President Barack Obama speaks to members of Congress during the annual State of the Union address.
Updated at 10:30 pm ET
With an unfinished legislative agenda from last year and with Election Day nine months from now, President Barack Obama went before a joint session of Congress Tuesday night to offer his proposals for economic growth and to draw sharp contrasts with his Republican foes.
He contended that, “The state of our Union is getting stronger. And we've come too far to turn back now. As long as I'm President, I will work with anyone in this chamber to build on this momentum. But I intend to fight obstruction with action, and I will oppose any effort to return to the very same policies that brought on this economic crisis in the first place. “
But Obama also painted a dire scenario of a nation divided into a wealthy elite and a mass of struggling Americans on the verge of insolvency.
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“We can either settle for a country where a shrinking number of people do really well, while a growing number of Americans barely get by,” Obama said. “Or we can restore an economy where everyone gets a fair shot, everyone does their fair share, and everyone plays by the same set of rules."
The president calls opportunity for all the "defining issue of our time" in his State of the Union Address.
Obama pointed to some signs of economic revival: “In the last 22 months, businesses have created more than three million jobs. Last year, they created the most jobs since 2005. American manufacturers are hiring again, creating jobs for the first time since the late 1990s. Together, we've agreed to cut the deficit by more than $2 trillion. And we've put in place new rules to hold Wall Street accountable, so a crisis like that never happens again.”
Obama was speaking against the backdrop of an improving economy which is slowly recovering from the recession of 2007-2009. Employment has shown signs of revival in recent months, with the jobless rate falling from 10 percent in October of 2009 to 8.5 percent last month.
But there were still almost one million fewer people employed last month than when Obama signed his $825 billion stimulus bill into law in February 2009.
Reviving a proposal that the Senate rejected in 2010, Obama made a vigorous pitch for changing the law to allow young illegal immigrants to become American citizens. "Hundreds of thousands of talented, hardworking students in this country," he said, "were brought here as small children, are American through and through, yet they live every day with the threat of deportation."
Obama was also using his speech Tuesday night to expand on the “fairness” theme he discussed in his Kansas speech last month.
He made the case for raising taxes on higher-income people such as legendary Omaha investor Warren Buffett who have income from capital gains and dividends.
"Tax reform should follow the Buffett rule: If you make more than $1 million a year, you should not pay less than 30 percent in taxes," the president delcared. "If you're earning a million dollars a year, you shouldn't get special tax subsidies or deductions. On the other hand, if you make under $250,000 a year, like 98 percent of American families, your taxes shouldn't go up."
He added, "You can call this class warfare all you want. But asking a billionaire to pay at least as much as his secretary in taxes? Most Americans would call that common sense."
Obama advisor David Plouffe was asked on the Today show Tuesday about GOP presidential contender Mitt Romney’s 2010 tax return which showed him paying $3 million in income taxes on $21.6 million in income.
Plouffe said, “It’s a good example … of the tax reform we need. Warren Buffett said he should not be paying less taxes – as a rate – than his secretary.”
President Obama delivers his third State of the Union address, laying out his agenda for the coming year: building the economy, bringing manufacturing back, and increasing infrastructure projects. He describes an America "where hard work pays off and responsibility is rewarded."
About 80 percent of Romney’s income came from dividends and capital gains which are taxed at 15 percent, instead of at the top rate for wage and salary income, 35 percent. With only a brief interval, capital gains have enjoyed preferential tax treatment since the 1920s.
Obama also proposed a series of new tax breaks to encourage American companies to manufacture goods in the United States and not in foreign countries. Obama proposal’s to revive American manufacturing comes after more than half a century in which manufacturing’s share of employment has been falling.
According to a Congressional Budget Office report, “the rapid growth of productivity in manufacturing has accounted for a substantial fraction of the decline in manufacturing employment and hours.” The CBO said productivity in manufacturing – more output from fewer workers – had risen by about one-third from 2000 to 2008.
Obama declared that, “I will not cede the wind or solar or battery industry to China or Germany because we refuse to make the same commitment here. We have subsidized oil companies for a century. That's long enough.”
He asked for new clean energy tax credits, but did not allude to the $535 million in taxpayer money that was lost in an Energy Department loan to Solyndra, the California solar company that went bankrupt last September.
