In so many ways, Jan. 20, 2009, was a frightful day to be taking the oath of office.
The U.S. economy was in free fall as Barack Obama rose to deliver his inaugural address. “We are in the midst of crisis,” he said. “Homes have been lost, jobs shed, businesses shuttered.”
Exactly six years later, Obama is returning to Capitol Hill to deliver a State of the Union address at 9 p.m. ET. He is expected to highlight the economic progress that has been made since that frigid Day One — and call for more changes.
But Thomas Donohue, CEO of the U.S. Chamber of Commerce, warned in a speech last week that it’s not yet time for anyone “to take a victory lap.” More must be done to help the economy because “beyond the near term, the outlook is less certain,” he said.
So would it be fair for Obama to do some celebrating on Tuesday? Or will he need a legislative victory this year on tax-code changes to leave a lasting economic legacy?
To sort it out, let’s break up 2009’s biggest economic problems into four categories:
1) The Financial Crisis
In January 2009, many financial institutions were buried in bad loans. Markets were melting down, with the Dow Jones average of industrial stocks plunging from its pre-crisis high of 14,165 down to 6,547.
The Obama administration set out to restore confidence by managing the Troubled Asset Relief Program (TARP), passed by Congress in late 2008. At the time, many feared the bank bailout might cost taxpayers a fortune.
The opposite happened. Obama’s Treasury wrapped up that program last month, after posting a profit of about $15 billion. And the Dow stock average has nearly tripled since early 2009.
Still, some critics — including some in the president’s own party — worry that many banks remain too big while others say they are too regulated. “Nearly two dozen financial regulators … often conflict, compete and fail to work together,” Donohue said.
2) The Jobs Plunge
In January 2009 alone, employers cut nearly 800,000 workers. Throughout 2009, the job slashing would continue until the unemployment rate hit 10 percent that October.
Today, the unemployment rate is down to 5.6 percent, and private-sector employers have added jobs for 58 straight months — the longest streak on record.
Still, 2.8 million long-term unemployed workers haven’t seen a paycheck in more than six months. The labor-force participation rate is down, and as House Speaker John Boehner, R-Ohio, noted recently, workers are struggling with “stubbornly flat paychecks.”
3) The Housing Catastrophe
The brutal foreclosure crisis knocked millions out of their homes and helped push down prices by about 30 percent nationwide. Since then, housing prices have rebounded, although in most cities, they remain well below their 2006 heights.
This is perhaps the most positive indicator for the future: far fewer people are falling behind now on their mortgages. In 2010, the “serious” delinquency rate for mortgages hit 4.2 percent, meaning millions of homeowners were at least three months behind on their payments. The latest reading, in November, showed the delinquency rate was down to 1.9 percent.
Still, critics say the White House did too little to help housing, and note that the homeownership rate was 69 percent in 2004; now it’s just 64.4 percent.
4) The Deficit/Debt Outlook
Early in the Obama era, Congress passed a massive stimulus program. That increased spending, along with reduced tax revenues, sent the deficit soaring in fiscal 2009 to $1.4 trillion, or 9.8 percent of GDP.
In fiscal 2014, the deficit was down to just $483 billion, or 2.8 percent of GDP.
But while the annual shortfall is down, there are no revenue surpluses in sight, so the government keeps adding to its debt — the sum of all deficits that have piled up over time. The debt ended fiscal 2014 at $17.8 trillion, compared with $10 trillion in fiscal 2008.
At this point in the recovery, most business leaders and economists agree Obama is presiding over a dramatically improving economy — helped by low inflation, low interest rates and steady job growth. As Donohue said, “investing, hiring and consumer spending are all firming up.”
But as for having a positive impact on the economic lives of coming generations, the White House needs accomplishments that can’t easily be undone by future presidents. For example, Franklin D. Roosevelt built an enduring legacy by creating the Social Security system. Ronald Reagan slashed marginal tax rates. Bill Clinton signed the North American Free Trade Agreement.
The Obama administration’s Affordable Care Act will affect many business and workers for years to come, but that’s more of a social-welfare change than an economic legacy.
To make a lasting economic mark, Obama wants to reduce skills and income gaps. And he hopes to use tax-code changes to shift some money from the wealthy to the lower and middle class.
On Saturday, the White House said Obama will call on Congress to increase the taxes paid on profits from the sale of property or investments to 28 percent, up from, 23.8 percent rate, and impose new taxes on some inherited assets.
Those revenues would pay to expand tax credits for education and child care — and for families in which both spouses work.
Republicans, who control both the House and Senate, were quick to reject the idea. “More Washington tax hikes and spending is the same, old top-down approach we’ve come to expect from President Obama that hasn’t worked,” said Michael Steel, a spokesman for House Speaker Boehner.
Still, Republicans also want to build an economic legacy. They’d like to expand trade, reform the corporate tax code and change entitlement programs. To do any of that, they will need to get Obama to sign legislation, or win over enough Democrats to override vetoes.
With a new two-year Congress now in session, and Obama entering his final two years in office, everyone has some incentive to compromise enough to make the kinds of changes that Americans children and grandchildren will remember.