Introduction 

There was little for current and aspiring middle-class Americans in tonight’s State of the Union Address. 

On the domestic front, which is the concern of this report, President Bush wavered between promoting ideologically driven experiments to fix our most pressing problems and offering such detailed proposals that the larger challenges were obscured. 

When it came to health care, the President opted to push an aggressive ideological agenda on the backs of middle-class Americans, offering “market-based” proposals that treat health care as if it were any other commodity and fail to address the real reasons behind its ballooning costs. On the economy, the President wants to reduce the deficit while maintaining his tax cuts that favor the very wealthy. 

On issues like education and energy, the President’s proposals lacked a core vision or an admission that previous years of inaction and underfunding have made these problems far more intractable today than they had to be.  

Listening to the speech, average Americans heard the President use those words that the droves of Americans who abandoned him and his party at the polls two months earlier wanted to hear.  He spoke of improving access to health care and of providing a system of public education that would “leave no child behind.”  He told us he would balance our federal budget.  He promised to reduce America’s dependence on oil, to improve our environment, to secure the border and to save Social Security, Medicare and Medicaid.  He looked Americans in the eye and told them our economy was good and their lives were getting better. 

But when one looks past the State of the Union’s middle class window dressing, one cannot help but notice the speech reflects a view of America and an approach to government that is at odds with the reality lived by average Americans. The flourishing economy described in the speech may reflect the view held by corporate CEOs and Wall Street bankers whose fortunes have certainly improved in the past year, but it bears little resemblance to the experience of middle-class Americans who worry about the security of their jobs, how they can afford to pay their mortgages, to send their children to college as well as to save for retirement, and who wonder why their dollar seems to buy less and less every year.   

The President’s proposals, at their core, would implement a conservative ideology that doggedly protects the wealthiest Americas from tax hikes by sharply cutting social programs and absolve corporations from their obligation to protect the health and welfare of their employees by shifting those burdens to the workers themselves.  And on issues like the environment, the President merely plays a shell game by distracting Americans with promises to reduce our nation’s consumption of oil while he discretely announces his desire to step up domestic oil production and to double the capacity of our nation’s Strategic Petroleum Reserve. 

As the father of the President’s party, Abraham Lincoln, once wisely observed, “you can fool some of the people all of the time, and all of the people some of the time, but you cannot fool all of the people all of the time.”  Tonight, those who genuinely value the interests of the middle class and those aspiring to join the middle class have not been fooled. 

The Economy & Taxes 

President Bush: The economy is strong and improving. 

• “The future of hope and opportunity begins with a growing economy – and that is what we have… Unemployment is low, inflation is low, and wages are rising.” 

DMI SAYS: “The President’s glowing report of the condition of the American economy, while reflective of the views of corporate CEOs and Wall Street bankers, is out of touch with the average American’s experience.  Faced with escalating health care and college costs, personal debt rising to unsustainable levels, and an ever weakening system of retirement security, the middle class is not feeling nearly as positive as the President about their economic future.” 

• These days, corporate profits are growing and CEOs are picking up enormous paychecks. But ordinary Americans are just trying to get by. The costs of health care and of putting a kid through college keep on going up. And with the housing market continuing to weaken, middle-class Americans who only managed to buy a house or find a job because of this industry's growth will be hit hard. For the 7 million Americans still unemployed and 46.6 million Americans uninsured, the economic recovery has not even begun. 
• Working people are just now beginning to see the benefits of economic growth, even as the prospect of a worsening housing slump threatens to bring on a slowdown. 
• Economic recovery may have come too late for the millions of Americans who cashed in equity from their homes to pay basic living expenses or relied on high-interest credit cards to make ends meet. More than 2 million Americans filed for bankruptcy in 2005, even as legislation championed by President Bush made it harder for cash-strapped families to dig themselves out of debt in 2006. 
• The President's economic policies have done little to address these issues, primarily because he has refused to acknowledge a middle-class squeeze characterized by increased obstacles to accessing the American Dream. While middle-class Americans aspire to build up equity in their homes, send their children to college and save for a secure retirement, even hardworking families with good jobs are finding it harder to meet these goals and get ahead. 
• Despite recent gains, job creation has been slow compared to previous economic recoveries, employers like Whirlpool, AOL and General Motors that offered well-paying middle-class jobs have just announced thousands of lay-offs, and many of the new jobs that replaced those that were lost during the recession are lower-paying and offer fewer benefits. 

