IE 11 is not supported. For an optimal experience visit our site on another browser.

Deficit worries could crush Obama's jobs plan

President Barack Obama laid out his jobs plan in his State of the Union, but finding money for fresh programs could be tough amid rising concern over deficits.

It's going to take more than President Barack Obama's lofty rhetoric to get legislators facing elections in November to ratify a jobs bill swiftly.

That's because voters are seething about the rising federal budget deficit, which is expected to hit $1.35 trillion in the current fiscal year, according to a report this week by the Congressional Budget Office.

With his health care initiative on life support, the prospect of heavy Democratic losses in the midterm elections and one in 10 workers out of a job, Obama devoted most of his first State of the Union message to Congress to answering the question foremost in the minds of many Americans: How are you going to get the country back to work?

The president's response was a package of proposals — some revived from his campaign — tied to the central objective of creating more jobs.

“Men and women … wake up with the anguish of not knowing where their next paycheck will come from; who send out resumes week after week and hear nothing in response,” the president told a joint session of Congress and prime-time television audience. “That is why jobs must be our No. 1 focus in 2010, and that is why I am calling for a new jobs bill tonight."

The House narrowly passed a $174 billion jobs bill last month, and Obama called on the Senate to ratify it "as the first order of business this year."

But prospects are uncertain, especially amid growing concerns about the deficit from both parties in Congress.

“This is the time to tell the country we are fiscally sound,” said Claire McCaskill, D-Mo., who is co-sponsoring a measure to cap some federal spending. “We have to avert a financial disaster that could occur if the world gets the sense that we can’t get our act together in terms of our deficit and our debt.”

In his 75-minute speech, Obama covered a wide range of issues, including a renewed focus on national security and a plea to Congress not to abandon the health care reform package that has consumed much of the first year of his presidency. 

The task of creating new jobs, however, was clearly singled out as Job One for his administration in the coming year. Since taking office amid a deep economic crisis, the White House has relied on massive government spending to try to reverse a surge in unemployment. Because of the $787 billion stimulus package shortly after he took office, Obama said, “there are about 2 million Americans working right now who would otherwise be unemployed."

But the feeble economic recovery has yet to produce the new jobs needed to put the 8 million Americans sidelined by recession back to work. As a result, worries about the economy and job market have eclipsed the protracted, high-profile debate over health care reform.

“Everybody is nervous about what's going to happen to their son, young daughter or  grandchild," said Andrew Stern, president of the Service Employees International Union. "They worry about: Is America still the greatest nation on earth when it comes to our economy? And what are we going to do to get back?”

The president offered a number of proposals to help small businesses spur job creation, including tax credits for firms that hire new workers or raise wages. He also proposed tax incentives for businesses that invest in new plants and equipment. And Obama proposed giving $30 billion in TARP bank bailout funds to community bankers to boost lending to small businesses.

It remains to be seen how much impact that TARP money could have. Some business leaders say the supply of cheap money isn’t the problem. Many households and companies are still struggling to pay down debt, not take on more, said Chuck Sykes, chairman of the Tampa Chamber of Commerce and CEO of Sykes Enterprises, which provides customer support services.

“We talk about trying to open the credit lines for everyone," he said. "But right now the country, the consumer and even companies are just totally underwater in debt.”

In his speech, the president also revived several campaign promises to create jobs. The list included more spending on clean energy development and manufacturing and expanding educational opportunities through grants to community colleges, a $10,000 college tax credit, elimination of federal subsidies for student lenders and forgiveness of some student loans after 20 years.

Boosting support for education drew high marks from some business leaders.

“That's how we compete globally, by preparing for the future,” said John Engler, president of the National Association of Manufacturers and former governor of Michigan. “The dropout rate has to be zero. Kids have to ready to go to work and go on and get their education and then contribute.”

Obama also invoked his job creation theme to urge additional support for manufacturers and farmers through expanded trade deals and the creation of a National Export Initiative, which would set a target of doubling U.S. exports in five years.

Without these investments, Obama warned, the United States risks losing ground in an increasingly competitive global economy.

“China's not waiting to revamp its economy,” Obama told Congress. “Germany's not waiting.  India's not waiting. These nations aren't standing still. These nations aren't playing for second place. They're putting more emphasis on math and science. They're rebuilding their infrastructure. They are making serious investments in clean energy because they want those jobs." 

To try to tamp down rising voter backlash against runaway federal spending, Obama called for a freeze in parts of the federal budget — but not until next year, arguing that a freeze this year could offset the impact of last year’s stimulus spending.

Obama also sought to calm voter anger over the swollen national debt — which now stands at $12.3 trillion, more than double the level of a decade ago — by announcing a bipartisan commission to make recommendations on shrinking the debt over the long term.

“Families across the country are tightening their belts and making tough decisions,” he said. “The federal government should do the same."

Obama's speech came a few hours after the Federal Reserve announced it would keep interest rates at current, low levels for an extende period but also reminded investors that its $1.25 trillion mortgage buyback program will be wrapping up in March. That is expected to send mortgage rates higher, which could throw cold water on any recovery in the housing sector.

But Obama’s speech gave only passing mention of the ailing housing market, as the president promised to “step up home refinancing so homeowners can move into more affordable mortgages.”

Housing industry leaders say the White House needs to do much more. Despite three government foreclosure relief programs in two years, the foreclosure rate continues to rise and could hit some 4.2 million in 2010, according to Margaret Kelly, CEO of RE/MAX International and a member of the board of the Denver Federal Reserve Bank.

“The administration had talked about modifying or stemming five to six million foreclosures,” she said. But so far, “900,000 loan modification trials have happened and only 66,000 have actually gone into a permanent modification. That's not even seven percent. So if we are adding 350,000 new foreclosures per month, and in 10 months we’ve only modified 66,000, we're not going to turn this around any time soon.”