MS. DIANE REHMThanks for joining us. I'm Diane Rehm. In his third State of the Union Address, President Obama focused on fairness and laying the foundation for a stronger future. He's taking this same message on the road this week to kick off his re-election campaign. Republicans claim the president's policies are stifling economic growth.

MS. DIANE REHMJoining me to talk about last night's speech and the presidential campaign: E.J. Dionne of the Brookings Institution and The Washington Post, James Thurber of American University and Byron York of the Washington Examiner. I'll look forward to hearing your comments and questions about the speech. Join us throughout the hour by phone, by email, Facebook or Twitter. And good morning to all of you.

MR. E.J. DIONNEGood morning.

PROF. JAMES THURBERGood morning, Diane.

MR. BYRON YORKGood morning.

REHMGood to see all of you. E.J. Dionne, what would you say were the highlights of last night's speech?

DIONNEWell, first of all, if you want clear choices in elections, this election will be an Academy Award election. You know, if you've been wandering around with the Republicans, as Byron and I have over the last few weeks, you couldn't have had a clearer contrast of world view than President Obama gave last night with the Republican world view. He is running on we are all in this together. We are a community. We have each other's back. This is not just about individualism or free enterprise, and government can help the economy.

DIONNEThat's very different from what the Republicans are saying. But he also backed this up with a whole lot of specifics. I think it was not a Clintonian speech, but the specifics were. And there were a lot of things there that some Republicans have either proposed or many Republicans could embrace. As, you know, Rick Santorum wants to eliminate taxes on manufacturing, Obama wants to cut them.

DIONNEObama's proposals on community colleges are the sorts that Republican governors all over the country have supported. So it was this very interesting combination of a big philosophical argument and smaller initiatives that, in principle, Republicans ought to be able to support, although I don't expect it.

REHMByron.

YORKWell, I think E.J. is right, except I would say it in a sense that Obama was establishing the themes that we're going to see throughout the 2012 election. And he was setting up the idea of fighting inequality and achieving fairness and everyone sort of paying their fair share and sort of getting their fair share out of government as his main theme.

YORKAnd the backdrop to all this -- so although he never said the words Mitt Romney or used the word 13.9 percent, which was Mitt Romney's effective tax rate, his bringing in of Warren Buffett's secretary, whom he's often mentioned in speeches -- we actually saw her in person in the first lady's box. He's bringing in -- or she was the physical embodiment of his argument that millionaires and billionaires should not pay a lower tax rate than people who get their money in ordinary wages. So I think he set up a lot of the fight for the 2012 election.

REHMJim Thurber.

THURBERWell, I agree with both of them, but let me add to it that this was really a populist speech. It was a poke at the dysfunctional Congress. Americans have had it with Congress. They were -- it was at 8 percent in December. Now, it's back up to 13 percent. They think it's dysfunctional. And he warned them that if they don't go along with some of these things, he's going to act on his own through...

REHMHow can he do that?

THURBERWell, through regulatory action at EPA, through other actions in other agencies. I think that this was a campaign speech as well as a governing speech. He doesn't do a very good job about bragging about what he has done. He did a little bit of it in this speech about health care, about regulation of financial institutions.

REHMYou think he should've bragged more?

THURBERI think he should -- it should have been shorter and it should -- he should've bragged more, and then he should've talked about the future in terms of fair taxes, jobs and education and energy. Those were in there, but it got mixed up with a lot of small, small-bore ideas.

REHMByron.

YORKWell, it is the small-bore ideas that you can accomplish through executive power. You need Congress to do bigger things. And the fact is the president has accomplished what he is going to accomplish in his first term. And the signature accomplishment, of course, is national health care. And I think I read that he devoted about 40-something words to national health care. And his message was that there's no way we're going back.

YORKBut other than that, he really didn't discuss it. He did brag on his accomplishments. He started out with Osama bin Laden. Just in case anybody forgot, I got Osama bin Laden. But in terms of his legislative accomplishments, he did not brag a lot about health care because it's not really popular right now.

DIONNEE.J.

DIONNEYou know, Jim made the point that it should have been shorter, and maybe he's right. Although, whenever I hear that, I am reminded of those old Clinton where he was constantly criticized for packing program after program after program. And it turned out that lots of people out there heard a particular thing that they said, yeah, that's what we should be doing. They heard a program that helped them or a program that made sense so that, I guess, I have become over the years more sympathetic to the old laundry list.

THURBERAnd I think the laundry list in this case was evidence because, if he's going to argue against what seemed to be the message of the 2010 elections, the government actually can do good things, he want -- he needs to make a pretty powerful case, and so each of those programs was a building block for that case.

