Bloomberg News

Obama Seeks Minimum Wage Boost to Bolster Economy in Speech

February 12, 2013

Obama Seeks Minimum Wage Increase to Stimulate Economy in Speech

President Barack Obama, center, arrives to deliver the State of the Union address to a joint session of Congress at the Capitol in Washington, on Feb. 12, 2013. Photographer: Andrew Harrer/Bloomberg

President Barack Obama called for raising the federal minimum wage to $9 an hour and warned he’ll use executive powers to get his way on issues from climate change to manufacturing if Congress doesn’t act, laying out an assertive second-term agenda sure to provoke Republicans.

In the first State of the Union address since winning re- election, Obama proposed making preschool available to all 4- year-olds, negotiating a new trade agreement with the European Union and spending $50 billion on “urgent” infrastructure projects. He lauded steps by companies including Apple Inc (AAPL:US). and Ford Motor Co. (F:US) to bring jobs back to the U.S.

“It is our unfinished task to make sure that this government works on behalf of the many, and not just the few; that it encourages free enterprise, rewards individual initiative, and opens the doors of opportunity to every child across this great nation,” Obama said in his hour-long speech delivered to a joint session of Congress.

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Obama also promised to push hard for his proposals on immigration and on guns, pointing out members of the audience from Newtown, Connecticut, and other communities that have been scenes of mass shootings.

Spending Cuts

Obama spoke as he and congressional Republicans are at loggerheads in negotiations to head off $1.2 trillion in automatic, across-the-board spending cuts set to begin taking effect on March 1. He’s also in a political struggle over the government’s role in addressing economic inequality, a central theme of his re-election campaign and his inaugural address.

Obama’s call for a minimum wage is his first as president. While it was last increased in 2009, under his presidency, the increase came out of a 2007 law signed by President George W. Bush. Raising the hourly federal minimum wage to $9 from $7.25 by the end of 2015 would return it to its highest inflation- adjusted value since 1981, under President Ronald Reagan, according to a White House fact sheet.

The address signaled Obama’s plans to move quickly to use his political strength from last November’s re-election by challenging the Republican majority in the U.S. House of Representatives to schedule votes on his agenda. It also illustrated his decision to test the limits of his executive powers to push ahead on his priorities without the House or even the Democratic Senate majority.

Deficit Talks

Obama said his proposals wouldn’t add “a single dime” to the deficit. He repeated his demand that Republicans accept raising tax revenue along with spending cuts as part of any “balanced” approach to his goal of $1.5 trillion in additional deficit reduction over a decade.

Republicans rejected Obama’s assurances. Senator Marco Rubio of Florida said in the Republican response that more tax increases on the wealthy would slow economic growth and ultimately harm the economic prospects for all Americans.

“The tax increases and the deficit spending you propose will hurt middle class families,” Rubio said in the party’s response. “It will cost them their raises. It will cost them their benefits. It may even cost some of them their jobs.”

Over the next few days, the president will travel for events in North Carolina, Georgia and Illinois aimed at promoting his agenda.

Obama Agenda

While most of the speech was about the budget, taxes and spending, Obama also highlighted two of the most politically contentious parts of his agenda: immigration and gun control.

The president summoned the suffering of the families of shooting victims to make the case against opponents’ efforts to obstruct gun control legislation. Referring to more than two dozen relatives the White House had invited to the chamber to view the speech, he implored the lawmakers: “If you want to vote no, that’s your choice,” he said. “They deserve a vote.”

The president described closing more than a decade of war with the withdrawal of 34,000 U.S. troops from Afghanistan over the coming year, cutting the American force there by about half.

He also talked about his targeted approach to fighting terrorists and extremism. “We don’t need to send tens of thousands of our sons and daughters abroad, or occupy other nations,” Obama said. “Instead, we will need to help countries like Yemen, Libya, and Somalia provide for their own security, and help allies who take the fight to terrorists” such as in Mali.

Drone Use

While Obama didn’t mention the use of remotely piloted drone aircraft, he said he will continue a policy of “direct action” to kill terrorists, including U.S. citizens when warranted. He pledged to be more transparent about a program he said is conducted within “a durable legal and policy framework.” The program came under fire during last week’s confirmation hearing for John Brennan, the president’s nominee to lead the Central Intelligence and architect of the drone program.

