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Keys for watching the State of the Union

In a new political landscape, here are some tips on what to listen for in President Barack Obama's big speech tonight.

After a self-admitted "shellacking" of President Obama's party in the last election, the annual State of the Union address arrives at another moment of change in Washington. When the president addresses the nation Tuesday night, he will begin to provide more than a glimpse into his ability — and willingness — to change course in order to meet new political realities.  

Since last November’s election in which Democrats lost 63 House seats, the biggest midterm loss for either party since 1938, the president has signaled a strategic shift with the hiring of former Clinton Commerce Secretary William Daley as chief of staff and General Electric chairman Jeff Immelt as his chief outside adviser on the economy, as well as other key personnel moves.

When it comes to issues such as federal spending and health care, Obama remains just as deeply at odds with Republicans as he was before the election. But he has said compromise is necessary. The question is exactly how to compromise, and on what policies?  How will any change of direction be framed, and what should viewers look for as clues?

“I would have the 2009 State of the Union at hand to note the difference in agenda, rhetoric and focus,” said presidential scholar Steven Schier at Carleton College in Minnesota. “That would make an excellent compare-and-contrast piece.”

Here are some suggestions about what to look for in Obama’s address to get a better understanding of the direction he wants the nation to take for the next two years.

'The era of big government is over.'
President Bill Clinton’s statement in his 1996 State of the Union speech seemed to mark an important shift in American politics. It proved to be less than that.  It is often forgotten that the very next words Clinton said in that speech were: "But we cannot go back to the time when our citizens were left to fend for themselves."

Federal spending as a percentage of gross domestic product was 20.6 percent when Clinton spoke in 1995 and fell to 19.6 percent of GDP by 2007, but was nearly 24 percent of GDP last year, due to increased spending on the stimulus and other federal programs and due to the shrinking economy.  (Every percentage point of GDP increase in federal spending amounts to about $147 billion.)

The era of big government is still going strong.

Obama and congressional Republicans acknowledge that the United States faces a future of unsustainable deficits and debt if they don’t do something.  But it seems unlikely Obama would announce Tuesday night that he has fundamentally changed his view of the role of the federal government.

Yet he has an opportunity to embrace recommendations made by the Bowles-Simpson Commission on Fiscal Responsibility and Reform that he created last year, such as returning federal spending to 2008 levels by 2013.

A White House official said Tuesday that Obama would call in his address for a five-year freeze on non-defense discretionary spending. Such spending accounts for about 19 percent of all federal outlays.

Such a freeze would leave unaffected the fast-growing entitlements programs such as Medicare which the Congressional Budget Office estimates will grow at an average rate of more than 6 percent a year from this year until 2020.

Investments: public, private or both?
Will Obama call for more federal investments in specific programs to create jobs, as he did in his 2009 State of the Union address?

In that speech he said “the only way to fully restore America’s economic strength is to make the long-term investments that will lead to new jobs, new industries, and a renewed ability to compete with the rest of the world.” He called for new federal money to be spent on public education, renewable energy, preventive medical care and other programs.

Obama used the words “invest” and “investment” more than a dozen times in that 2009 speech and almost all of those references were to government investment.

It will be worth watching Tuesday night to see how far Obama has shifted his focus from government investment to private-sector investment.

In his comments last week while visiting a GE plant in Schenectady, N.Y. with Immelt, and in his weekly address Saturday, Obama emphasized the crucial role that private-sector investment must play in creating jobs.

In a contrast with his 2009 address, Obama has put the focus in recent days much more on American workers waging a battle with other nations’ workers. The goal, he said, is to “attract the best jobs and businesses to America rather than seeing them spring up overseas.”

His slogan from Saturday’s address — “Leading the world in innovation” — is one that could be used by GE or any other Fortune 500 corporation.

Will Obama say Tuesday night what he sees as the right balance between government and private-sector investment?

Competitiveness and ideas to get there
From all indications, Obama will likely make enhancing the skills of America's workforce one of his major themes Tuesday and for the rest of 2011.

Other presidents, too, have had had competitiveness agendas: George H.W. Bush had a Competitiveness Policy Council and in his 2006 State of the Union speech George W. Bush announced an American Competitiveness Initiative to increase the supply of mathematicians, scientists, and engineers.

And since 1986, there has been a private-sector Council on Competitiveness led by business executives, labor leaders, and college presidents.

The annual Global Manufacturing Competitiveness Index published by the Council ranked China as the most internationally competitive economy, with India and South Korea ranked second and third and the united States in fourth place. “An abundance of highly skilled workers, scientists, researchers, and engineers contributes to a high rating for talent-driven innovation,” the Council said, referring to China.

As Harvard economist Richard Freeman has pointed out, by increasing their investment in higher education, China and India are producing more scientists and engineers – from what are far bigger populations than that of the United States — and generating more research and development. Freeman said, “the spreading of science and engineering reduces the first mover advantages that U.S. workers once had in production and thus their competitiveness in the global economy.”

A president's ability to shape an American labor force that can outshine China’s depends as much, or more, on American parents, students, and immigration policy as it does on any specific tax break or regulatory change.

Agree to 'very painful' cuts or let GOP take the lead?
It will be worth watching to see whether the president changes his tone from his Dec. 7 press conference, his most extensive preview yet of how he sees the 2012 elections.

At that press conference — just after he’d had agreed to a compromise on extending tax rates for two years — he argued that congressional Republicans will eventually be forced to agree to tax increases in 2012 because spending cuts would be "very painful."  He said, "Either they rethink their position, or I don’t think they’re going to do very well in 2012."

If spending cuts are painful, is Obama going to signal Tuesday night that he's willing to endure the pain along with the Republicans?

Or does he let House Budget Committee chairman Paul Ryan and others take the lead in proposing cuts, reasoning as he did in his Dec. 7 press conference that "very painful" cuts will hurt the GOP’s chances in 2012.

Tax reform
When Obama spoke in 2009, he touted the tax cuts for middle-class people in the Recovery Act and called for raising taxes on wealthy people.

A fundamental redesign of tax law wasn’t a priority for him or anyone on Capitol Hill at that point. Now it might be.

Will Obama use his broadcast Tuesday night to embrace tax reform, as recommended by the Bowles-Simpson commission? And will he indicate that he agrees with the chief tax writer in the House, Ways and Means Committee chairman Dave Camp who said he wants to “reform the tax code in a way that lowers the tax rate, broadens the base, and promotes the competitiveness of American companies”?

Take Eric Cantor up on defense cuts?
Although House Majority Leader Eric Cantor hasn’t offered specific ideas for cuts in defense spending he has repeatedly said that defense outlays are not off limits when Congress gets down to cutting spending.

Congressional Republicans have mixed feelings about cutting Pentagon outlays.

"Everybody wants to have a peace dividend budget, but we’re not at peace," Budget Committee chairman Ryan said recently. "You can’t have a peace dividend budget when you have two wars going on."

But he also said, "there’s lots of waste" in the Pentagon’s operations and maintenance accounts, the money spent on repairing equipment and keeping planes and ships fueled and ready for duty.

Defense Secretary Robert Gates has already announced $78 billion in cuts to the five-year defense plan he submitted last year. Will Obama indicate ready to go beyond that?

Achieving significant savings won’t be just a matter of canceling one helicopter program or building a few less submarines. At some point, pay, benefits and headcount would need to be cut.

Pay and benefits for military service members increased by 45 percent in inflation-adjusted terms from 1998 to 2009, according to Stephen Daggett, a defense specialist at the Congressional Research Service.