REHMOf course, he opened and closed with the success of getting Osama bin Laden and then with the Special Forces' success on Monday night, Jim Thurber.

THURBERAnd, you know, the theme there was about community, coming together, working as a team. It was quite moving for me the way he ended the speech, the way he started the speech. Our military is quite good, and it's a team. You have to come together. And he used that analogy for politics. You've got to come together to solve these problems.

THURBERBut the overall speech was a contrast between the Republicans and the Democrats in the sense that he was arguing for government to solve problems, not exactly bigger government, but government needs to solve problems. And the Republicans are saying, we'll just let the private sector do that. And it hasn't worked in the financial area and the housing area to do that.

REHMAnd especially on the financial area, he focused on the theme of economic fairness on the tax code, especially he, again, talked about a new minimum tax for people making over $1 million. How far is he going to get with that, Byron?

YORKYou know, this is something I thought -- I was kind of amazed when -- with the fight focused on taxpayers of $250,000 and more for so much of his administration. And there were Democrats, I think, Charles Schumer among them, saying, let's talk about people who make $1 million or more because everybody can -- you know, almost everybody makes less than $1 million, and they can kind of identify with this. And there are a lot of two-earner families, especially in expensive areas, that are pushing at $250,000 range.

YORKThe million dollars is -- it is an effective argument for the Democrats. And also, what we've seen with Romney this week is the living embodiment of the capital gains tax. And I think most people agree that capital gains should be taxed at a lower rate than ordinary income. That's the way it's worked for a very long time, and people of all political persuasions benefit from it.

YORKBut with Romney, you see a man who made $21 million, and he paid an effective tax rate of 13.9 percent. And so, there, you see an actual physical example of it, and the president will no doubt be pushing that very hard as the campaign goes on.

DIONNEByron is exactly right about the Romney issue, and, boy, did Mitt Romney do him a big favor by releasing his tax return (word?).

YORKYou know...

DIONNEHe expected Romney to be sitting with Mrs. Obama just so Obama could call him out as an example...

THURBERTiming is everything.

DIONNEYou're going to say, Byron?

YORKNo, I asked the campaign. I sent the note to the Romney people saying, just curious. You could have released the stuff on Thursday. And why did you do it on the morning of the State of the Union address when you knew what President Obama was going to say?

REHMDid you get a response?

THURBERI did not get a response.

YORKBut just that one small point. There was a moment when the capital gains tax was the same as taxes on ordinary income. It was signed into law by Ronald Reagan as part of the Tax Reform of 1986. And, you know -- and I think that's sort of -- that's what Obama is pushing back to. I thought that what was really interesting is a lot of people talk in vague terms about tax reform. What he was talking is very specifically about tax reform that is primarily aimed at making sure the very wealthy pay...

REHMPay more.

YORK...their fair share, rather than tax reform in the abstract. So he would end up, I think, when you see the proposal, take away some of the housing benefits and some of the health care benefits from those taxpayers, but only people earning over $1 million a year.

REHMAnd what about manufacturing jobs and his talk about taxing those companies who take their jobs overseas, providing tax benefits for those who established here, Jim Thurber?

THURBERWell, it's something that, I think, is going to very popular with the American public, and it's an incentive to bring jobs home. Very complex when you get into that type of tax code. You have to have a very large tax reform going on. I don't think it's going to happen, unfortunately, during this year. Why? The House of Representatives is further to the right. There are no moderates. Moderates is a dirty word in the House of Representatives for Republicans.

THURBERIt's only about 5 percent of the people in House that could be considered moderate. The Blue Dogs are gone. Moderate Democrats, they can't help. The Senate doesn't have 60 votes. I think we're going to have deadlock. As we go into these big issues of tax reform, he will continue to hit it, and it will be very popular, in my opinion, especially the tax on millionaires, because people can understand it. When you start talking about bringing jobs home, giving people's tax breaks, that gets a little complex for the election.

YORKTwo things: one, about bringing jobs home. It's not just the Republican House. The president also invited to the first lady's box the widow of Steve Jobs. And how one can rail against outsourcing and celebrate Apple at the same time is beyond me. We had a terrific article in The New York Times this week about how Apple uses hundreds of thousands of workers in China to make their products. But the bigger issue on the tax issue is unemployment rate is still 8.5 percent.

YORKI think the -- and it may go up as more workers re-enter the workforce. A lot of this is an effort to redirect the conversation away from the big, glaring problem in front of the president.

REHMByron York of The Washington Examiner. Short break and right back.

REHMAnd if you'd like to join us, 800-433-8850. Send us your email to drshow@wamu.org. Join us on Facebook or Twitter. E.J., you want to add something on manufacturing.

