President Barack Obama called for tax reform as a way to temper drastic automatic budget cuts during his State of the Union address.

“The American people deserve a Tax Code that helps small businesses spend less time filling out complicated forms, and more time expanding and hiring, a Tax Code that ensures billionaires with high-powered accountants can’t work the system and pay a lower rate than their hardworking secretaries, a Tax Code that lowers incentives to move jobs overseas, and lowers tax rates for businesses and manufacturers that are creating jobs right here in the United States of America,” he said. “That’s what tax reform can deliver. That’s what we can do together.”

Obama pointed out that both parties had already worked together to reduce the budget deficit by more than $2.5 trillion over 10 years, more than halfway toward the goal of reducing the deficit by the $4 trillion that economists say is needed to stabilize the nation’s finances. However, the looming automatic budget cuts agreed to in 2011 could harm the economic recovery, he argued.

“In 2011, Congress passed a law saying that if both parties couldn’t agree on a plan to reach our deficit goal, about a trillion dollars’ worth of budget cuts would automatically go into effect this year,” he said in his speech to a joint session of Congress Tuesday night. “These sudden, harsh, arbitrary cuts would jeopardize our military readiness. They’d devastate priorities like education, and energy, and medical research. They would certainly slow our recovery, and cost us hundreds of thousands of jobs. That’s why Democrats, Republicans, business leaders, and economists have already said that these cuts, known here in Washington as the sequester, are a really bad idea.”

Obama noted that some lawmakers in Congress have proposed preventing only the defense cuts by making even bigger cuts to things like education and job training, Medicare and Social Security benefits.

“That idea is even worse,” he said. “Yes, the biggest driver of our long-term debt is the rising cost of health care for an aging population. And those of us who care deeply about programs like Medicare must embrace the need for modest reforms. Otherwise, our retirement programs will crowd out the investments we need for our children, and jeopardize the promise of a secure retirement for future generations. But we can’t ask senior citizens and working families to shoulder the entire burden of deficit reduction while asking nothing more from the wealthiest and the most powerful. We won’t grow the middle class simply by shifting the cost of health care or college onto families that are already struggling, or by forcing communities to lay off more teachers and more cops and more firefighters.

“Most Americans—Democrats, Republicans, and independents—understand that we can’t just cut our way to prosperity,” Obama added. “They know that broad-based economic growth requires a balanced approach to deficit reduction, with spending cuts and revenue, and with everybody doing their fair share. And that’s the approach I offer tonight.”

Obama said that he was prepared to enact some reforms in Medicare that would achieve the same amount of health care savings by the beginning of the next decade as the reforms proposed by the bipartisan deficit reduction commission chaired by former Senator Alan Simpson and former White House chief of staff Erskine Bowles, known as Simpson-Bowles.

Obama pointed out that the Affordable Care Act is already helping to slow the growth of health care costs, and he proposed further reforms to reduce taxpayer subsidies to prescription drug companies and ask more from the wealthiest seniors.

“We’ll bring down costs by changing the way our government pays for Medicare, because our medical bills shouldn’t be based on the number of tests ordered or days spent in the hospital; they should be based on the quality of care that our seniors receive,” he said.”And I am open to additional reforms from both parties, so long as they don’t violate the guarantee of a secure retirement. Our government shouldn’t make promises we cannot keep, but we must keep the promises we’ve already made.”

To hit the rest of the deficit reduction target, Obama said lawmakers should do what leaders in both parties have already suggested, and save hundreds of billions of dollars by getting rid of tax loopholes and deductions for the well-off and the well-connected.

“After all, why would we choose to make deeper cuts to education and Medicare just to protect special interest tax breaks?” he asked. “How is that fair? Why is it that deficit reduction is a big emergency justifying making cuts in Social Security benefits but not closing some loopholes? How does that promote growth? Now is our best chance for bipartisan, comprehensive tax reform that encourages job creation and helps bring down the deficit. We can get this done.”

Obama acknowledged that tax reform and entitlement reform would not be easy. “The politics will be hard for both sides,” he said. “None of us will get 100 percent of what we want. But the alternative will cost us jobs, hurt our economy, visit hardship on millions of hardworking Americans. So let’s set party interests aside and work to pass a budget that replaces reckless cuts with smart savings and wise investments in our future. And let’s do it without the brinksmanship that stresses consumers and scares off investors. The greatest nation on Earth cannot keep conducting its business by drifting from one manufactured crisis to the next. We can't do it.”

Obama offered a number of ways to create more jobs in the U.S. and expand the economy. He called on Congress to pass the rest of the American Jobs Act that he proposed a year and a half ago, saying it would create more than 1 million new jobs.

To create more manufacturing jobs, he asked Congress to create more “manufacturing innovation institute” modeled after one created last year in Youngstown, Ohio.

“A once-shuttered warehouse is now a state-of-the art lab where new workers are mastering the 3D printing that has the potential to revolutionize the way we make almost everything,” he said. “There’s no reason this can’t happen in other towns. So tonight, I’m announcing the launch of three more of these manufacturing hubs, where businesses will partner with the Department of Defense and Energy to turn regions left behind by globalization into global centers of high-tech jobs. And I ask this Congress to help create a network of 15 of these hubs and guarantee that the next revolution in manufacturing is made right here in America. We can get that done.”

Obama also called on Congress to invest more in research, pointing out that every dollar that was invested to map the human genome returned $140 to the economy. “Today, our scientists are mapping the human brain to unlock the answers to Alzheimer’s,” he said. “They’re developing drugs to regenerate damaged organs; devising new material to make batteries 10 times more powerful. Now is not the time to gut these job-creating investments in science and innovation. Now is the time to reach a level of research and development not seen since the height of the Space Race. We need to make those investments.”

Climate Change
In particular, he called for more investment in clean energy sources such as wind and solar energy to combat climate change. “For the sake of our children and our future, we must do more to combat climate change,” he said. “Now, it’s true that no single event makes a trend. But the fact is the 12 hottest years on record have all come in the last 15. Heat waves, droughts, wildfires, floods—all are now more frequent and more intense. We can choose to believe that Superstorm Sandy, and the most severe drought in decades, and the worst wildfires some states have ever seen were all just a freak coincidence. Or we can choose to believe in the overwhelming judgment of science—and act before it’s too late.”

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