The president called on Congress to simplify the tax system and get rid of loopholes, announcing that he would support using the saved money to lower the corporate tax rate for the first time in 25 years without adding to the deficit.
He called for freezing discretionary government spending outside of national security for the next five years, saying that would save $400 billion as a step toward reducing the country's staggering debt. The president said the budget discipline would require "painful cuts" in cherished programs without identifying any of them.
Obama said the nation needs a "bipartisan solution" to strengthen Social Security and keep the program on firm financial footing, but he offered no specific prescription. He did set some limits, though, including that any reform must come "without slashing benefits for future generations and without subjecting Americans' guaranteed retirement income to the whims of the stock market."
Obama's address was built around promoting concentrated spending in areas such as education, research and transportation and promising reductions in the nation's staggering debt and reforms of government at a time when voters are tired of federal bailouts and regulation.
He was delivering his speech to a television audience in the tens of millions and, in front of him, the members of the new-look Congress. Over his shoulder a reminder of the shift in power on Capitol Hill: new Republican House Speaker John Boehner.
In a broad proposal to reshape the government, Obama said he would seek authority to merge, consolidate and reorganize federal agencies. The White House said that would be the first such overhaul of the bureaucracy in half a century.
The pitch was part of an overarching reform theme in Obama's address. He also was calling on Congress to become more open and show when members are meeting with lobbyists.
The public has been clamoring for a leaner government, although his efforts are likely to be more modest than the government changes sought by some conservatives.
In tougher language than he's used before, Obama threatened to veto any legislation that contains the special, targeted congressional spending measures known as earmarks. He has been demanding limits on pet projects since his 2008 presidential campaign, a call he reissued following Republican victories in the 2010 midterm elections.
On health care, the president defended his landmark overhaul law against Republican efforts to repeal it.
Obama said he knows there's opposition to the law's provision extending insurance coverage to 30 million people. But with patients who've benefited from the law watching from the gallery, he said he's not willing to go back to the days when insurance companies could deny coverage to people with pre-existing conditions.
And in a speech with little focus on national security, Obama appeared to close the door on keeping any significant U.S. military presence in Iraq beyond the end of the year.
"This year, our civilians will forge a lasting partnership with the Iraqi people, while we finish the job of bringing our troops out of Iraq," the president said.
The setting for this year's speech was both more sober and emotional than in many past years.
One seat was to remain empty in honor of Democratic Rep. Gabrielle Giffords of Arizona, who is recovering from the Jan. 8 assassination attempt against her that left six people dead. Many in both parties were to wear black-and-white lapel pins, signifying the deaths in Tucson and the hopes of the survivors. Family members of some victims were to sit with first lady Michelle Obama.
In an attempt at unity following the attack, some Democratic and Republican lawmakers planned to sit together. The focus on a new tone comes a year after Obama's rebuke of a Supreme Court decision in his State of the Union speech led Justice Samuel Alito to mouth back from the audience, "Not true."
Six justices, including Chief Justice John Roberts, were to attend Tuesday night. Alito was in Hawaii this week, and Clarence Thomas and Antonin Scalia were not attending.
Republicans chose Rep. Paul Ryan of Wisconsin to deliver the televised response to Obama's address. He was planning to promote budget cuts as essential to responsible governing, speaking from the hearing room of the House Budget Committee, which he now chairs.
Obama's address was built around promoting concentrated spending in areas such as education, research and transportation and promising reductions in the nation's staggering debt and reforms of government at a time when voters are tired of bailouts and regulation.
Halfway through his term, Obama stepped into this moment on the upswing, with a series of recent legislative wins in his pocket and praise from all corners for the way he responded to the shooting rampage in Arizona.
But the political reality is that he must now find a way to lead a divided government for the first time, with more than half of all Americans disapproving of the way he is handling the economy — the topic dominating both his speech and the early 2012 re-election campaign.
In the speech, Obama was to call for a five-year freeze on all discretionary government spending outside of national security, the White House said. That would be almost identical to the freeze Obama called for in his address to the nation last year at this time, and ultimately it may have little effect, as Congress decides the budget on its own terms.
Indeed, the Republican-dominated House voted on Tuesday to return most domestic spending to 2008, pre-recession levels. The 256-165 vote came on a symbolic measure that put GOP lawmakers on record in favor of cutting $100 billion from Obama's budget for the current year.
Public concern over government spending was a defining force in the 2010 midterm elections, and it is expected to remain so as Obama's re-election drive begins.
The president was to give nods to American interests around the globe, with a traditional foreign policy section covering the wars in Afghanistan and Iraq, terrorism threats and diplomacy. But his primary goal was for those watching to emerge with more confidence about the economy of the country and more clarity about his vision for it.
Obama's budget freeze would not touch money related to national security or the politically popular but costly entitlement programs of Medicare, Medicaid and Social Security. He was also putting his weight behind a five-year plan developed by Defense Secretary Robert Gates to limit planned Pentagon budget increases by $78 billion over five years.
The contrast between the two parties' visions remains stark, and questions about where to cut spending, and by how much, will drive much of the debate for the rest of 2011.
Obama is trying to emphasize economic priorities that can draw both public appeal and enough Republican consideration for at least serious debate. But Senate Minority Leader Mitch McConnell suggested Tuesday that Obama has a long road ahead as he tries to court GOP support.
"Voters sent a clear message in November. When it comes to jobs and the economy, the administration's policies have done far more damage than good," McConnell said on the Senate floor.