Obama said that the U.S. and other nations will work together to “do what is necessary” to prevent Iran from getting a nuclear weapon, and that provocative actions by North Korea including a nuclear test hours before his speech “only isolate them further.” He said the U.S. will seek to work with Russia to make more reductions in nuclear arsenals.

The president also pledged that the U.S. will continue to “stand steadfast with Israel in pursuit of security and lasting peace,” he said. Obama plans to make his first trip to Israel as president next month.

Cyber-Security

He announced he has signed an executive order on cyber- security to develop voluntary standards to strengthen the security of private computer networks, protecting U.S. companies in critical industries.

Obama began his speech with a warning about the “sudden, harsh, arbitrary” spending cuts that loom if Congress fails to act to avert the sequester would slow the economy, “jeopardize our military readiness’ and ‘‘devastate priorities like education, energy, and medical research.’’

He said he stood by an offer he had previously made to cut spending on the Medicare health insurance plan for the elderly by cutting payments to drug companies, raising premiums for the wealthy and changing medical reimbursement procedures.

Still, he said Republican congressional leaders, who have said they will not accept more tax increases, must accept a ‘‘balanced approach’’ to deficit reduction that includes ‘‘getting rid of tax loopholes and deductions for the well-off and well-connected.’’

Bad to Worse

The sequester is ‘‘a really bad idea,’’ and it would be ‘‘even worse’’ if he accepted Republican proposals to prevent the defense cuts by cutting deeper into education, job training and entitlement programs.

‘‘We can’t ask senior citizens and working families to shoulder the entire burden of deficit reduction while asking nothing more from the wealthiest and most powerful,’’ Obama said. ‘‘How is that fair? How does that promote growth?’’

Obama proposed the creation of an Energy Security Trust funded by oil and gas revenue to fund research to shift cars and trucks away from oil use to alternate energy sources.

On the minimum wage, Obama invoked his general election rival Mitt Romney, ‘‘Here’s an idea Governor Romney and I actually agreed on last year: Let’s tie the minimum wage to the cost of living so that it finally becomes a wage you can live on.”

Such an increase, affecting an estimated 15 million people, would require approval by Congress. Republican lawmakers have repeatedly criticized such proposals, saying a higher minimum wage would throw lower-paid employees out of work because of the cost to businesses.

Unemployment Rate

While the U.S. pulled out of its worst economic downturn since the Great Depression after Obama took office, unemployment has remained high and the ranks of jobless workers has cut employees leverage to gain wage increases.

Real median household income declined to $51,088 in December 2012 from $55,012 when he took office in January 2009, according to an analysis of census data by Sentier Research, an economic-consulting firm in Annapolis, Maryland.

Real average weekly earnings showed no gain for the year ended in December, and the unemployment rate in January rose to 7.9 percent from 7.8 percent the month before.

A report showing the economy unexpectedly shrank by 0.1 percent during the final three months of last year raised fresh concerns about the strength of the U.S. recovery. The administration did not specify the cost of Obama’s plan to provide preschool for every 4-year-old child. The president is proposing a state-federal partnership, with the U.S. government offering competitive grants.

Manufacturing Initiative

He said he’ll use his executive authority to start three manufacturing innovation institutes this year, while calling on Congress to act on a broader $1 billion proposal for 15 such institutes. The institutes are to be paid for through a mix of existing dollars in agency budgets and private sector commitments, partnering with universities and community colleges to train workers.

Manufacturing helped lead the recovery since the recession ended in June 2009. Capital expenditures and exports have contributed close to 75 percent of all gross domestic product growth since then.

The sector has essentially flat-lined since the end of the first quarter of 2012. The 500,000 new jobs added in the last two years isn’t enough to replace the 1.8 million manufacturing jobs lost since 2007.

Obama cited Apple’s plans to spend more than $100 million this year on building Mac computers in the U.S. Chief Executive Officer Tim Cook was among the guests invited to sit in first lady Michelle Obama’s viewing box for the president’s speech.

Other companies that have said they’ll shift production back to the U.S. from overseas include Caterpillar Inc. and General Electric Co.

To contact the reporters on this story: Margaret Talev in Washington at mtalev@bloomberg.net; Mike Dorning in Washington at mdorning@bloomberg.net

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net


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Companies Mentioned

  • AAPL
    (Apple Inc)
    • $117.72 USD
    • 1.25
    • 1.06%
  • F
    (Ford Motor Co)
    • $15.63 USD
    • 0.20
    • 1.31%
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