In State of the Union, Obama warns economic disparity threatens middle class
By Scott Wilson and David Nakamura,
President Obama warned the nation Tuesday that the decades-old promise of a secure and rising middle class is under threat because of growing disparities between the rich and everyone else in America.
In an election-year State of the Union message that will likely serve as the template for the months of campaigning ahead, Obama outlined a series of steps that he believes will reinforce the tentative economic recovery, including proposals to eliminate tax incentives for companies to move jobs overseas, to make college more affordable and to expand help for credit-worthy homeowners looking to refinance mortgages at historically low interest rates.
None of the proposals constitutes a single bold stroke to revive the economy, but the heart of Obama’s message — one he has underscored in appearances around the country in recent months — was that America’s wealthiest citizens must do more to cement the economic recovery and pull the country from its dire fiscal condition.
The approach was typified by his call for those who make more than $1 million a year to pay a tax rate of at least 30 percent and to forgo a host of deductions he said they do not need.
In detailing what he called a “blueprint for an economy built to last,” Obama struck the populist chords that his Republican presidential rivals have criticized as “class warfare.” But he has seen his approval ratings rise on the strength of that message, particularly among the independent voters who helped elect him in 2008 but had grown disappointed by his leadership in office.
“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 told a boisterous House chamber and a prime-time television audience, “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.
“What’s at stake are not Democratic values or Republican values, but American values,” he continued. “We have to reclaim them.”
Obama spoke from a stronger position politically than he has been in for months. His approval rating, according to a new Washington Post-ABC News poll, stands at about 50 percent, and a majority of independent voters now look favorably on his performance in office.
But his advisers are well aware that his pursuit of a second term is imperiled by a still-staggering economy and a perception, even among those in his own party, that he has not effectively challenged Republicans to pass his economic plans.
Nearly all of the roughly hour-long speech Tuesday was devoted to the economy. Obama spent only a brief time on foreign policy.
He underscored that in the past year he has overseen the killing of Osama bin Laden and the end of the Iraq war, an unpopular conflict that he had pledged to end as a candidate. Adm. William McRaven, who oversaw the May raid that killed bin Laden, was invited to sit with first lady Michelle Obama for the address.
In his speech, Obama proposed using half of the “peace dividend” as he ends America’s wars in Afghanistan and Iraq — about $200 billion over the next six years — to pay for the construction of new roads, bridges, rail lines and other infrastructure that he said is critical to the country’s ability to compete in a global economy.
In a tacit response to criticism from his Republican rivals, he also announced that he would create a “trade enforcement unit” that will allow the government to more aggressively pursue unfair trade practices in countries around the world.
He specifically mentioned China, long accused of keeping its currency unfairly low against the dollar to boost exports and make U.S. imports more expensive. Mitt Romney, the former Massachusetts governor and a leading candidate for the Republican presidential nomination, has criticized Obama for failing to challenge China over its trade practices.
As he has in the past, the president spoke optimistically about the trajectory of the economy, which, he has repeatedly reminded Americans, was in the depths of a recession when he took office and is now adding jobs. The unemployment rate still stands at 8.5 percent, dangerously high for an incumbent seeking a second term.
But his focus Tuesday was on economic unfairness, a theme he has emphasized in recent weeks, most most notably in a speech last month in Osawatomie, Kan.
There he declared the trickle-down economics of his Republican predecessors a failure that the country should not return to in November, and Tuesday he echoed that message.
“As long as I’m president, I will work with anyone in this chamber to build on this momentum,” Obama said. “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.”
In the Republican response to his address, Gov. Mitch Daniels of Indiana said that “no feature of the Obama presidency has been sadder than its constant efforts to divide us, to curry favor with some Americans by castigating others.”
