Obama points to income inequality, calls for millionaires’ tax in address

Reporting from Washington —  President Obama opened his reelection year with a combative State of the Union speech, proposing to require millionaires to pay at least 30% of their income in taxes and to eliminate deductions that save companies money if they move jobs overseas.

He also proposed rewards, in the form of lower corporate rates, for businesses that manufacture and create jobs in the U.S.

Heavily emphasizing income inequality and its causes, Tuesday’s speech included several ideas that have already gotten a cold reception in Congress, including a program to upgrade roads and bridges and a fee on banks to help “responsible” homeowners refinance their mortgages. The proposals drew lines for a year of partisanship between now and the November election.

But the opposition of Congress may end up being part of the Obama message as he sets out to sell his blueprint for “An America Built to Last.” Obama’s sharpest points preview the election year narrative to come, about an endangered middle class suffering under an unfair system.

If Americans want to make it through the tough times and build a stable economy, goes the Obama line, the affluent should shoulder more of the burden and government should play an active role in spurring at-home job growth.

“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” or adopt proposals to strengthen middle-class jobs and futures, Obama told a joint session of Congress gathered in the chambers of the House of Representatives. “What’s at stake are not Democratic values or Republican values, but American values. We have to reclaim them.”

Withdrawal from two wars and the success in the fight against Al Qaeda will be key parts of the Obama reelection campaign -- he opened the speech by paying tribute to service members as he listed those accomplishments -- and also the rare cases in which he talks to voters about foreign policy.

The balcony of the House chamber provided an illustration of the narratives Republicans and Democrats will be telling as the election year unfolds. First Lady Michelle Obama was surrounded by characters in the Obama story, among them veterans of Iraq and Afghanistan; the admiral who led the operation that killed Osama bin Laden; and a gay Air Force intelligence officer, allowed to serve openly because of the repeal of the “don’t ask, don’t tell” rule.

The Republican list of invited guests included oil company managers, including one from Conoco Philips, and backers of the controversial Keystone XL pipeline that Obama has shelved, for now, pending further study.

There were unnamed characters in the evening’s stage play too. On the same day that Republican presidential contender Mitt Romney disclosed that he pays roughly 15% in taxes on millions in income, Obama’s legislative agenda spelled out a change that would make sure millionaires and billionaires pay at least 30%.

Most of all, Obama wants to see Congress undertake a rehabilitation of the tax code, something he pushed for last year without success. Months after coming up with the “Buffett Rule,” which says high earners like billionaire Warren Buffett should carry the same share of the tax burden as those who earn less, Obama added the 30% target to his wish list.

Seated in the balcony for the announcement was Buffett’s secretary, who, as Buffett and the president frequently point out, pays a higher income tax rate than her boss.

“You can call this class warfare all you want,” Obama said. “But asking a billionaire to pay at least as much as his secretary in taxes? Most Americans would call that common sense.”

The 30% minimum rate would probably mean a tax hike for many top earners. The average effective tax rate for the top 1% of earners last year was 26%, according to a study by the Tax Policy Center. The average rate overall was 19.4%.

Republicans showed little sign of warming to Obama’s version of the path to stability. Their focus is on the struggling economy and on Obama policies they say have failed to steer things in the right direction.

“The president’s policies have made our economy worse,” said House Speaker John A. Boehner (R-Ohio). “And you know, the president’s policies, again, are just going to double down on what hasn’t worked.”

Sen. Mitch McConnell of Kentucky, the Senate minority leader, echoed that theme, suggesting Obama’s proposals for the future should be weighed against his record of the last two years.

As he did last year during the payroll tax fight, Obama is taking his proposals to the public, a move that reversed a slide in his approval ratings as he chided a “do-nothing Congress.” Obama plans to leave Wednesday morning for a three-day trip around the country, unveiling more details about central elements of his plan as he visits Iowa, Arizona, Nevada, Colorado and Michigan.

The president’s blueprint calls for spurring manufacturing through a number of changes to the tax code. He wants to wipe out the deductions that many companies get for the costs of shutting down a factory in the U.S., such as for mothballing the building or doing environmental remediation.

If those companies open factories overseas, administration officials say, they shouldn’t qualify for deductions.

Obama also proposes making companies pay a minimum tax for profits and jobs overseas, giving American corporations less of an incentive to relocate their businesses to other countries that offer lower tax rates. Aides to the president say he will name a specific tax figure around the time he unveils his new budget, expected the second week of February.

In hopes of easing the continuing housing crisis, the blueprint suggests imposing a fee on banks to help cover the costs of refinancing for distressed homeowners.

The bank fee is a prime example of an idea Republicans have rejected before. The administration proposed it two years ago this month, hoping to raise billions to repay costs of the financial bailout, but officials were unable to pass it even in the wake of the financial crisis.

Many of the smaller proposals within Obama’s agenda can be done without the help of Congress, but those with significant impact would require legislation.

Some advisors to the president say they believe some collaboration is possible, especially if Americans rally behind the ideas. But a jaded faction within the White House expects little to no cooperation. On Tuesday, some GOP lawmakers complained that Obama seemed to be one of them.

Delivering the GOP response, Indiana Gov. Mitch Daniels accused Obama of dividing Americans between the “haves” and “have-nots.”

“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,” Daniels said in prepared remarks.

cparsons@tribune.com

kathleen.hennessey@latimes.com