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Feb 13, 2013 10:49 AM IST | Source: CNBC

Obama challenges GOP on taxes & state of the Union spending

President Barack Obama paired major tax and entitlement reform proposals with sweeping new initiatives he said would bolster the middle class in Tuesday's State of the Union address, the first of his second term.

President Barack Obama paired major tax and entitlement reform proposals with sweeping new initiatives he said would bolster the middle class in Tuesday's State of the Union address, the first of his second term.

The president traveled to Capitol Hill on Tuesday for the annual speech, where he outlined an ambitious agenda for the next four years that called for efforts to address the national debt, but also new programs.

"Let's be clear: deficit reduction alone is not an economic plan," said Obama, who argued that his second term priorities did not represent "bigger government," but rather, "smarter government."

Those plans will have to survive the brier patch of Capitol Hill, where Republicans have strenuously opposed much of Obama's agenda and are girding for a major springtime showdown on budgets and the swift, automatic spending cuts known as the "sequester."

Obama spent much of the first half of his speech challenging Republicans on that central issue after two years of legislating in Washington that saw the government lurch from the brink of a shut down to the brink of a debt-limit default to the brink of automatic tax hikes.

"Let's agree, right here, right now, to keep the people's government open, pay our bills on time, and always uphold the full faith and credit of the United States of America," the president said.

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The assertive rhetoric from Obama was a variation upon the themes on which he successfully campaigned for re-election last fall. Furthermore, Tuesday's speech was regarded by the White House as a coda to Obama's second inaugural address, a liberal call-to-arms on issues ranging from government spending to gay rights and immigration reform.

Still, Obama struck an upbeat note regarding the slowly but steadily improving economy: "Together, we have cleared away the rubble of crisis, and can say with renewed confidence that the state of our union is stronger."

Obama's speech on Tuesday was delivered in the same vein; the president embraced proposals that might encounter resistance in this Congress, such as new legislation to address climate change. But, in a reflection of Obama's newfound feistiness in a second term, the president vowed to take executive action if Congress would not act.

Obama made other proposals he said would bolster the middle class. Among Obama's proposals were: Universal access to preschool for all four-year-olds, increasing the federal minimum wage to USD 9 an hour by the end of 2015, USD 50 billion in infrastructure spending, and partnerships to promote cleaner energy and improved manufacturing.

Those initiatives, the president pledged, should not increase the deficit "by a single dime."

To help finance those initiatives, Obama called for broad individual and corporate tax reforms, as well as savings from entitlement programs like Medicare – changes to which have been a lightning rod in recent election cycles. Those proposals carefully track with Obama's previous demands to close loopholes and deductions to raise new revenue in tax reform.

But Republicans have argued that the matter of new revenue is "settled" following a fiscal cliff deal that saw the GOP relent to higher taxes on household income above USD 450,000. To that end, Florida Sen. Marco Rubio, in the official Republican response, called on Obama to "abandon his obsession with raising taxes and instead work with us to achieve real growth in our economy."

Obama's ambitious plans come as he's asking lawmakers to approve two other major proposals: comprehensive immigration reform that gives undocumented immigrants a pathway to citizenship, and a series of tighter controls on firearms as part of a broader effort to curb gun violence.

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On immigration, the president lauded a bipartisan Senate group's work on immigration. "As we speak, bipartisan groups in both chambers are working diligently to draft a bill, and I applaud their efforts," he said. "Now let's get this done. Send me a comprehensive immigration reform bill in the next few months, and I will sign it right away."

As lawmakers started to stake out coveted seats in the House chamber on Tuesday evening, the pomp and circumstance surrounding the annual speech also played out. Rocker Ted Nugent made an appearance as a guest of a Republican lawmaker, and first lady Michelle Obama welcomed several guests, including families of victims in last December's shooting in Newtown, Conn.

Also, in keeping with tradition, outgoing Energy Secretary Steven Chu was kept spirited away from the Capitol to ensure continuity of government in case of a security incident.

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