Obama's Sobering Second Year

01/05/2010 1:00 pm EST

Focus: MARKETS

Knight Kiplinger

Editor-in-Chief, The Kiplinger Letter, Kiplinger's Personal Finance, and Kiplinger.com

Knight Kiplinger, editor in chief of The Kiplinger Letter, says the president has very little capacity to launch big initiatives in 2010 as he faces grim economic reality.

As President Obama begins his second year in office, a sobering reality is setting in. The president who promised change has instead been changed.

2010 will bring far less soaring rhetoric [and] less ambitious goals, and even those require herculean efforts to succeed. The economy and the war [in Afghanistan] will dominate, with both constrained by sluggish growth and towering deficits.

Obama begins the year in a weaker position: His public support is steadily eroding. His job rating is below 50%, with even lower grades on the economy. Liberals feel he hasn’t followed up on campaign promises, while many independents think he is tacking too far to the left with his agenda.

Most of [the president’s] record to date is like a glass half full: The stimulus limited the recession’s depth, but fell short of the grandiose promise to save or create 3.5 million jobs.

The 2010 legislative agenda will be full, but much of it will go unfulfilled. A health care bill and a jobs bill are likely in January, after which [the president] and congressional Democrats will find the going slow on other legislative issues.

Financial regulations: The Senate will take its time on Obama’s plan, with action likely to drag on until summer. Odds of passage are better than even, but the final bill won’t be all Obama wants.

Climate change: The House-passed cap-and-trade bill will never make it through the Senate.

Immigration overhaul: [President] Obama and Democratic leaders will push hard next year, with support from some Republicans and business groups. But winning 60 votes in the Senate for what some will call amnesty will be very hard.

Card check: No way. Labor will have to settle for a compromise bill that will protect against undue employer pressure. And it will preserve the secret ballot for union elections.

The unfinished work has Democrats nervously eyeing the 2010 elections. Their biggest concern by far is the economy. Democrats know they face election losses no matter what, but the losses may be huge if the rate of unemployment stays high. They’ll do what they can to create jobs, but they know they can’t do much.

Expect Democrats to start pushing a jobs bill right away, with some parts, such as an extension of unemployment benefits and COBRA subsidies, winning approval before the end of the year. One key element: Infrastructure spending, perhaps as much as $50 billion in time for spring construction on roads and bridges.

Also, tax cuts for small business—an end to capital gains taxes for smalls to encourage investment and incentives to hire more workers are being pushed hard.

But all this help will be limited. Congress has no choice but to follow President Obama and embrace the contradictory goals of spurring the economy while keeping deficits from growing too much. [The president] insists the two are not irreconcilable, because a growing economy is the single biggest engine for controlling deficits.

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