Obama makes pitch for economic fairness in State of the Union address

Updated: 11:19 p.m. ET

In his third State of the Union address on Tuesday, President Obama made a strong pitch for economic fairness in America, outlining a plan that painted a stark contrast between his vision for the nation's future and those of many Republicans -- from those sitting before him to the Republican candidates for president.

Speaking before a joint session of the bitterly divided Congress, Mr. Obama described America as he hopes to see it become: "Think about the America within our reach: A country that leads the world in educating its people. 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," he said.

"We can do this," Mr. Obama said. "I know we can, because we've done it before."

Keeping America's "promise alive," Mr. Obama said, is "the defining issue of our time."

According to the president, that question is about making sure that in the economic sector, "everyone does their fair share, and everyone plays by the same set of rules."

Mr. Obama reflected on the factors that led to the 2008 financial collapse.

"We learned that mortgages had been sold to people who couldn't afford or understand them. Banks had made huge bets and bonuses with other people's money. Regulators had looked the other way, or didn't have the authority to stop the bad behavior," he said. "It was wrong. It was irresponsible. And it plunged our economy into a crisis that put millions out of work, saddled us with more debt, and left innocent, hard-working Americans holding the bag."

Now, he said, "the state of our Union is getting stronger. And we've come too far to turn back."

"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 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. We have to reclaim them."

Mr. Obama pledged his commitment to working with Republicans and Democrats alike to "build on" the strengthening U.S. economy. But, he pledged, "I will oppose any effort to return to the very same policies that brought on this economic crisis in the first place."

"No, we will not go back to an economy weakened by outsourcing, bad debt, and phony financial profits. Tonight, I want to speak about how we move forward, and lay out a blueprint for an economy that's built to last - an economy built on American manufacturing, American energy, skills for American workers, and a renewal of American values," he said.

"I will not go back to the days when Wall Street was allowed to play by its own set of rules," he added later.

The president reiterated his call for Congress to impose the so-called "Buffett rule," which would implement a tax overhaul requiring that capital gains and dividends be taxed at the same rate as income earned from work. (According to a new CBS News/New York Times poll, most Americans agree with the concept of the "Buffett rule.")

To underscore his point, Buffett's secretary, Debbie Bosanek, sat with First Lady Michelle Obama during the speech.

"Right now, because of loopholes and shelters in the tax code, a quarter of all millionaires pay lower tax rates than millions of middle-class households," Mr. Obama said. "Right now, Warren Buffett pays a lower tax rate than his secretary."

Obama's speech: Full text | Full Video
Mitch Daniels:Full text | Full Video
Video: Analysis with the CBS News political team
Full coverage: State of the Union 2012

"Do we want to keep these tax cuts for the wealthiest Americans?" he asked. "Or do we want to keep our investments in everything else - like education and medical research; a strong military and care for our veterans? Because if we're serious about paying down our debt, we can't do both."

Mr. Obama said he was willing to "rein in" the costs of Medicare, Medicaid and Social Security, "so long as those programs remain a guarantee of security for seniors."

In return, however, he reiterated a familiar demand: "Tax reform should follow the Buffett rule: If you make more than $1 million a year, you should not pay less than 30 percent in taxes. And my Republican friend Tom Coburn is right: Washington should stop subsidizing millionaires. In fact, if you're earning a million dollars a year, you shouldn't get special tax subsidies or deductions."

The plan is one that has previously been a nonstarter with congressional Republicans, most of whom oppose tax hikes of any nature - but it drew a particularly sharp contrast on Tuesday between the president and GOP presidential candidate Mitt Romney, who earlier in the day released tax returns showing that he paid a 14.5 percent tax rate on $42 million in earnings in the past two years. (Most of those earnings came from profits, dividends or interest from investments, which is why he was able to benefit from the low tax rate.)

The president seemed undeterred by the sea of unsmiling Republican faces when he framed the demand.

"The American people know what the right choice is," he said. "So do I."

Mr. Obama also outlined a series of proposals for creating jobs and improving the economy, primarily pointing to industries like high-tech manufacturing, science, technology and energy as those with the greatest potential to provide economic growth. But he acknowledged that "our commitment to skills and education has to start earlier" in order to achieve those goals.