DIONNERight. I thought this was a very interesting initiative. First of all, it's about time we start thinking about restoring manufacturing jobs. But, secondly, Democrats for a long time have said, let's take the tax benefit away from companies that offshore jobs. What Obama did is an interesting twist. He said, let's take that benefit away, but then let's give new benefits to manufacturing. They have a special benefit for advanced manufacturing, kind of high-tech manufacturing.

REHMDo you think that could make a difference?

DIONNEI think -- I don't know about passing anything this year.

REHMYeah.

DIONNEBut I think what he's talking about here is corporate tax reform and to have us look at the corporate tax code and say, what incentives do we actually want as opposed to a random collection of preferences stuck in there by various lobby groups? And you can actually make a case for -- I mean, we can argue about it. Free market purists would say these things don't work. But I think you can make a case for why this kind of incentive could actually help the country.

THURBERBut watching Baucus during that statement...

REHMI saw that.

THURBERRight. He didn't -- he sat there. He didn't clap. He looked like a Republican...

REHMHe did. Yeah, right.

THURBER...in terms of the response to this.

REHMIt's interesting.

THURBERAnd he's chairman of the finance committee that has jurisdiction over all of this.

REHMI thought that was interesting. Here's an email from Lindy in Laurel Fork, Va. "I heard one of your panelists say 'everyone agrees that capital gains should be taxed at lower rate than wages.' Why do we agree that people who work for their money should be taxed more than people whose money works for them? As a retired person, that works for me. But as a fair person, I'm not so sure."

YORKWell, the basic -- that was me. I said that.

DIONNEYes. I disagree, just for the record.

REHMI know.

THURBERAnd I disagreed also.

YORKThe basic -- I mean, the basic argument for a lower capital gains tax is that money is -- goes into investments that stimulate the economy and create jobs, so you tax it at a lower rate. Now, you can agree with it or disagree with it, but it has been that way for quite a long time.

REHMAnd the question will be whether that area of the tax code gets attention this year?

THURBERRight. Well, just…

YORKWell, President Obama is focusing mostly on raising the income tax of people who make more than $1 million a year. That's what he's...

DIONNEBut...

THURBERAnd the argument that Buffett makes $1 billion and his secretary pays a much higher rate is a very poignant argument, in my opinion.

DIONNEBut just as a matter of history, it hasn't been this low for very long, that cutting it all the way down to 15 percent was done in the Bush tax bill. We've had much higher capital gains levels in the past. It was -- you know, it's been cut over a series of years since the '70s, so there's nothing written on tablets about a low, low, low capital gains rate.

THURBERAnd so this comes up again at the end of this session. Maybe after the election when the Bush tax cuts expire, unless there's a positive action by the Hill, we'll go back to the old rate.

REHMI see. I see.

THURBERAnd with a deadlocked House and Senate, he has a lot of power because they do nothing. Then we go back to the other rate.

REHMByron, let's talk about Mitch Daniels' response. How effective do you believe that was?

YORKYou know, it's always a tough situation to follow the president. You're sitting in a room by yourself, and the president's been in this sort of glorious joint session of Congress. I thought he did as well as you could do. It was interesting. He started out with kind words for President Obama. There's a consensus -- I shouldn't say consensus again. A lot of Republican strategists agree, you know, you shouldn't attack President Obama personally. Say he's a nice guy. He's done some good things. He has a very nice family. Say a few good things, and then you say, but...

REHMSo that's strategy.

YORKOh, absolutely. And then you say, but he's failed. He -- we entered office. He didn't create the financial crisis. He entered office. His job was to fix it, and he has failed doing it, and it is time for new leadership. So I think that Daniels made that argument as well as anybody has.

THURBERAnd the analogy of going across the Niagara with debt and deficit is -- it was very important. But he didn't have very many specifics about how to solve that. He just wanted -- you know, he wanted government to shrink a little bit and allow the private sector to produce more revenues, and that's not working. And so I think he was a bit too general about what should be done as an alternative to the president's solutions.

DIONNEI was so struck by that praise of President Obama's family and his giving a great example to the country. One couldn't avoid mischievously thinking, is he saying something about Newt Gingrich and all the controversy around Newt? I thought two things about Daniels. On the one hand, in terms of presentation, he's not a dynamic speaker, and yet the content of that speech I found quite interesting because it had some criticisms of the Republican Party in it, which it was actually a pretty partisan speech.

DIONNEBut he took some of that edge off, and I think he sounded just a little bit less mean than what you're hearing out there on the campaign trail. And I think that would actually be helpful to the Republicans. I think it was a more effective argument for having some of the sort of hyperbolic attacks.

