Obama to Push New Spending

State of Union Speech to Call for Boosting ‘Competitiveness’ While Nodding to Need for Budget Cuts

By DAMIAN PALETTA, JONATHAN WEISMAN and LAURA MECKLER

President Barack Obama will call for new government spending on infrastructure, education and research in his State of the Union address Tuesday, sharpening his response to Republicans in Congress who are demanding deep budget cuts, people familiar with the speech said.

Mr. Obama will argue that the U.S., even while trying to reduce its budget deficit, must make targeted investments to foster job growth and boost U.S. competitiveness in the world economy. The new spending could include initiatives aimed at building the renewable-energy sector—which received billions of dollars in stimulus funding—and rebuilding roads to improve transportation, people familiar with the matter said. Money to restructure the No Child Left Behind law’s testing mandates and institute more competitive grants also could be included.

While proposing new spending, Mr. Obama also will lay out significant budget cuts elsewhere, people familiar with the plans say, though they will likely fall short of what Republican lawmakers have requested.

In arguing that U.S. competitiveness is at stake, Mr. Obama plans to use his nationally televised speech to try to frame the spending debate with Republicans that is expected to dominate Congress in the coming months. “We seek to do everything we can to spur hiring and ensure our nation can compete with anybody on the planet,” Mr. Obama said Friday after touring a General Electric Co. plant in Schenectady, N.Y. He cited clean-energy manufacturing, infrastructure and education as keys to competitiveness.

Previewing the expected theme of his speech, Mr. Obama on Friday appointed GE Chief Executive Jeffrey Immelt to lead a new President’s Council on Jobs and Competitiveness.

Commenting on the new advisory panel, Senate Minority Leader Mitch McConnell (R., Ky.) said that unless its “first recommendations are to reverse the damage the policies of the last two years have done to the business climate, job creation and the exploding national debt, I fear it will do more to create good public relations for the White House than good jobs for struggling Americans.”

Republicans are casting the White House’s pivot toward competitiveness as an excuse for bigger government and more spending. They say a surge in federal spending and a $1.3 trillion budget deficit are impeding job creation, and dramatic spending cuts are needed immediately.

In the House, Republicans are pushing to cut $100 billion from the annual budget as soon as this year. A coalition of House Republicans proposed Thursday cutting $2.5 trillion in spending over a decade, pushing nondefense discretionary spending down to 2006 levels for 10 years.

“Today’s the day we finally stop kicking the can down the road,” Rep. Jeff Flake (R., Ariz.) said as the proposal was introduced Thursday.

White House officials have said that spending cuts of the magnitude proposed by Republicans could stall the economic recovery. Still, Mr. Obama is expected to pair his calls for investment with an admonition that the country must embark on targeted spending cuts. Late last year, he called for a two-year wage freeze for all federal civilian employees to save $5 billion. He’s expected to push for spending cuts on Tuesday, particularly in duplicative or dysfunctional federal programs.

Details of those cuts couldn’t be learned Friday evening. Programs he has gone after in the past include agricultural subsidies, defense programs such as C-17 military transport planes, and an alternate engine for the Pentagon’s Joint Strike Fighter.

Tuesday’s speech isn’t expected to offer an extensive list of Mr. Obama’s competitiveness proposals but will cast the debate on spending as a series of choices the country has to make regarding its future and its ability to compete. More policy details will come when Mr. Obama releases his budget for the next fiscal year, on Feb. 15.

The council replaces a panel that advised Mr. Obama on navigating the financial crisis in his first two years in office.Competitiveness is a well-worn political theme that opponents will likely try to dismiss, and so adopting it could pose a risk for the White House.

A White House official said Mr. Obama’s conception of competitiveness goes beyond stripping away onerous rules and envisions stepping in where the market fails. The official said areas such as renewable energy and scientific research are underfunded by the private sector, because returns are uncertain. These areas are vital to the nation’s long-term growth, the official said, and the state must step in when businesses don’t. The administration is considering matching grants and other partnerships that entice private-sector participation and keep federal investment to a minimum.

The White House calculates that there is enough public anxiety about the U.S. slipping in competition with China, India and other emerging nations that voters could rally behind calls for investing in future growth.

Republicans remain skeptical of the president’s new focus.

He has tried to show his credentials as a deficit-buster with steps such as a federal pay freeze and his embrace of a deficit-cutting report produced by a bipartisan commission. But he hasn’t produced budget proposals that make deep cuts in outlays.

Even within his own party, trying to maintain credibility on both fronts is difficult.

Some in the party have argued that Democrats should differentiate themselves from Republicans by showing they want to invest in the economy, but Democratic centrists and conservatives are calling for more spending restraint immediately.

White House officials have touted achievements in recent weeks that they believe build on the competitiveness theme. In December, the White House extended the American Opportunity Tax Credit, which is expected to provide tax breaks to the families of 9.4 million college students this year. It also brokered a pending free-trade deal with Korea, applauded by business groups.

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