Obama Calls for Higher Taxes on the Rich in Speech

President Barack Obama  called on Tuesday for higher taxes on the rich and new remedies for the U.S. mortgage crisis in a starkly populist State of the Union address aimed at convincing voters to give him a second term.

Getty Images President Barack Obama delivers his 2012 State of the Union speech.

Speaking to Congress and beyond them to the broader electorate, Obama proposed sweeping changes in the tax code — most notably, a minimum 30 percent effective rate on millionaires — to eliminate inequalities that allow the wealthy to pay lower rates than the middle class.

While the biggest proposals in Obama's election-year speech are considered unlikely to gain traction in a divided Congress, the White House believes the president can tap into voters' resentment over Wall Street excesses and Washington's dysfunction.

Obama's message could resonate in the 2012 campaign following the release of tax records by Mitt Romney, a potential Republican rival and one of the wealthiest men to ever run for the White House. He pays a lower effective tax rate than many top wage-earners.

A new proposal outlined by Obama to ease the way for more American homeowners to get mortgage relief — and to pay for the plan with a fee on banks blamed for helping create the housing crisis — also struck a strong note of populism.

"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 told a joint session of Congress. "It's time to apply the same rules from top to bottom."

Taxes are the most divisive issue at the heart of this year's presidential campaign when Obama is seeking re-election despite a slow economic recovery and a high jobless rate.

Democrats have hammered Republicans in Congress for supporting tax breaks that favor the wealthy while Republicans staunchly oppose tax hikes, even on the richest Americans, arguing they would hurt a fragile economic recovery.

House of Representatives Speaker John Boehner, the top congressional Republican, accused Obama beforehand of promoting the "politics of envy" and insisted the election would be a referendum on the president's "failed" policies.

The U.S. unemployment rate was 8.5 percent in December. No president in the modern era has won re-election with the rate that high.

Obama used the speech to revive his call to rewrite the tax code to adopt the so-called "Buffett rule," named after the billionaire Warren Buffett, who says it is unfair that he pays a lower tax rate than his secretary.

Those making more than $1 million a year would pay a minimum effective tax rate of at least 30 percent and their tax deductions would be eliminated under Obama's plan.

To underscore Obama's point about tax inequality, Buffett's secretary, Debbie Bosanek, was to be seated in the first lady's box in the House of Representatives for Obama's annual address.

Seeking to capitalize on a high-profile platform to draw contrasts with his Republican challengers, Obama also rolled out proposed corporate tax reforms, including a minimum rate on companies' overseas profits and a tax credit for moving jobs back home.

Taking aim at China — an election-year target of Republicans and Democrats alike over its currency and trade practices — Obama proposed creation of a new trade enforcement unit within the federal government.

Jim Watson | AFP | Getty Images

Promising what amounts to a peace dividend, Obama also proposed using half of the "savings" from ending the war in Iraq and winding down in Afghanistan to pay down U.S. debt, with the other half going to fixing decaying infrastructure like roads and railways.

According to Congressional Budget Office estimates, savings from the wars would result in "about $440 billion less" in spending in 2012-2021.

On the housing front, Obama said he would send to Congress a proposal to allow more Americans take out new and cheaper mortgages as long as they are current on their payments, savings that would amount to $3,000 per household each year.

Blaming banks for helping to cause the housing crisis in the first place, Obama told Congress that financial institutions would be asked to cover the cost of the plan via a proposed bank fee.

Record-low interest rates have already spurred many U.S. homeowners to refinance their mortgages, but the housing crisis continues to drag on the U.S. economic recovery.

While these initiatives do not offer a quick fix for high unemployment that threatens Obama's re-election prospects, his speech was a chance to take control of the campaign narrative amid saturation coverage of the volatile Republican race.

Although Obama is fully aware of the legislative obstacles, his aides see this approach scoring political points by turning up the heat on Republicans he accuses of obstructing economic recovery.

"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."

Voters learned on Tuesday that Romney, a former private equity firm chief, and his wife paid an effective tax rate of 13.9 percent in 2010 and expect to pay a 15.4 percent for 2011 - tax rates that are far below the top rate of 35 percent on ordinary wages.

The GOP rebuttal was delivered by Indiana Governor Mitch Daniels.

He started out by saying Republicans salute the president for going after those responsible for 9/11, for his efforts on education and his focus on family.

Getty Images Indiana Gov. Mitch Daniels was tapped to give the GOP rebuttal.

But, he said he thinks the president was wrong to say "the state of our union is strong."

"To say that the state of our union is anything but grave — he must know that this is not true,” Daniels said. "He cannot claim that the last three years have made it anything but worse," he added.

Daniels, who announced eight months ago that he would not run for the GOP presidential nomination, also accused the president of "extremism" in terms of his energy policies that he called stifling and anti-growth.

Republicans favor "a passionate pro-growth approach that breaks all ties and calls all close ones in favor of private sector jobs that restore opportunity for all and generate the public revenues to pay our bills," Daniels said.

He also accused the president of attempting to divide Americans by wanting to tax the rich more.

"As in previous moments of national danger, we Americans are all in the same boat," Daniels said.

The arrival of Arizona Rep. Gabrielle Giffords, and the embrace she shared with the president, provided one of the most dramatic and touching moments of the evening. She announced last week plans to step down from her position in Congress to focus on her recovery.

The White House hopes Obama can gain enough traction with voters to help restore faith in his economic leadership as the Democratic president defends himself against escalating attacks by Republican candidates vying to face him on the November ballot.

The White House hopes that argument would be buttressed, even before Obama spoke, by Republican Mitt Romney's release of the tax returns. The records showed Romney, one of the wealthiest men to ever run for the White House, will pay $6.2 million in taxes on a total of 42.5 million in income for 2010 and 2011.   He and his wife paid an effective tax rate of 13.9 percent in 2010 and expect to pay a 15.4 percent rate for 2011.

Republicans accuse Obama of being an old-fashioned tax-and-spend liberal whose policies have hurt the U.S. economy and charge that he is playing the politics of envy whereas what Americans really care about is jobs.

Polls show that most Americans disapprove of Obama's handling of the economy, and his approval numbers have languished below 50 percent. But surveys show Congress far less popular, with many blaming Republicans more for the gridlock in Washington.

Millions are expected to be watching the State of the Union address. Nearly 43 million people watched his 2011 address.

Guests included billionaire Warren Buffett's longtime secretary, Debbie Bosanek. Obama frequently cites Buffett's complaint that the nation's tax code is unfair because he pays a lower tax rate than his secretary, and was expected to do so again Tuesday.

Laurene Powell Jobs, wife of late Apple co-founder Steve Jobs, was also be among the guests.