Relevant Statistics: 

• According to exit polls in the midterm elections, percentage of Americans who think life for the next generation will be about the same or worse, respectively: 28, 40
• Increase in the number of Americans living in poverty between 2000 and 2005: 5.4 million
• Number of indebted households using credit to cover basic living expenses, according to Demos: 7 in 10
• Percentage of personal bankruptcies that can be traced back to a serious illness or other medical cause: 54.5
• Percentage of debtors who went without food before declaring bankruptcy: 19.4
• The percentage of the GDP belonging to wages and salaries has never been lower than it was in 2006 at any point over the past 77 years where data was available.
• Percentage increase in the cost of health care premiums in 2006: 7.7 - two times the rate of inflation. 
•  Percentage increase since 2000 in the cost of premiums for employment-based health care coverage: 87
•   Percentage increase in tuition and fees at the average public four-year college over the past five years: 35

Budget 

President Bush: Reduce the budget deficit through spending cuts. 

“We must balance the federal budget. We can do so without raising taxes. What we need to do is impose spending discipline in Washington D.C.” 

DMI SAYS:  “The same President who single-handedly returned Washington to an era of staggering budget deficits is now preaching the wisdom of fiscal discipline and a balanced budget.  But the President’s refusal to reduce his war expenditures or to take back any of his staggering tax cuts for the richest Americans means he intends to balance the budget on the backs of average Americans.  Refusing to fund programs that ease the daily struggles of middle class Americans and slashing public support for programs that enable low-income Americans to work their way into the middle class should be a last resort for balancing the federal budget, not a first choice.” 

• Every year since President Bush took office 2001, the government has run a deficit, which in 2005 was the largest in American history.
• We support the President’s interest in cutting the deficit, but we are unclear on how this is possible in a time of war spending without limit and a commitment to continuing tax cuts that have drained our coffers.  
• These tax cuts deprive the public sector of the revenue needed to fund college aid, Medicare, unemployment benefits, education reform, and other programs the middle class relies on. Meanwhile, most of the revenue from these cuts raised comes from the wealthiest people who can most afford to pay.
• A recent study from the Congressional Budget Office confirms that the benefits of President Bush’s tax cuts continued to flow disproportionately to the top 1 percent of income earners, while tax rates for middle-income earners edged up.
• According to the Center on Budget and Policy Priorities, if the President’s tax cuts had been in full effect in 2006, their total cost would have been three times larger than all federal spending on education—including elementary, secondary and post-secondary programs. The total cost of these tax cuts would also be three times larger than all federal funding for veterans services, including veterans pensions, veterans disability compensation, veterans health care, and other veterans services. Or, seen in another way, the total cost of then President’s tax cut package equals the combined annual operating budgets of all of these agencies: Homeland Security, the State Department, Department of Housing and Urban Development, Education, Energy, Veterans Affairs, and the Environmental Protection Agency.  
• President Bush’s 2007 budget provides an indication of the type of spending he would like to discipline, such as the 13 percent decrease in funding for veterans’ health care he proposed.  Also on the chopping block were billions of dollars in proposed cuts to community colleges, job training programs, and elementary education – programs that help the neediest Americans get the skills they need to work their way into the middle class.
• In sum, it is in the interest of America’s middle class that the federal government reduce the deficit.  But we are sure that it is the middle class who will suffer on the road to accomplishing that goal if the President holds fast to a policy of maintaining and extending irresponsible tax cuts.

Relevant Statistics: 

• Size of the 2006 budget deficit: $296 billion
• Rank of the Bush tax cuts among the factors leading to increased budget deficits since 2001: 1
• Amount by which government revenues in 2006 fell short of where they would be without the President's tax cuts: $250 billion
• Ratio of the cost of making the President’s tax cuts permanent to the size of the Social Security shortfall over the next 75 years: 3:1
• Total estimated cost of the current tax cuts, the extension of expiring tax cuts and AMT relief through 2016: $6.5 trillion
• Amount of the President's 2001 and 2003 tax cuts that went to the top 1% income earners between 2002 and 2004: $197 billion
• Percentage of the American people who will get the majority of benefits from cuts in dividend and capital gains taxes: 0.2
• Percentage of benefits from these tax cuts that will go to households making more than $200,000: 75
• Under the 2006 Extension of Tax Cuts for Capital Gains and Dividends, average tax cut for people making under $50,000 a year: $3
• Average tax cut for people making $1 million or more a year: $59,972
• Percentage of all corporate stock and business assets held by the richest 1% of households: 60
• Amount by which the President’s proposed 2007 budget would decrease funding for education and workforce development programs, which includes K-12 education, higher education, community college funding, job training, and other such programs, over the next five years: $52.7 billion, amounting to a 17% decrease.

President Bush: We must make Social Security, Medicare and Medicaid fiscally sound. 

• “With enough good sense and good will, you and I can fix Medicare and Medicaid – and save Social Security.”

DMI SAYS: “Unfortunately, when President Bush proposes fixing something, it usually means weakening it.”  

