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Obama urges a freeze and shift in spending

State of Union stresses economic primacy, alliance with business

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By Mark Arsenault and Matt Viser
Globe Staff / January 26, 2011

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WASHINGTON — President Obama last night outlined a broad agenda to help America “win the future’’ and boost the nation’s economic power with new jobs and less spending, continuing his shift to the political center in a State of the Union speech that stuck to optimistic and bipartisan themes.

He called for extending to five years a proposed freeze on spending outside of the military and major social programs, while redirecting billions to jump-start transportation and energy projects and train new teachers.

After spending much of his first two years in office defending unpopular corporate bailouts when the economy was in freefall, the president last night declared that the nation is bouncing back.

“We are poised for progress,’’ the president said in an address that echoed both a Republican icon, Ronald Reagan, and a Democratic one, Franklin D. Roosevelt.

He called for a partnership with corporate America to help put the nation on a stronger course, and proposed streamlining America’s complex corporate tax structure to make compliance cheaper and easier.

These efforts, he said, will help maintain America’s preeminence in the global economy.

“No workers are more productive than ours. No country has more successful companies, or grants more patents to inventors and entrepreneurs,’’ he said. He compared the moment to the space race with the Soviet Union a generation ago, which produced a wave of American innovation.

“This is our generation’s Sputnik moment,’’ Obama declared.

The speech was Obama’s first to Congress since Republicans reclaimed the majority in the US House in their Tea Party-fueled election landslide in November. After two years of employing Democratic majorities to muscle major legislation through Capitol Hill, the president acknowledged that both sides will have to work in bipartisan cooperation if any significant legislation is to pass over the next two years.

“With their votes, the American people determined that governing will now be a shared responsibility between parties,’’ the president said. “New laws will only pass with support from Democrats and Republicans. We will move forward together, or not at all — for the challenges we face are bigger than party, and bigger than politics.’’

The president said he was prepared to consider reforming the medical malpractice system, a pet goal of Republicans which Democrats left out of their sweeping healthcare overhaul last year. He said he also wants to tackle legislation on illegal immigration.

But the economy and jobs were the chief theme of his speech.

“We need to out-innovate, out-educate, and out-build the rest of the world,’’ he said. “We have to make America the best place on Earth to do business.’’

Obama’s prospects for reelection in 2012 will depend heavily on the economy and unemployment figures that are stubbornly high. When he delivered his State of the Union a year ago, the national unemployment rate was 9.7 percent. Last month, it was still 9.4 percent.

His speech preceded an upcoming debate over the budget and the national debt that looms in the House, where GOP leaders want to deliver on their promises of fiscal conservatism and cut tens of billions in spending this year. But even with big disagreements looming over spending priorities and Republican efforts to undo the president’s health care reform law, the atmosphere at last night’s speech was less confrontational than in 2010.

Michelle Obama was accompanied in the House gallery by people from the scene of the shooting of Representative Gabrielle Giffords in Tucson. And Democrats and Republicans broke with tradition and sat together, defusing much of the partisan rivalry that typically accompanies the annual address.

Obama set goals of expanding higher-speed rail access and pushing the latest generation of high-speed wireless coverage into rural areas, to cover at least 98 percent of all Americans within five years. He wants more investments in clean energy production, including wind, solar, natural gas, nuclear, and “clean coal’’ systems.

To help pay for these, the president proposed ending subsidies for oil companies. “I don’t know if you’ve noticed, but they’re doing just fine on their own,’’ he said. “So instead of subsidizing yesterday’s energy, let’s invest in tomorrow’s.’’

The president said the spending freeze would reduce the annual deficit by more than $400 billion over the next decade, bringing discretionary spending to the lowest share of the US economy since the Eisenhower administration.

The freeze is the president’s attempt to engage Republicans on what the GOP considers its own turf — fiscal restraint. Obama sought to strike a balance in his speech.

“I’m willing to eliminate whatever we can honestly afford to do without,’’ he said. “But let’s make sure that we’re not doing it on the backs of our most vulnerable citizens.’’

The president’s supporters said it was a smart political move, given the House intentions to cut budgets.

“That’s a real challenge to the Republicans,’’ said former representative William Delahunt, a Democrat from Massachusetts, of Obama’s spending freeze. “I think that’s really preempting what we can anticipate would be the actions of House Republicans.’’

Republicans said the president’s freeze falls short.

“At a time when the Treasury secretary is begging Congress to raise the debt limit, a ‘freeze’ is simply inadequate,’’ House Speaker John Boehner said.

Senator Scott Brown, a Massachusetts Republican, concurred. “More spending — whether you call it an investment or something else — is not the right answer,’’ Brown said in a statement that did praise the president’s focus on the economy. “With our national debt already at astronomical levels, Washington has a serious spending problem that threatens the stability of our fiscal future.’’

The president’s proposal is the most recent example of his political repositioning after the Republican gains in November. He struck a deal with Republican leaders last year to temporarily extend the expiring Bush-era tax cuts. This month he has signaled greater receptiveness to the business community, appointing a former Clinton administration and banker, William Daley, to be his chief of staff, and then tapping GE chairman Jeff Immelt to chair the president’s panel of outside economic advisers.

“I don’t think the president had much choice but to adopt a strategy that’s familiar to anybody who has observed the Clinton administration,’’ said Ross Baker, a political scientist at Rutgers University. “He has to emphasize the few things — and there are few — on which there is some convergence between him and the Republicans.’’

It was not immediately clear how the president’s proposed budget priorities — if approved by Congress — would affect Massachusetts. A five-year freeze on discretionary spending could hit research hospitals and universities that rely on federal grant money. But the main source of federal funding for the state budget — Medicaid — would be exempt. Obama’s pledge to direct targeted spending at areas like education, biomedical, and energy research, and infrastructure could benefit Massachusetts.

A spokesman for Governor Deval Patrick, Alex Goldstein, said Patrick agrees with Obama that federal and state government “has to find ways to do more with less while still moving forward on our shared goals of job creation, closing the educational achievement gap, and controlling the cost of health care.’’

Mark Arsenault can be reached at marsenault@globe.com.

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