WASHINGTON – Planning a State of the Union address tonight heavy on health care, energy and education, President Bush will attempt to get beyond a raging debate over the war in Iraq as he faces a new Democratic-controlled Congress for the first time.

Yet, with mounting U.S. casualties in Iraq and a majority of Americans voicing disapproval with the nation’s direction, criticism is likely to remain fixed on the president’s war policy while congressional leaders attempt to swiftly discredit some of his new domestic initiatives, such as a tax deduction for health insurance to offer more people coverage.

The president, who plans to confront critics in a speech running longer than 40 minutes, also plans to spell out what the White House calls “bold proposals” on health care, energy independence, global warming and immigration.

This includes a proposal for a new standard tax deduction for people with health insurance. It is likely to attract ready controversy as it offers health coverage for perhaps just 3 million of the 47 million Americans now uninsured, while asking an estimated 30 million taxpayers now insured through their workplace to pay higher taxes as employer-paid health benefits become taxable.

As Bush presses an ambitious domestic agenda for the remaining two years of his presidency, he will find himself facing a hostile new audience with a Democratic-controlled Congress unwilling to accept his stance on the war and ready to relegate him to lame-duck status as 2008 presidential campaigns get under way.

“It’s a tough order,” said John Mueller, professor of political science at Ohio State University, who doubts the president can get beyond the war with this address because the war is the No. 1 concern on Americans’ minds heading into the speech.

“This has become so dominant,” he said. “What’s frustrating, from the president’s standpoint, is there is nothing even close.”

With 63 percent of Americans surveyed in the latest Gallup Poll voicing disapproval with the nation’s direction, and only 35 percent satisfied, Gallup also has found a correlation with the war. The vast majority of those who oppose the war are dissatisfied with the way things are going in the U.S. – 82 percent – while those who support the war are largely satisfied with the nation’s direction – 67 percent.

The president, who devoted a nationally televised speech to his war policy two weeks ago, will once again stress the urgency of the challenge that the U.S. faces in Iraq and his formula for success. But he also will attempt to focus the public and a Democratic Congress on a domestic agenda that the parties can pursue together.

“The president is going to offer some bold proposals that Congress could, in fact, enact, and in the process make itself look good and, more importantly, do the people’s business,” White House spokesman Tony Snow said Monday.

“When you have these big issues – health care is a big issue, energy is a big issue, education is a big issue, immigration is a big issue … it’s worth spending a little more time to walk through how the president analyzes the problem,” Snow said, “and how he proposes to try to address them, and to reach out to members of Congress and say, “We can do this. We can work together on these things.”‘

Health care plan

Foremost among the president’s proposals is a plan to promote health care – a plan Democratic leaders already have started attacking as “a tax on working families” before Bush details it.

Bush will propose:

A new standard tax deduction for anyone with health insurance, exempting the first $7,500 of an individual’s income and the first $15,000 of a family’s income from income or payroll tax.

A new tax on the health benefits that workers receive from employers and also on the share of premiums that employees now pay before taxes – subjecting to taxation the money that companies and employees contribute to employees’ insurance plans.

With the average cost of a family health care plan at work expected to be $13,600 in 2009, when this proposal could start, 80 percent of all workers now insured through work stand to benefit from the proposed new standard tax deduction, while 20 percent of those insured at work stand to face higher taxes.

A tax shift promising lower taxes for about 120 million taxpayers now insured through work and higher taxes for about 30 million people who have more “generous,” costly policies at work.

Offering a new tax break for people who purchase insurance on their own, and enabling many who lack insurance now to afford it. A “conservative” estimate by the White House suggests that “upwards of 3 million” of the 47 million now uninsured might gain coverage under this plan.

There are “winners and losers” in the plan, said Jason Furman, an expert on tax policy at the Brookings Institution.

“It is great that the president has come along and identified that our existing health care system is inadequate. And he is giving more of an incentive for people who lack insurance to get insurance,” Furman said. “But then, unfortunately, when you get to the details, some of these things have to be improved.”

From the government’s standpoint, in terms of the money collected from taxpayers, the plan is “revenue-neutral” over a 10-year period, according to Katherine Baicker of the White House’s Council of Economic Advisers. But it’s a “revenue-loser” in the first few years, and a money-maker in the later years of the cycle.

The plan “levels the playing field” for people now purchasing insurance on their own, Baicker said, offering the same standard tax deduction for insurance that people covered at work stand to get.

Senate Majority Leader Harry Reid, D-Nev., already has pounced on the plan as “a tax hike on working families.” The health care premiums that employees pay at work have risen dramatically, his office noted, while wages have not.

Yet the president’s plan offers coverage for more Americans without increasing the government’s long-range costs, said Mark McClellan, who served as director of Medicare and Medicaid services in the Bush administration and is a visiting senior fellow at Brookings and the American Enterprise Institute.

“This is overall budget-neutral, from the standpoint of the federal government,” said McClellan, acknowledging that higher taxes for some people pose “the challenging part of the proposal.” But, while averting higher costs for the government, he said, “I think this is a serious contribution to getting more people insured.”

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(c) 2007, Chicago Tribune.

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AP-NY-01-22-07 2037EST