THURBERBut he showed...

REHMWhich is why...

THURBERHe showed the cleavages in the party. They have serious problems in the Republican Party.

REHMWhich is why a lot of people are still wondering if Mitch Daniels is going to step in at the convention.

YORKWell, he had his chance, and he decided not to take it. There was...

REHMSo far.

YORKSo far, and probably permanently. First of all, he didn't run for family reasons, as a matter of fact. He said his wife and daughters did not want him to run for president. He was going to observe their wishes. I do think that there is a recurring fantasy among some Republican strategists of some candidate who will just come in and save the party from disaster. Somebody's going to win the Florida primary on Jan. 31.

YORKIt'll probably be the Romney or Gingrich meeting that will have won two of the first four contests. And the idea that a group of Republican wise men will step in and tell the voters of Florida to, you know, take a hike, we'll take over now is, I think, just not realistic.

DIONNEWhich wise man? I just want to say I think that, on Florida, if Romney wins Florida, I think he may restore his path to the nomination. If Gingrich wins Florida, you sure have a sense among Republicans in Washington, if not necessarily wise men and women, that they really don't want Newt to be the nominee. And I think a Gingrich victory could set off this scenario. Even though I agree with Byron, it's very hard to see mechanically how it would work, but...

YORKWell, you tell the voters to go take a hike. You made your decision. But we don't like it, so we'll pick somebody else.

DIONNEOr you have somebody try to enter late primaries. Again, I agree with you. This is probably fantasy, but I think a Gingrich victory in Florida could set off all kinds of explosions.

THURBERBut, remember, it's proportional representation. If Mitt loses in Florida -- and it's very close -- it goes out to March. I lean towards the idea that Mitt wins because he's got a lot of money. He's got a lot of discipline. He may be a little dull, people think, but he can continue to pursue it right through March. And Newt is a big question mark with no money.

REHMAll right. Before we get into the intricacies of the campaign, let's get back to the speech on energy. What did you think of what President Obama had to say, Byron?

YORKWell, I'm going to adopt the Republican talking point, which is two things. One, it was interesting to hear the president say he favors an all-of-the-above strategy, which was John McCain's campaign line from 2008. And the second thing, what was interesting to hear the president not say anything about the Keystone pipeline, which was a major energy and jobs issue that the president has nixed, at least for now, widely assumed to be to satisfy his environmental supporters who are opposed to it.

YORKBut from a Republican point of view -- and I think this is a valid criticism -- there's a big project right there that will help increase production. And since it's oil from Canada coming to the United States, it's a stable, safe, non-crazy supply of oil. And the president said no.

REHMBut you've got state of Nebraska still objecting to that process.

THURBERBut -- and the Keystone thing is not as much about the pipeline as it is using lots of water and producing a lot of carbon to get oil shale out of Calgary, and that's what environmentalists are primarily worried about. He sounded like a Republican on energy. Drill, baby, drill. We've got lots of...

REHMPublic lands, he was talking about.

THURBERYeah, on public lands, and we've got lots of natural gas. But he also pointed out that fracking research was funded by the federal government and showing that the government was involved. He also danced around bad loans to solar energy companies and said, we still have to pursue that and that we're going to have some bad bets, but we still have to go ahead with alternative energy.

DIONNEI agree with Jim, most of what Jim said. I think what was also interesting is the Republicans' favorite word, or one of their favorite words, is Solyndra, not a word that appeared in this speech. And...

YORKI should have pointed out that wasn't in it.

DIONNEThe...

THURBERNotice I didn't say Solyndra.

DIONNERight. But what was really interesting is Obama said -- he was really saying, I'm doubling down on this. Yes, you know, in effect, these words weren't in the speech. But what he was saying, in effect, is we should keep investing in clean energy. And there are going to be some failures, but it's worth doing because there are going to be successes in the long run. So he's actually not giving any ground on that issue, even though he wisely didn't mention that magic word.

THURBERAnd then on public -- you know, on public land, he's talking about solar and wind primarily, not drilling as much as solar and wind. And we've got big solar farms on public land out West.

YORKAnd this is going to continue to be a big campaign issue. He didn't mention Solyndra because it did involve half a billion dollars and lost federal money on project that just didn't work. And there are other Solyndras out there.

DIONNEThat began in the Bush administration.

YORKThere are others -- yeah, but that -- they didn't -- the Bush administration had not moved forward on it. The Obama administration put the pedal to the metal on it.

REHMLet me ask you what he's proposing about insider training -- trading among members of Congress.