He called on Congress to stop "bashing" teachers, and urged all 50 states to require students to stay in high school until graduation or until they turn 18. (Currently, students may legally drop out of school at age 16.)

"When students aren't allowed to walk away from their education, more of them walk the stage to get their diploma," he said.

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Pivoting to immigration, an issue which will undoubtedly play a crucial role in the 2012 election, Mr. Obama reiterated his call for an overhaul of the American immigration system, and asked Congress to send him a bill addressing the issue.

"The opponents of action are out of excuses," he said. "We should be working on comprehensive immigration reform right now. But if election-year politics keeps Congress from acting on a comprehensive plan, let's at least agree to stop expelling responsible young people who want to staff our labs, start new businesses, and defend this country. Send me a law that gives them the chance to earn their citizenship. I will sign it right away."

Mr. Obama then circled back to the role of innovation in America's economic future, calling for legislation easing regulations for Americans who want to start small businesses, and urging Congress not to "gut" funding for research and development.

"After all, innovation is what America has always been about," he said.

He added: "You see, an economy built to last is one where we encourage the talent and ingenuity of every person in this country. That means women should earn equal pay for equal work. It means we should support everyone who's willing to work; and every risk-taker and entrepreneur who aspires to become the next Steve Jobs."

He cited the particular importance of investing in the development of alternative gas and energy resources, and  lauded America's progress so far in developing those industries. He acknowledged, however, that "public investments don't always come right away."

"Some technologies don't pan out; some companies fail," he said, obliquely referencing the failure of Solyndra, a now-bankrupt solar energy company that received hundreds of millions of dollars from the government.

"But I will not walk away from the promise of clean energy," he said. "I will not cede the wind or solar or battery industry to China or Germany because we refuse to make the same commitment here. We have subsidized oil companies for a century. That's long enough. It's time to end the taxpayer giveaways to an industry that's rarely been more profitable, and double-down on a clean energy industry that's never been more promising."

The president also decried the "corrosive" influence of money in politics, and outlined a series of measures he said could help re-establish trust between "Main Street and Wall Street."

"Send me a bill that bans insider trading by Members of Congress, and I will sign it tomorrow," he said. "Let's limit any elected official from owning stocks in industries they impact. Let's make sure people who bundle campaign contributions for Congress can't lobby Congress, and vice versa - an idea that has bipartisan support, at least outside of Washington."

In light of the notoriously divisive state of affairs in Washington, Mr. Obama spoke of the need to "lower the temperature in this town."

"We need to end the notion that the two parties must be locked in a perpetual campaign of mutual destruction; that politics is about clinging to rigid ideologies instead of building consensus around common sense ideas," he said.

Invoking the philosophy of Abraham Lincoln, Mr. Obama touted his belief in a government that helps Americans without infringing on their rights.

"I'm a Democrat. But I believe what Republican Abraham Lincoln believed: That Government should do for people only what they cannot do better by themselves, and no more," he said. "The point is, we should all want a smarter, more effective government. And while we may not be able to bridge our biggest philosophical differences this year, we can make real progress."

The president called on Congress to work with him. Still, he vowed to proceed with his mission either way.

"With or without this Congress, I will keep taking actions that help the economy grow. But I can do a whole lot more with your help. Because when we act together, there is nothing the United States of America can't achieve.

In a Republican rebuttal following the speech, Republican Indiana Governor Mitch Daniels lambasted Mr. Obama for his handling of the economy, which he said had become "radically worse" under the president's guidance.

"In three short years, an unprecedented explosion of spending, with borrowed money, has added trillions to an already unaffordable national debt," he said. "And yet, the president has put us on a course to make it radically worse in the years ahead."

He blasted Mr. Obama for what he called his "constant disparagement" of the business community, and argued that the private sector held the keys to economic success.

"The routes back to an America of promise, and to a solvent America that can pay its bills and protect its vulnerable, start in the same place," he said. "The only way up for those suffering tonight, and the only way out of the dead end of debt into which we have driven, is a private economy that begins to grow and create jobs, real jobs, at a much faster rate than today."

Lucy Madison

Lucy Madison is a political reporter for CBSNews.com.

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