Obama focuses State of the Union on income inequality

President Obama delivered his third, and possibly final, State of the Union address on Tuesday.

NEW YORK (CNNMoney) -- President Obama delivered a State of the Union address Tuesday that was deeply saturated with the message of income inequality, a populist idea that the White House hopes will resonate on the campaign trail.

Calling it the "defining issue of our time," Obama made the case that Americans now face a choice between a country where a "shrinking number of people do really well" and a society where every individual gets a fair shot.

• Print
• Comment

Obama battles job crisis

The U.S. lost 4.3 million jobs in President Obama's first 13 months in office. Track his progress since then.

The address, which is Obama's third and possibly final State of the Union, was billed by White House aides a speech rich in substance -- and one that was in no way a campaign event.

But for the past six months, the White House has quietly laid the groundwork for a campaign based around the issue of fairness in the economy and workforce.

Late last year, Obama made a trip to Kansas, and made his first foray into the rhetoric of income inequality.

The much ballyhooed speech was delivered in Osawatomie, the same town where Teddy Roosevelt made his case for "New Nationalism" -- a plan for broad social and economic reform -- more than 100 years ago.

The emphasis in Kansas was on fairness -- a theme Obama returned to on Tuesday.

"A return to the American values of fair play and shared responsibility will help us protect our people and our economy," he said.

How can America be more equitable? Raise taxes on the rich, Obama said.

With an assist from the billionaire chairman of Berkshire Hathaway (BRKA, Fortune 500), Obama has embraced the idea that wealthy Americans should not be paying a lower effective tax rate than those in the middle or lower classes.

It's called the Buffett Rule, and Obama touted the principle on Tuesday, pointedly inviting Buffett's secretary -- who famously pays a higher tax rate than her billionaire boss -- to the address, and seating her in the first lady's box.

For the first time, the White House released a specific proposal that would satisfy the conditions of the rule.

Anyone making over $1 million will be required to pay an effective tax rate of at least 30%. At the same time, deductions would be eliminated on Americans earning more than $1 million. In tandem, the proposals would mean a substantial tax hike for the wealthiest Americans.

Obama said the American people would support the plan.

"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."

While the White House may have settled on a rhetorical theme for the coming election, the State of the Union address laid bare the lack of truly major policy proposals the campaign has sitting in reserve.

Furniture maker lands coveted spot at State of the Union

During the previous election cycle, Obama was able to pair the promise of a new day in Washington with a push to reform health care, Wall Street and immigration policy, along with a cap-and-trade plan.

Some of those game-changing proposals have been enacted, while others have fallen to congressional resistance.

On Tuesday, the president was confined to arguing for far less ambitious proposals, such as an extension of the payroll tax holiday, a continuation of a stop-gap policy designed to support the recovering economy.

"There are plenty of ways to get this done," Obama said. "So let's agree right here, right now: No side issues. No drama. Pass the payroll tax cut without delay."

The president did propose a few new task forces and working groups.

The president said he was asking Attorney General Eric Holder to create a special unit made up of prosecutors and state attorneys general to "expand our investigations into the abusive lending and packaging of risky mortgages."

Obama also said a "Financial Crimes Unit" was in the works. The group will be charged with cracking down on "large-scale fraud" in an effort to protect the public's investments.

And he proposed a "Trade Enforcement Unit" that will investigate unfair trade practices -- specifically in countries like China.

On housing, the president touted the need for Congress to allow Americans to refinance their mortgages, something paid for by imposing a "small fee" on the largest financial institutions.

So far, Obama's efforts to revive the housing market have largely failed.

Has Obama's housing policy failed?

His signature HAMP program, which was designed to lower troubled borrowers' mortgage rates to no more than 31% of their monthly income, ran into problems almost immediately.

Many lenders lost documents, and many borrowers didn't qualify. Three years later, it has helped a scant 910,000 homeowners -- a far cry from the promised 4 million.

Obama also proposed a series of initiatives that would help the manufacturing industry, including a reward for companies that move jobs back to America.

For their part, Republicans were clearly agitated by the president's speech.

As early as Sunday, House Speaker John Boehner said he was expecting a speech that would propose "more spending, higher taxes, more regulations," something he called "pathetic."

Boehner went further Tuesday morning, telling reporters that running a campaign based on "politics of division and envy" would be "almost un-American."

Those comments, unusually strong for a member of the congressional leadership, made plain the difficulty that the White House will face enacting any legislation of note this year, especially as the president starts to campaign in earnest.

Still, members of Congress maintained a thin veneer of bipartisanship Tuesday, going so far as to pick "dates" from the across the aisle to sit with for the speech, a symbolic gesture that runs contrary to the group's reputation as one of the most divisive and least effective legislative groups in history.

Obama confronted the body, saying it was responsible for "the greatest blow to confidence in our economy last year."

That loss of confidence "came from a debate in Washington over whether the United States would pay its bills or not," Obama said. "Who benefited from that fiasco?"

The president then called for a new day, however unlikely that may be.

"We need to end the notion that the two parties must be locked in a perpetual campaign of mutual destruction," he said.