THURBERWell, that was very popular, and they -- he wants to support a bill that's going for it, it looks like, to prevent members of Congress to trade on inside information that would affect particular stocks. And I -- you know, I think that America, you know, supports that. Certainly the members all stood up and applauded. And there are very few members that took advantage of that, but there were members that did so.

REHMWhat about his proposal to merge some departments of the government, for example, commerce?

DIONNERight. You know, it's going to be interesting. I think the Republicans may actually work with him on this even though they're reluctant to give the president, this president, that executive authority. And I, for one, wish he had started on government reform a long time ago because I think if you are a progressive of any kind, the first question you got to answer is, well, you guys want to use a lot of government. Can you make government work?

DIONNEAnd so I think it's about a good thing to do on the merits in terms of reforming government, but, secondly, I think it's an essential thing to do politically.

REHMSo what happens to the Office of the Special Trade Representative? For example, that gets folded into commerce?

YORKOh, it could happen. My sense is that not much is going to happen this year. It's just not going to happen because the two sides are not really interested in working together. And you can say, well, you could have -- you could come together on a few things, and you could present to the American people that we can work together on this. Generally, the eight months before a presidential election are not a major productive period for legislation.

REHMJim.

THURBERYes. Reorganization of committees on the Hill, but also departments are -- it's very, very difficult. There's all kinds of specialized interests that want the status quo. The status quo generally wins on everything in Washington, especially on this. Last State of the Union message, he promised to do something. He got a report. He didn't like it, but he still went ahead with the reorganization. I think it's going to be very difficult to get done.

REHMJames Thurber of American University. And you're listening to "The Diane Rehm Show." Let's open the phones, 800-433-8850. I want to hear what our listeners have to say. Good morning, Bee (sp?), in Dallas, Texas. You're on the air.

BEEGood morning, Diane. Good morning, guests. I've just got a comment. After listening to President Obama's speech last night, I'm wondering if the American people are thinking about three years ago, four years ago, when President Obama took office. This country was at its knees. And some of the same people that are now talking and saying -- making all kinds of comments and saying things are some of the same people that helped to put it there.

BEEWhat is your guests' -- what is their comment about that? And I'd like to say -- I got another comment -- that the Republican Party reminds me of the tower, the story in the Old Testament of the Tower of Babel. They're just all speaking a different language. And they don't even know what they're doing.

REHMAll right. Thanks for calling, Bee. Go ahead, Byron.

YORKWell, the Republican argument is that -- it's pretty straightforward, which is the president did not inherit the financial crisis. He had an unprecedented opportunity to deal with it. He chose to spend a year instituting a national health care program. Jobs are still the main issue, the main issue of the American people. Unemployment is high, could go higher. It -- as -- even if the economy begins to recover, it could go higher as more people re-enter the workforce.

YORKAnd the deficit, which was down to about $160 billion in 2007, has -- is completely out of control in a sense -- in a way that Obama administration officials themselves say is unsustainable. So I think they have a pretty good argument that it's -- a change is necessary.

DIONNEI was -- first of all, thanks to Bee for her scriptural reference. I like that. I think Obama was very explicit in trying to make exactly the argument she put forward. He said, in the six months before I took office, we lost nearly 4 million jobs, and we lost another 4 million before our policies were in full effect. And he's really trying to draw a line here. Well, Reagan did the same thing. Unemployment hit 10.2 percent.

DIONNENow, in fairness to Byron's side of the argument, the growth began more quickly under Reagan than it has under Obama. Nonetheless, he's trying to say, look, I inherited a mess. The policies that were in place before I took office were, to use his words, wrong and irresponsible. And you could take that up to a point. I mean, I think that the Republicans are going to say it should have been fixed faster, and that's really the core of their argument. But I think, though, a lot of Americans are open to the idea that, yes, he did inherit a mess, and he made that case last night.

YORKBut the core of his argument is it could have been worse.

THURBERBut he moved immediately on the stimulus package: one-third tax cuts the Republicans wanted, one-third unemployment compensation and Medicaid, and one-third "shovel-ready jobs," but most of those went to teachers and cops and people in state government that Republicans wanted. He prevented, he would argue, a deeper recession, maybe even a depression. We had 7.8 percent unemployment when he got into office.

THURBERThe problem is we've got 8.5 percent unemployment now. It's hard to prove a negative that what he did prevented something worse. But, remember, he used TARP money to bail out the automobile industry. It got going, created lots of jobs. He helped save the banks. He helped save a further decline in our housing market. So it's -- but it's hard to make those arguments that it would have been worse if he hadn't done that. I don't think he spent all of his time on health care. He didn't spend enough time bragging about what he did with stimulus and TARP, in my opinion.