• In his 2007 budget, the President proposed cuts in Medicaid that would shift costs to the states, driving them to restrict eligibility or diminish benefits. Similarly, the President’s ill-fated 2005 Social Security privatization plan included steep cuts in the benefits guaranteed to retirees, survivors, and the disabled. While putting these vital components of our nation’s social safety net on sound fiscal ground is imperative, we must not undermine needed health care or retirement income for the elderly, sick, and poor to do so.
• Cutting Social Security benefits is not necessary to ensure the program’s solvency. Social Security will have enough money to pay all benefits through 2046, with no changes to the system at all.
• Modest reforms, including raising the cap on income subject to Social Security taxes so that high earners, like low and middle-income Americans, pay the tax on all of their earned income, would go a long way towards ensuring solvency.
• Workers who have paid into the Social Security system have a right to full benefits. For the government to deny full benefits would, in effect, mean that the United States has defaulted on its government bonds.
• The erosion of traditional pensions means that Social Security is even more essential to the retirement security of middle-class and aspiring middle-class Americans than ever before.
• Medicare and Medicaid costs are growing because overall health care costs are increasing, not because these programs are administered inefficiently, or because benefits are too generous. While “reforms” could push more of the costs onto the states or onto poor families and the elderly, lower federal costs would be achieved at the expense of missing needed medical care. 
• The President’s interest in securing these programs for the benefit of America’s middle class will be illustrated by the substance of the proposals he offers, and his willingness to suspend “market” ideology and preserve the intention that drove the founding of these programs in the first place.  

Relevant Statistics: 

?         Percentage of the typical retirees’ income provided by Social Security: 75 

?         Number of senior citizens lifted above the poverty line by their Social Security benefits: 13 million 

?         Approximate percentage of the Social Security shortfall over 75 years that could be erased by repealing the President’s tax cuts on the top one percent of Americans: 100 

?         Number of Americans who rely on Medicaid: 55 million 

?         Proportion of children who get their health care through Medicaid: More than 1 in 4 

Earmark Reform 

President Bush:  We must reform the budget process by cutting the number of earmarks and making them more transparent. 

• “Let us work together to reform the budget process… expose every earmark to the light of day and a vote in Congress… and cut the number and cost of earmarks at least in half by the end of this session.” 

DMI SAYS: “The President's proposals this evening are a good start and if enacted will bring needed reform to a system that leaves too much room for pork.  But there is more to do.”  

• The President is right that much more transparency is needed in a budget process that currently allows for billions of dollars – often targeted at special interests and projects without a public purpose – to go undisclosed every year.
• Earmarking, which is different than the normal budgetary process in which funds are pooled for general expenses, designates certain funds for a specific institution, project or business. The problem is that there has been very little oversight in the process - allowing anonymous Congressional sponsors to back earmarks whose structure and purpose are not fully disclosed. This had led to a corrupt budgetary process wherein Congressmembers can earmark funds for special interests, pet projects, and projects that serve little purpose.
• The time for the President's proposals has certainly come. The Congressional Research Service reports that the amount of earmarks in appropriations bills has tripled in the past ten years, totaling 16,000 earmarks that cost the U.S. $50 billion in 2006.
• A 2006 USA TODAY poll found that a large number of special interest projects received earmarks after they hired lobbyists with close personal ties to lawmakers or staffers working with the House and Senate appropriations committees. The President's call to print the substance of earmarks in the actual text of bills, not in the undisclosed reports that accompany them, will be an important tool in tracking and cracking down on these sorts of kickbacks.
• Cutting earmark funding in half by the end of this session is a laudable goal, but it is also important that earmarks remain part of the budgetary process because they allow Congress to direct some of the White House's fiscal priorities. While spending on earmarks has reached enormous heights over the last decade, it's important that earmark reform not only scale back the portion of the budget spent on earmarks, but also include measures to guarantee as much transparency as possible.
• What would complete the President's plan is a measure to require that the sponsors of every earmark also be disclosed, thus allowing both those within and those outside of the government to keep tabs on tax dollars, and discourage Congressmembers from granting kickbacks to special interests. 

Relevant Statistics 

• Number of individual earmark requests that the House Appropriations Committee receives each year: 35,000
• Amount that the 704 earmarks included in the $16.8 billion appropriations for agriculture cost in 2005: $500 million
• Percentage by which earmarks attached to agriculture appropriations were larger in 2005 than in 1994: 50
• Amount that Ted Stevens (R-AK), chair of the Senate Committee on Appropriations, earmarked to fund his infamous "Bridge to Nowhere," a bridge that serves to connect an Alaskan town of 8,900 to an island of 50 inhabitants (accomplishing the same thing as a short ferry ride): $223 million

Continue Reading DMI's 2007 State of the Union Analysis

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 * All quotes are taken from the embargoed version of the State of the Union Address released by the White House before the speech.