“As in previous moments of national danger, we Americans are all in the same boat,” Daniels said. “If we drift, quarreling and paralyzed, over a Niagara of debt, we will all suffer, regardless of income, race, gender or other category. If we fail to shift to a pro-jobs, pro-growth economic policy, there will never be enough public revenue to pay for our safety net, national security or whatever size government we decide to have.”
Many of the proposals Obama outlined Tuesday were ones he has raised before, including some left over from last year’s State of the Union address.
But all of them appeared tailored to appeal to middle-class interests and anxieties, especially those concerning the direction of the economy and where the next generation of jobs will come from.
“We will not go back to an economy weakened by outsourcing, bad debt and phony financial profits,” he said, adding that he wants “an economy built on American manufacturing, American energy, skills for American workers and a renewal of American values.”
Obama said he would open up new federal land to develop wind farms and solar energy plants to reduce the nation’s reliance on foreign oil.
He warned colleges and universities that they risk losing federal funding if they do not keep tuition costs down. He reiterated his call for Congress to extend the payroll tax cut through the end of the year, a benefit to working-class families.
And he called on Congress to help homeowners who are current on their payments but unable, for whatever reason, to refinance at lower mortgage rates. He proposed using revenue from the administration’s proposed fee on banks to help finance the initiative.
“Think about the America within our reach: a country that leads the world in educating its people,” he said. “An America that attracts a new generation of high-tech manufacturing and high-paying jobs. A future where we’re in control of our own energy, and our security and prosperity aren’t so tied to unstable parts of the world. An economy built to last, where hard work pays off, and responsibility is rewarded. . . .
“The defining issue of our time is how to keep that promise alive,” he added. “No challenge is more urgent. No debate is more important.”
Obama spoke as the top Republican candidates for the presidency are debating economic fairness on their own terms, with Romney, a former venture-capital chief executive, defending his large income and relatively low tax rate.
Romney released tax returns Tuesday that show he paid an effective tax rate of 13.9 percent on his 2010 income of $21.6 million. He estimates payment of an effective rate of 15.4 percent on income of $20.9 million in 2011 — below the rate that the White House says many middle-class families pay.
To make the case for a host of economic proposals he is likely to unveil in the speech, Obama invited the billionaire investor Warren Buffett’s secretary, Debbie Bosanek, to sit with the first lady in the House chamber for the speech.
Bosanek is the inspiration for the president’s call for wealthier Americans to pay a higher tax rate, known as the “Buffett rule,” which Obama first announced in September but described Tuesday in the most detail to date.
The Buffett rule — which the president said was developed after the billionaire investor said he paid a lower effective tax rate than his secretary — forms a key component of Obama’s plan to boost short-term spending to help create jobs for the middle class.
But Obama’s advisers said he will not include the tax rate or the deductions he believes should be eliminated for the wealthiest Americans in his budget, which he is scheduled to present next month. As a result, it serves more as a political marker than a firm proposal.
“Let’s never forget: Millions of Americans who work hard and play by the rules every day deserve a government and a financial system that does the same,” Obama said. “It’s time to apply the same rules from top to bottom: no bailouts, no handouts, and no cop-outs. An America built to last insists on responsibility from everybody.”
Congressional Republicans have vowed to oppose any new revenue — including a higher tax rates for millionaires — at a time when the national deficit continues to soar and Congress is trying to identify $1.5 trillion in budget cuts agreed to last summer.
At the Capitol, House Speaker John A. Boehner (R-Ohio) said Tuesday that Obama’s policies “are just going to double down on what hasn’t worked.” He said “the politics of envy, the politics of dividing our country is not what our country is all about.”
Congressional Republicans have expressed deep concern over the size and expense of the federal government, favoring a reduction in spending and tax cuts to spur economic growth rather than spending.
In a statement, U.S. Chamber of Commerce president Thomas J. Donohue said “too many of the solutions he proposed rest on higher taxes, more spending, and an avalanche of new regulations. “
“The way to create the jobs Americans need is to grow our free enterprise economy, not to further expand the federal government.,” he said.