REHMAnd, Byron, you'll have a chance to comment when we come back after a short break.

REHMAnd welcome back. Just before the break, Byron, you were waiting for your turn to respond.

YORKI was bursting with impatience. During the break, actually, we were talking about how much time the president devoted to cap and trade, which did not pass in the Senate in the first year of his presidency, which further reinforced the notion, which I believe is actually true, that he spent far more time on an agenda that included health care and the environment at a time when the American people were absolutely crazed about unemployment. Unemployment was obviously very high, hit 10 percent.

YORKPeople who had jobs were scared of losing them. This was the biggest single issue. And if you look at how the Republicans won in 2010 in November, they've done a lot of polling about how it was they won. Did they win because they were talking about reducing the size of government? Or did they win because they were saying, where are the jobs, Mr. President? Overwhelmingly, people voted because of the jobs issue.

DIONNEI agree that, in retrospect, they spent a lot of time on cap and trade and got nothing for it and that the defeat of that bill in the Senate may have been predictable. The question is, could he have gotten more stimulus through? Could he have gotten another jobs program through at that point? And maybe if he had fought hard for it, the House did pass a little bit more, which also couldn't make it through the Senate. Some of the problem is the Senate, as we keep saying, but I think it sure would have been useful either to have a bigger stimulus or a second one.

THURBERI think he over-learned the Clinton mistake in 1994 with health care reform. They didn't bring in the chairs enough and coordinate what they wanted. They ignored them, and it was sort of arrogant. And so he leaned too far to the chairs, and they had too much power. And Henry Waxman, chairman of the energy and commerce committee, had jurisdiction over health care and cap and trade, and he really moved hard to the left. There was no way those bills would pass the Senate.

REHMAll right. Let's go to Hagerstown, Md. Good morning, Brooke.

BROOKEHi. I just wanted to make a comment. President Obama focused a lot on manufacturing in his speech last night, but he's still pursuing flawed trade policies that actually don't support American worker. He just passed some leftover Bush-era Korea free trade agreement. That would just cost Americans 159,000 manufacturing jobs. And now he's pursuing the Trans-Pacific Partnership that contains the same foreign investor protection as NAFTA.

BROOKEAnd we've already lost over 5 million of our manufacturing jobs. And if President Obama truly wants to support American workers, he needs to support trade policies that support them, too.

REHME.J.

DIONNEThe lady is pointing to a real divide in the Democratic coalition among progressives that has existed since, at least, the Clinton years, and the president is trying to paper that over by saying there are other things you can do to bring manufacturing home. The one good piece of news, I think, for the president is, to some degree, on this manufacturing question, the winds are with them a little bit.

DIONNEThere are signs -- and some business folks are talking about this -- that there is a return of American manufacture. The costs are going up in China. So I think it is not unrealistic to think that manufacturing jobs will return. But the lady is absolutely right. There is this fundamental divide on the impact of these trade agreements.

THURBERBut in order to get the free trade agreement passed, which was South Korea, Panama and Colombia, there were investments in retraining of workers. It was very hard to get that through. The Republicans supported it. And the analysis is that more jobs will be created than lost as a result of this from the administration. People challenge those numbers, but that was the argument. Secondly, he wanted -- and he said that he wanted a fair situation with China. He wanted to go after stealing of intellectual property. And that's an appeal also to Republicans as well as Democrats.

REHMHere is an email saying, "I was disappointed. I didn't hear more on the housing crisis in the State of the Union address. My mom suffered a financial hardship in 2008. Her mortgage is 75 percent of her income. If I did not move back home, we would have entered foreclosure a long time ago." Byron.

YORKHe didn't talk a lot about it, and there's not -- he did speak about trying to help homeowners who are underwater with their mortgages, but he's done what he can do on that. And what Mitt Romney said a while back, which is -- that part of this situation is letting the situation work itself out because the sad fact is that if people are in homes that they just clearly, clearly cannot afford, they need to leave the homes.

THURBERHe also said he put in a piece on refinancing for people who can afford to pay for the house. So he -- it was a little bit of tough love. There are a lot of people that shouldn't have had these houses. They're underwater. And he didn't say that he was going to save them.

DIONNEThat that could get a lot of money in the hands of people. The Republicans -- if I were Republican, I would criticize him for not doing enough on housing. The problem for Republicans is that, ideologically, as Byron said, they really don't want to do anything. They want the market to settle. So that critique is closed to them.

REHMOK.

YORKWell, you give a certain amount of help to people who are in close situations, who, with a certain amount of help, could stay. But there are clearly people who are just not going to be able to stay in the houses. And for that work to itself out, it has to happen.

