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By Matt Spetalnick
WASHINGTON, Jan 27 (Reuters) - Stung by political setbacks and a drop in the polls, President Barack Obama will use his State of the Union speech on Wednesday to retool his agenda with a more populist tone and address Americans’ concerns about the economy, jobs and deficits.
Here is a rundown on Obama’s challenges and how he will frame them during his high-stakes appearance before Congress:
OBAMA‘S TOP PRIORITY? JOBS, JOBS, JOBS
Obama’s biggest challenge is to tackle double-digit, 26-year high unemployment, which has eroded his popularity and may dim re-election prospects for his Democrats in November mid-term congressional elections. His handling of this issue could well determine the success or failure of his presidency.
Americans will be listening for word on how he intends to spur job creation, which has lagged even as economic growth has resumed. Though he will want to show he understands voters’ economic pain, it remains unclear how specific he will be.
On top of a $787 billion economic stimulus Obama signed in February, the House of Representatives has approved a $155 billion jobs bill. Obama will prod the Senate to follow suit.
He will also remind listeners he inherited an economic mess from his Republican predecessor, George W. Bush, and keep up a populist-tinged attack on Wall Street and big executive bonuses as he seeks to tap into voter frustration over the economy.
Obama will try to balance the need to further boost the economy against a commitment to cut the U.S. budget deficit, which soared to a record $1.4 trillion in fiscal 2009.
To signal his seriousness about fiscal responsibility, he will call for a three-year spending freeze on some domestic programs that would save $250 billion by 2020.
The freeze affects only a fraction of the overall budget but carries symbolic value for Obama, who wants to counter the big-spender image painted by Republican critics.
There are political risks. Obama is exempting military spending while leaving some popular domestic programs vulnerable, which does not go down well with his liberal base.
Obama has accused Bush of leaving him a fiscal disaster. Republicans, however, prefer to portray the burgeoning deficit as a product of Obama’s policies.
Like the rest of Obama’s legislative agenda, healthcare reform has been thrown into doubt by his Democratic party’s stunning loss of a key Senate seat in Massachusetts last week.
Obama has promised not to walk away from the fight for a healthcare overhaul, but the White House has conceded it may need to recast its message to sell it to a skeptical public.
The new obstacle is the loss of the Democrats’ 60-seat “super-majority” needed to overcome procedural hurdles.
The president, in his speech, can be expected to stress cost-control arguments for healthcare reform, which he insists will help lay the foundation for broader economic growth.
Still, he will take care to counter criticism he has overemphasized healthcare at the expense of issues like jobs. Democrats hope to salvage at least a scaled-back plan.
The loss of the Massachusett Senate seat will also make it harder for Obama to push through a regulatory overhaul to prevent a repeat of the crisis that led to huge bank bailouts.
In a bid to regain some momentum, Obama is likely to use his speech to hammer home his increasingly populist line against Wall Street excesses, an easy target for public anger.
Obama can be expected to use the State of the Union podium to promote his proposed restrictions on bank risk-taking, which is already encountering Republican opposition as anti-business, and to push for further reforms.
Obama’s chances of passing climate change legislation this year, always a dubious proposition, dimmed even further with the Democrats’ loss of the Massachusetts seat.
The House approved carbon caps last year, but the effort remains stalled in the Senate, with opponents arguing such measures would hobble U.S. competitiveness.
It is unclear how the issue will figure into Obama’s speech. But progress is needed if he is to meet his pledge to help forge a new global pact to fight climate change.
Obama missed his one-year deadline to close the internationally condemned military prison at Guantanamo Bay in Cuba. But that pledge plus a ban on torture and a more multilateral diplomacy have helped repair some of the damage done to America’s global image under Bush.
Obama, more popular abroad than he is at home, can be expected to make that point in his address, even though Republican critics say he hurts Washington’s stature by admitting past mistakes.
Though foreign policy will be overshadowed by domestic matters in his speech, he may also try to put a positive spin on efforts to engage with U.S. foes like Iran, North Korea and Cuba, which have so far yielded little in return.
No Obama State of the Union speech would be complete without a mention of the two wars he inherited from Bush.
Holding to his promise to shift focus from Iraq, Obama has pivoted to Afghanistan -- but at a cost. He decided in December to boost troop levels there by 30,000 after lengthy deliberations that critics called dithering.
Now it’s Obama’s war. The problem is polls show public support has waned as U.S. casualties have increased, and some of Obama’s fellow Democrats are balking at the buildup.
Candidate Obama pledged to withdraw all U.S. combat forces from Iraq within 16 months of taking office. He will come close if he sticks to the August 2010 deadline he set as president. (Reporting by Matt Spetalnick; editing by Patricia Wilson and Todd Eastham)