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Obama's Middle Class Priorities Complicated By Looming Fights Over Deficit

State Of The Union Unemployment

First Posted: 02/13/13 EST Updated: 02/14/13 EST

In terms of rhetoric, President Obama's latest State of the Union address offered an ambitious call to action, aiming for no less than the restoration of middle-class security for millions of Americans who have grown accustomed to sliding toward poverty.

"No one who works full-time should have to live in poverty," Obama said in one of his signature lines of the evening, arguing in essence that a paycheck ought to be enough to deliver a family basic goods such as housing, medical care and ample groceries.

In a bid to achieve that goal, Obama proposed raising the federal minimum wage, along with a series of initiatives aimed at spurring job creation. But if his stated plans resonated as bold, the details of Obama's prescription left many economists skeptical that his administration is in any position to deliver.

Obama still confronts a House of Representatives controlled by Republicans who have vowed to pare federal spending. Virtually everything he put forward Tuesday night -- from a $50 billion infrastructure building fund to a program to rehabilitate abandoned homes -- involves spending money. And the dollars the President seeks would themselves be insufficient to significantly boost employment or lift the working poor to the ranks of the middle class, say many experts.

"It's just going to be nickel-and-dime stuff," said Dean Baker, an economist with the Center for Economic and Policy Research. "It's not going to have a noticeable impact, certainly not on the economy as a whole."

In setting his sights on the working poor, Obama put the focus on an increasingly large slice of the American population. One in three working families now lives just above the official poverty line -- defined as $22,811 for a family of four -- according to a recent report from the Working Poor Families Project, which is funded by several nonprofit groups including the Annie E. Casey Foundation and the Ford Foundation. A decade ago, that number was closer to one in four.

In 2011, the latest year for which data is available, nearly 48 million Americans were in low-income working families, living on $45,000 or less for a family of four, according to the report. Raising the federal minimum wage from its current $7.25 an hour to $9 an hour would not be enough to lift many out of poverty, economists say. Even if a person works 40 hours a week, a full-time job at $9 an hour would add up to less than $19,000 a year -- still below the poverty line for a family.

Advocates nonetheless praised Obama's proposed minimum wage increase as a crucial means of elevating the circumstances of people who work at the lowest rungs of the economy. Such a course "will stimulate consumer demand and help drive economic growth for the people who need it most in America -- workers," said Christine Owens, executive director of the National Employment Law Project, in a statement following the president's speech.

The rest of Obama's economic proposals struck many economists as mere repackaging of half-measures either too expensive to gain congressional approval or too modest to lift fortunes, and sometimes both.

Obama lent voice to job creation through infrastructure investment, proposing a $50 billion "Fix It First" program to rebuild crumbling bridges and roads. He cast the idea as a way to "put people to work as soon as possible on our most urgent repairs, like the nearly 70,000 structurally deficient bridges across the country."

But the dollars simply can't achieve the objective, said David Backus, an economist at NYU's Stern School of Business. "Fifty billion dollars is basically an immaterial number for the U.S. economy," Backus said. "We have a 14-trillion dollar economy. Will there be an employment effect? Maybe. But it'll be swamped by anything else that goes on."

The "Fix It First" infrastructure proposal is a scaled-back version of a much larger job-creation effort floated by the president in 2011. That plan, marketed publicly as the American Jobs Act, included $447 billion worth of tax cuts and spending increases. It would have trimmed payroll taxes, assisted state and local governments and repaired highways. House Republicans instantly criticized it, and most of the agenda went nowhere.

At the time, economists estimated the full package could have added up to 1.9 million jobs to the economy while cutting the unemployment rate by 1 percent. Mark Zandi, the chief economist at Moody's Analytics, said in a 2011 report that the plan would "go a long way toward stabilizing confidence, forestalling another recession, and jump-starting a self-sustaining economic expansion."

In an interview Wednesday, Zandi said the slimmer proposal Obama mentioned Tuesday night "has the most potential" for job creation, but doubted that even a scaled-down version of the plan would have much success on Capitol Hill.

"There's just a more realistic tone to the discussion," Zandi said. "There's an understanding that this is going to be very difficult to get done."

The president's less-ambitious spending goals in part reflect how addressing the federal deficit has quickly grown to become one of the nation's top public policy priorities, constraining his ability to champion new spending.

According to data from the Pew Research Center for People & the Press, at the beginning of Obama's first term in 2009, only 53 percent of survey respondents defined reducing the budget deficit as a top priority. By the beginning of his second term, 72 percent of those surveyed counted it as a significant issue -- the largest increase of any policy issue covered by the survey.

That public-opinion shift underscores the considerable obstacles that confront Obama, even as he operates with the momentum of a newly elected president: He must take heed of concerns over the deficit, which make spending nearly impossible, while somehow coming up with the dollars to spur improvements for the working poor.

"The narrative is now too impressed on the American public's mind that the nation's number-one problem is its debt," said Gary Burtless, a senior fellow in economic studies at the Brookings Institution. "That represents a very serious counterargument to undertaking these kinds of policies."