REHMOK. I want to clarify something. Angie in Baltimore says, "I took offense to Diane's comment regarding taxing investment income versus people who 'work for their money.' My husband and I both work full-time, live modestly in order to invest in the market for our retirement or future emergencies. We are taxed on our hard-earned income before our money goes into a Roth IRA." Just wanted you to know, Angie, that wasn't my comment. It came from another emailer, Linda, in Laurel Folk, Va. Let's go now to...

THURBERDiane, could I speak to that for a second?

REHMSure.

THURBERIt deals with the upcoming campaign also because there are a lot of retirees that live off their investments. Now, if you look at the 2010 election, there was a significant shift of people 65 years and older that had voted for Obama and shifted and voted for Republicans. He has to appeal to that group in terms of protection of Medicare and -- well, sometimes Medicaid but -- Social Security, but also in terms of people earning money in retirement off their investments. So it's a tricky one.

DIONNEAnd that's why drawing the line at $1 million actually protects a lot of those people so that politically, as Byron pointed out at the beginning of the show, it's a lot easier when you do it that way than when you go further down the income ladder.

REHMAll right. To Letty in Woodstock, Ill., good morning to you.

LETTYGood morning. I hated the speech.

LETTYI campaigned -- yeah, I campaigned for candidate Obama. I do understand that he has talent, but that's a lazy speech. I'm going to speak through my friend Ron Herring, a professor who was shot, because he would've scolded Mr. Obama. And Ron Herring is not here to do that. But where everybody gets a fair shot is one of the headlines in The New York Times today. That's a very, very poorly put together speech on the eve of Gabby Gifford's resignation. That is really lazy. I will not, I will not, I will not is also lazy.

LETTYHow many times did you hear that in that speech? I don't have a background in this, but if I have to work really hard listening to that speech, and I certainly did, he hasn't done his work. And his speechmakers should be fired. And he needs to do harder work as well.

REHMJim Thurber.

THURBERWell, I'm a professor. I don't scold presidents. I try to analyze what they're doing, and, indeed, I disagree with the questionnaire here. I think that it was a good speech, but it was too long. It was too much like a professor. I loved it as a professor, but I think he needed to keep it short. He needed to have a clear strategy theme and message around fair taxes, jobs, energy and cooperation.

THURBERHe could have done that in half the time. I don't think it was lazy. I think -- and, in fact, he wrote a lot of it, and we know that. I think that he just tried to include too much in it.

REHMByron.

YORKI do think in terms -- for general listeners like me, there is a certain "Groundhog Day" quality to State of the Union addresses. They tend to blend together. And, as a matter of fact, the Republican National Committee released a video -- they've done a lot of research -- less than an hour later, putting clips together of Obama's 2010 or 2011 speeches, next to him saying virtually the same thing last night about our crumbling roads and bridges, about our schools and all sorts of different things. So there is a been there, done that quality to some of his speeches.

REHMLydia also wanted to say that it would be better for the president to say, I will support, I will encourage, rather than I will not.

DIONNEYou know, there is -- I think people underestimate the power of negative thinking in politics. How did Ronald Reagan rise? He was against communism. He was against big government. He was against taxes, and you can build a positive program out of what you're against. And I agree in general that you ought to propose something after you say what you're against. But I think, right now, given the political divisions in the country, you got to say both, what you're against as well as what you're for.

REHMAll right. To...

THURBERBut also what you did because he made certain promises, and he referred to those promises and his performance. Now, the advertisement just before the State of the Union message on two channels, on CNN and one other channel, had an ad of about 10 of his promises and how he didn't meet those promises. It's very effective in my opinion.

REHMAll right. To New Haven, Conn., hi there, Roger.

ROGERYes. Good morning. I love your show.

REHMThanks.

ROGERI want to comment on the rationale for a lower capital gain. The only thing I think was mentioned by the panel was to encourage investment. On that one, I would put a but. When you invest money in a regular savings account, that ultimately goes to investments by the bank, mortgages and so on. However, savings interest is taxed as regular income. And, you know, there's a disconnect there. The other thing is the capital gain normally has a potential loss side.

ROGERYou have your capital. You put it in. You could potentially lose something. So maybe there's an intended compensation. Say it went from $100 to $150. Maybe the expected gain is seen to be $125, and you just happened to win that bet. Maybe they're trying to adjust for that. Incidentally, that particular issue is an argument against why hedge fund managers should be allowed to use capital gains 'cause they have no downside. They don't have any fat in the fire.

ROGERAnd if they're investing in, say, managing other people's money, they shouldn't be allowed to take that at the capital gains rate, which, of course, was an issue recently. And the third thing is the gains, especially if they're held for a while, have also the adjustment to be made for inflation.

