bloomberg.com

Jan. 24 (Bloomberg) — President Barack Obama called for the nation’s wealthy to pay more in taxes as part of a bargain to restore fairness to the U.S. economy and rein in the deficit, in a State of the Union address that hit the populist themes he’ll be repeating in his campaign for a second term.

Invoking a tax idea named for billionaire Warren Buffett, Obama said the law should make sure million-dollar earners pay at least 30 percent in taxes.

“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 in his televised address to a joint session of Congress. “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.”

He also called for incentives for companies to return jobs to the U.S., development of domestic natural gas reserves and alternative energy sources, and providing American workers with better training. He promised tougher enforcement of trade rules and an investigation of wrongdoing related to real estate lending and of fraud on Wall Street.

Tax code changes require approval by Congress, and Obama is unlikely to get major legislative initiatives enacted before the November election, which will also decide control of the House and the Senate. He’ll be constrained on spending for his proposals such as infrastructure projects by efforts to contain the national debt. Last year’s deficit of $1.3 trillion was third-highest as a share of the economy since 1945.

Republican Response

In the Republican response, Indiana Governor Mitch Daniels, who last year decided against a presidential run, said Democratic “extremism” has stifled domestic energy development and private sector job growth.

“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.

Obama is following the speech with a three-day trip to election battleground states where he’ll talks about his plans for manufacturing, energy and education.

With the presidential campaign under way, Obama is seeking to draw contrasts with the Republican presidential candidates. He’s also emphasizing his willingness to confront congressional Republicans, who’ve stalled his agenda and are seeking to overturn tighter regulation of Wall Street.

Tax Code Changes

“I will work with anyone in this chamber to build on this momentum,” Obama said . “But I intend to fight obstruction with action, and I will oppose any effort to return to the very same policies that brought on this economic crisis.”

Saying the country must reclaim “American values,” Obama proposed overhauling the tax code to make it simpler for working-class Americans and limit tax breaks for the wealthiest. He proposed ending tax subsidies for housing, health-care, retirement and child care for those with yearly incomes exceeding $1 million.

The so-called Buffett rule was inspired by an August New York Times op-ed essay in which Buffett said that in 2010 he paid a lower tax rate — 17.4 percent — than “any of the other 20 people in our office.”

When Obama first announced the proposal in September, he said that “Warren Buffett’s secretary shouldn’t pay a higher tax rate than Warren Buffett.” The secretary, Debbie Bosanek, was a guest of first lady Michelle Obama at the speech tonight.

Election Issue

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

Obama’s campaign is making tax fairness an election year issue. Republican candidate Mitt Romney yesterday released his tax returns and they showed he earned $21.6 million in 2010 and paid 13.9 percent in taxes.

The former private-equity executive earned more than half of his income from capital gains and dividends, which are taxed at a top rate of 15 percent, rather than the 35 percent top rate for ordinary income.

In an interview on NBC after Obama’s speech, Romney said that Obama had Democratic majorities in the House and Senate during the first half of his term and “could have done anything he wanted to do.”

“Why didn’t he get these things done during his first two years?” Romney said.

Gingrich Reaction

Former House Speaker Newt Gingrich, who is vying with Romney for the lead in the Republican race, said in an e-mailed statement that Obama “described his conviction that his big government is built to last and should be paid for with higher taxes.”

Even with the partisan division in Congress, lawmakers in the House chamber continued their recently adopted practice of bipartisan seating to listen to the president’s speech.

Democratic senators John Kerry of Massachusetts, Ben Nelson of Nebraska, and Robert Casey of Pennsylvania sat with their home state counterparts, Republicans Scott Brown, Mike Johanns and Pat Toomey. North Dakota Republican John Hoeven sat with Democratic Senator Amy Klobuchar of neighboring Minnesota. Alabama Senator Jeff Sessions sat between Klobuchar and Oregon Democrat Ron Wyden.

Manufacturing Jobs

In an effort to keep manufacturing jobs in the U.S., Obama proposed ending tax breaks for companies that move their operations overseas. He said a tax credit should be created for companies that close operations abroad and bring jobs back home.

Obama’s proposals also include lowering tax rates for U.S. manufacturers and doubling the tax deduction for high-tech manufacturers.

Obama revisited an idea he presented in September to improve the nation’s infrastructure, except this time by using half of the savings from winding down the wars in Iraq and Afghanistan to pay for it. The other half of that savings, he said, would pay down the deficit.

The president plans to issue an executive order in the next several weeks to speed the infrastructure effort.

Obama also talked about education and job training to make American more competitive and help reduce unemployment. Among his proposals is a partnership between community colleges and businesses to train and place 2 million workers.

He said Congress should overhaul unemployment insurance by requiring workers to undergo eligibility assessments. Obama called for career and financial rewards for successful teachers.

Energy Production

To promote U.S. energy independence, Obama directed the government to promote development of natural gas, which he said will support more than 600,000 jobs by the end of the decade.

Obama has taken credit for higher U.S. oil and gas production and lower imports as he faces criticism from Republican lawmakers, the oil and gas industry, and some labor unions for his Jan. 18 decision to deny a permit for TransCanada Corp.’s $7 billion Keystone XL oil pipeline. He said the administration will create new rules for safe shale gas development and drilling practices.

He proposed incentives for manufacturers to upgrade their energy efficiency, which he said would save $100 billion over the next decade and he repeated his push for clean energy tax credits and his goal for 80 percent of the nation’s electricity come from clean energy sources by 2035.

The president took a hard line against China’s unfair trade practices, announcing the creation of a trade enforcement division that will target unfair practices from other countries, especially China, which has long come under fire in the U.S. for its currency valuation.

“We’ve brought trade cases against China at nearly twice the rate as the last administration – and it’s made a difference,” Obama said.

–With assistance from Julianna Goldman, Joe Sobczyk, Greg Giroux, James Rowley and Michelle Jamrisko in Washington. Editors: Joe Sobczyk, Steven Komarow