Obama's State of the Union: What to Expect

Hillary Clinton wrapped herself in Barack Obama's mantle at the Democratic Presidential Debate in Charleston, South Carolina on January 17. Above, Secretary of State Clinton listens President Obama speak during a meeting with members of his cabinet at the White House in Washington on November 28, 2012. REUTERS/Kevin Lamarque

Tonight, President Barack Obama will deliver his annual State of the Union address on the heels of a jarring defeat for Democrats in the midterm elections. This speech will be especially telling when it comes to the president's state of mind, and what he thinks he can accomplish in his remaining time in office.

Most (if not all) of what is said tonight, from both sides of the aisle, should be looked at through the lens of the 2016 presidential election. "A lot of what's going to go on tonight is a wish list for his last two years," says John Hudak, managing editor of the FixGov blog at the Brookings Institution. "A wish list for the end of his presidency...and the top of that list is to get a Democrat elected" to the White House in 2016.

Obama will certainly mention specific policies. Among them will be free community college for all students, reforms to the tax code designed to alleviate tax burdens on middle-income Americans, and executive actions on immigration reform and re-establishing diplomatic ties with Cuba. But none of these specifics are terribly important, because, faced with an inimical Congress, Obama has little hope of pushing through his proposals; for the time being, his best hope is to maintain the status quo.

The purpose of tonight's speech is to get Americans talking about what the Democrats want them to be focusing on when they fill out their ballots in 2016. "What the president talks about is less about President Obama" than about the Democratic nominee for president in 2016, says Hudak. "Tonight is the first night we'll see this on as grand a stage."

Meanwhile, all of the policies the president is expected to talk about tonight will share one common theme: inequality.

Obama's strongest position might be on the question of immigration reform. In November, the president signed executive orders widely lauded by immigrant rights groups. They were designed to keep immigrant families from being broken up by deportations; to expand the pool of those available for Deferred Action for Childhood Arrivals exemptions; and to provide easier access for undocumented immigrants to become citizens.

A recent poll byThe Wall Street Journal showed that 52 percent of Americans approve of the president's unilateral action on immigration, while 44 percent disapprove—but a plurality of those who disapprove do so because they believe the president should act with Congress, not because they disagree with the substance of the policy. "What the president can do tonight is work the politics of this issue—that's what he sees as his role and really his only path forward," says Hudak.

To that end, the president tonight will likely continue his strategy of spinning his use of executive powers into a positive for himself and his party. When Republicans accused Obama of executive overreach in November, his response that they should "pass a bill" resonated with voters. "The institution that looks like they're being lazy is the institution Americans will be upset with," says Hudak. "That type of framing can be very effective with the American people."

And, as Latino voters become increasingly influential, the Democrats can only benefit by focusing on immigration reform. A leading cause of the Republicans' ouster from the White House in 2012 was the Latino vote being stacked against them in key swing states. The GOP's stance on immigration has changed little since then, meaning Democrats may need only to remind Latino voters of that fact to win their votes.

The issue most recently pegged by the White House, and the one least likely to gain any traction in Congress, is reforming the tax code. Obama's plan would raise taxes on the very wealthy to pay for tax cuts for middle- and low-income families.

It would do this in three ways: First, it would close the so-called stepped-up loophole, commonly known as the trust fund loophole. Under current tax law, assets passed on to heirs when their owners die are taxed on what they were originally worth, not what they were worth at the time of the owner's death. So, a $1 million investment that appreciates during the owner's lifetime to $10 million will be treated as $1 million for tax purposes upon the owner's death; the other $9 million in gains goes untaxed. "Capital gains income is very highly concentrated in the hands of the 1 percent," says Matt Gardner, executive director of the Institute on Taxation and Economic Policy. "The stepped-up basis loophole is costing us an awful lot of money that isn't benefiting middle and low-income families at all."

In fact, the Congressional Budget Office estimates that untaxed income from the stepped-up loophole will cost the U.S. 0.3 percent of GDP in the next decade. Under Obama's plan, only capital gains over $100,000 would be taxed for individuals, and only those over $200,000 for families, meaning only the very wealthy would see any difference at all.

The second prong of Obama's tax reform plan is to increase taxes on capital gains directly, to 28 percent from 20 percent.

The third part of the plan is to tax financial institutions deemed "too big to fail." If a bank can depend on a government bailout when its investments go sour, the thinking goes, it should pay a price for the peace of mind.

None of these proposals is likely to see any forward momentum in the next two years. "Until Congress is willing to think seriously about the importance of raising revenue, let alone raising revenue is a progressive way, these plans aren't likely to go anywhere," says Gardner. "Republicans want to go the opposite direction."

Obama knows this. He wants to keep the discussion focused on inequality—thinking it will help his party retain the White House in 2016.

Another proposal trotted out by the White House in recent weeks is a plan to provide two free years of community college to all students. This, too, is a non-starter, says Amy Ellen Duke-Benfield, a senior policy analyst at the Center for Law and Social Policy.

"Would this be realistic in the near-term? I don't know that it is in the near-term," she says, "but I think the president's community college proposal raises a point in the popular consciousness."

That point—that access to quality education is unequal across the socioeconomic spectrum—will likely resonate as part of the larger message of inequality in 2016. Thus, Obama will want to hammer home the statistics surrounding community college to link the issues in voters' minds. One such number: The average gap between a community college student's financial assistance and the amount of money he or she actually needs to complete a semester of school is $6,000, according to Duke-Benfield. Also, 27 percent of college students work part time, and another 39 percent work full time—and research shows that working more than 20 hours per week has negative impacts on academic performance.

The big challenge for these programs is that they're not cheap. "The congressional leadership is treating most everything like a zero-sum game," says Duke-Benfield, meaning, for now at least, free community college for all is a pipe dream. But education advocates like Duke-Benfield hope Obama's focus on community college might spur a discussion about reforming the educational tax credit. If Obama is looking for something Republicans can get behind, he could do worse than regulatory reform.

"Americans are always sympathetic to simplifying a set of things that are complicated," she says, "and the current educational tax credit is incredibly complex."

Obama will mention many specifics tonight. As policies, most of them are dead on arrival. But his role is no longer to push policies; his role is to set the stage for Hillary Clinton in 2016. "Economic opportunity and inequality are going to be huge themes in 2016, especially when we have an economy that's statistically recovering but not necessarily recovering for certain demographic groups," says Hudak.

Clinton will need to wed herself to progressive elements of her party to pull off an easy nomination in 2016, and Obama begins that conversation on the grand stage tonight.