ROGERIf you put $100 in, you get $150 out, say, five years later. If you can only buy a $125 market basket of goods that you could have bought when you originally put that money in, maybe that's an adjustment that the capital gains rate is attempting take care of. And again, I don't know what the legislators were thinking, but those are other issues at least to contemplate.

REHMAll right.

YORKCould I just ask one question?

REHMSure.

YORKYou thought about this a lot. Do you think that capital gains should be taxed at the same rate as ordinary income?

ROGERI -- again, I generally am in favor of the idea of equity and also not having people like Warren Buffett necessarily walking away, especially since it bothers him, but maybe there is some justification. And as far as my thinking about this, I guess it was maybe 10 minutes after the issues came up on the show. But it strikes me that there are some issues, and I don't know how it should be resolved.

YORKBut 15 percent is much too low, in your opinion?

ROGEROh, I would guess that.

YORKRight.

ROGERYes, I would think so.

THURBERIf he did it in 10 minutes, he would have been very good in a classroom when he was a student.

REHMAnd you're listening to "The Diane Rehm Show." Let's go to Traverse City, Mich. Hi there, Kevin. Thanks for joining us.

KEVINThanks, Diane. Thanks for having me on, and good morning to your guests.

REHMSure.

KEVINJust a quick comment in relationship to something that Gov. Daniels said in his response that I thought was the height of condescension, and I haven't heard the analysis of. His line was that America is a country that is and always have been made up of haves and soon-to-haves. And as the great recession continues to destroy the middle class, I don't think I've heard any rhetoric from the right that was more insulting than somebody who's struggling to put food on the table for his family.

REHMByron.

YORKWell, this is -- if you listen to Republicans very much, you hear them talk -- they don't talk about income inequality. They talk about income mobility, and they talk about the United States. When you -- you know, when you look at X number of people, how many of them are in a better place today than they were when they were born, and the number is extraordinary.

YORKSo even Rick Santorum, who, alone among Republicans, talks about reviving manufacturing jobs and the struggle that people without college degrees have in the economy, even Santorum consistently phrases it in terms of income mobility. So what Daniels said was perfectly consistent with that.

DIONNEI just want...

YORKBut I think...

DIONNECaller, he lives in a very beautiful place...

YORKI'm sorry.

DIONNE...and he makes an -- he makes a good point. I found that formulation odd. The core problem with the conservative argument is we have less upward mobility now than many of those social democracies in Europe that they call an entitlement society, and it's not a crisis of equality alone. It's really a crisis of upward mobility in our country.

THURBERBut the president is talking about income opportunity, investment in education, giving people a fair shake in terms of retraining them for jobs. It really is very close to the question of income mobility. Give them opportunity and give them a fair shot, a fair share and not give them an entitlement program. Give them a way to compete. And that's part -- that was a big part of the speech.

YORKBut health care was about redistribution, wasn't it?

THURBERHealth care was about cost, quality, access and finance.

REHMHe didn't even mention the Affordable Care Act last night.

DIONNEYeah. It's about cost, quality, access and finance. It's about reducing the cost of health care by putting people in big pools, saving $330 billion. It is not socialized medicines. It's not redistribution.

YORKOh, it really was. I mean, if you -- as a matter of fact, after it was passed, people like The New York Times' columnist David Leonhardt and others came out and said, you know, this is the most important redistributive act passed in a very long time. It's about extending coverage to previously uncovered people and subsidizing their ability to pay for it.

THURBERAnd if giving every American access to health care is redistribution, what in the world is wrong with that? I just don't think we should get hung up on the word redistribution. It's a good thing to provide everyone with health care in my view. We can disagree on that.

DIONNEIt was about access. It was about putting cost controls on docs and hospitals, maybe redistribution in that way.

REHMAnd on that note, we shall end.

DIONNEI'm sorry.

YORKI'm sorry.

REHMJames Thurber, E.J. Dionne, Byron York, thank you all so much.

YORKThank you, Diane.

DIONNEThank you, Diane.

REHMThanks for listening. I'm Diane Rehm.

ANNOUNCER"The Diane Rehm Show" is produced by Sandra Pinkard, Nancy Robertson, Denise Couture, Monique Nazareth, Nikki Jecks, Susan Nabors and Lisa Dunn, and the engineer is Tobey Schreiner. A.C. Valdez answers the phones. Visit drshow.org for audio archives, transcripts, podcasts and CD sales. Call 202-885-1200 for more information. Our email address is drshow@wamu.org, and we're on Facebook and Twitter. This program comes to you from American University in Washington. This is NPR.