction commission.

And the president did no favors to an economy hungry for certainty by revisiting the tax hike on higher income earners.

The president says his priorities will be more jobs and smaller deficits. The best way to reach that goal is through policies that encourage the investment of the more than $2 trillion idling in the private sector, and make deep cuts in federal spending.

His speech started him in that direction, but he'll have to address its contradictions if he hopes to create the economic climate he promised Tuesday night.