Addressing the need for skilled workers, Obama made a proposal that was an echo of one made by President Bill Clinton in his 1996 State of the Union speech, Obama said, “I want to cut through the maze of confusing training programs, so that from now on, people...have one program, one website, and one place to go for all the information and help they need. It's time to turn our unemployment system into a reemployment system that puts people to work."
In the Republican response to Obama, Indiana Gov. Mitch Daniels, who passed up a chance to run against Obama this year, said Obama "seems to sincerely believe we can build a middle class out of government jobs paid for with borrowed dollars."
He added, “Those punished most by the wrong turns of the last three years are those unemployed or underemployed tonight, and those so discouraged that they have abandoned the search for work altogether.”
He said Republicans’ “first concern is for those waiting tonight to begin or resume the climb up life’s ladder. We do not accept that ours will ever be a nation of haves and have nots; we must always be a nation of haves and soon to haves.”
Daniels said, "The only way out of the dead end of debt into which we have driven, is a private economy that begins to grow and create jobs, real jobs, at a much faster rate than today."
Daniels assailed Obama's decision to block construction of the Keystone XL pipeline that would bring oil from Canada to refineries on the Gulf Coast: "The extremism that stifles the development of homegrown energy, or cancels a perfectly safe pipeline that would employ tens of thousands… is a pro-poverty policy."
Gov. Mitch Daniels delivers the Republican response, saying that the loyal opposition puts "patriotism and national success ahead of party or ideology" and says the GOP "program of renewal" will rebuild the American dream.
Foreign policy played a relatively small role in Obama's speech.
Addressing the threat of Iran getting nuclear weapons, Obama said, “A world that was once divided about how to deal with Iran's nuclear program now stands as one. The regime is more isolated than ever before; its leaders are faced with crippling sanctions….”
He said, “America is determined to prevent Iran from getting a nuclear weapon, and I will take no options off the table to achieve that goal. But a peaceful resolution of this issue is still possible, and far better, and if Iran changes course and meets its obligations, it can rejoin the community of nations.”
Obama began his address by celebrating military successes: “For the first time in nine years, there are no Americans fighting in Iraq. For the first time in two decades, Osama bin Laden is not a threat to this country. Most of al Qaeda's top lieutenants have been defeated. The Taliban's momentum has been broken, and some troops in Afghanistan have begun to come home.”
On Wednesday morning Obama will leave Washington to take his State of the Union message to three 2012 battleground states: Iowa, Arizona and Nevada. He carried Iowa and Nevada in 2008.
Obama was speaking Tuesday night with his signature first-term achievement – a historic overhaul of health insurance and an expansion of Medicaid – under the shadow of a pending decision by the Supreme Court.
Oral arguments before the justices on the constitutionality of the health insurance overhaul will stretch over three days in late March. The high court is considering not only whether the requirement to buy insurance is constitutional, but whether the states can be forced to expand their Medicaid programs, as the law orders them to do.
Meanwhile, Obama’s ability to get Congress pay for any new proposal he might make is boxed in by controls on spending which he signed into law last year as part of an accord with Congress to raise the limit on federal borrowing.
Any new program would likely come in the category of discretionary outlays, the part of the budget that Congress controls through annual appropriation bills. Discretionary spending amounted to $1.35 trillion in 2011, 40 percent of total outlays, according to the Congressional Budget Office. But the Budget Control Act which Obama signed last summer imposes limits on discretionary spending. For 2012 and 2013, the caps would keep spending for items other than the Afghanistan war below the 2011 spending level and would limit the growth of those appropriations to about two percent a year from 2014 to 2021, according to the CBO.
Meanwhile entitlement spending – the 40 percent of the budget that goes to Medicare for the elderly, Medicaid for the poor, and Social Security for the disabled and retired – continues to grow steadily, driven by an aging population.
Obama faces a House of Representatives with 242 Republicans – the most that any Democratic president has had to face since Harry Truman in 1947.
As Truman did in the 1948 presidential campaign, Obama is sure to lambaste the Republican majority as an obstructionist, do-nothing Congress. Republicans are returning fire by saying the House has passed more than two dozen separate job creation bills and the Democratic-controlled Senate hasn’t acted on them.