hard lines between myself and barak and security providers. at the beginning of this year we start a new journey. let me welcome you once again mr. president, it is a great pleasure to have you with us. thank you very much. thanks a lot. >> thank you. [applause] >> thank you, prime minister narendra modi for those wonderful words. i want to thank india for the incredible hospitality that has been shown to me and michelle. we're thrilled to be here in india.

mr. prime minister, thank you for joining the invitation. i'm honored to be the first american president to enjoy this celebration, as well as the first american president to visit india twice. this reflects my presidency to deepen our ties with india. all who believe that a strong relationship with india is critical for america's success in the 21st century. as two great democracies two innovative economies two societies dedicated to the empowerment of our people, including millions of partners. when i addressed your parliament on my last visit i laid out my vision of how india and the united states could build a defining partnership for the

21st century. and since then we've made significant progress. our trade has increased. our militaryies exercise together more. we're cooperating on key global challenges from nuclear proliferation to global health. mr. prime minister, your election and your strong personal commitment to the india-u.s. relationship gives us an opportunity to further energize these efforts. >> so u.s. president barack obama and india's prime minister narendra modi talking about boosting trade deals. we'll be back with more at the top of the hour. thanks so much. goodbye. .

>> the crowing of a healthy economy lead others to assess. the state of the union gave us plenty to talk about. we're talking about middle class economics. that's inside story. >> hello, i'm ray suarez. there were times when the president sounded like he was giving his last state of the union address rather than one with two years left in his final term. president obama delivered a self assessment, set out an agenda over the next two years and developed plenty of time of what he called middle class economics. the speech was barely open when there was questioned whether such a thing existed. as an approach, as

policies, as politics. what's middle class economics? we'll lift the lid and look at the parts this time on inside story. >> the verdict is clear. middle class economics works. expanding opportunity works. and these policies will continue to work. as long as politics don't get in the way. >> president obama's state of the union tuesday zeroed in on helping america's middle class but just skimmed over his administration's tax reform plan. it would include raising the capital gains tax from 24% to 28%. close certain tax loop holes including for cooperate jet owners and charge banks a fee of .07% if they own more than $50 billion in assets. but congressional republicans aren't buying it. >> the republicans

, we've been fighting for middle class tax breaks, job creation, we sent over 400 bills to harry reid and he just ram blocked from the president. why now? why after six years is the president saying we need to cut taxes for the middle class when we've been talking about this all along. >> we would love to do tax reforms. but you heard the president call for raising taxes again. if he's going to be raising taxes it will make it difficult for us to come to some agreement on how to reform. >> home, stock and pension ownership are all down. an estimated 10 to 20% since 2007. and according to pugh research middle class weekly wages have fallen by more than 3%

since 2000, but have risen by nearly 10% for the wealthy. >> economic issues took up the lion lion's share of the president's speech far more than national defense, security or foreign affairs. american politics has at times worked on the assumption that good economic policies work for everybody, and sometimes on the assumption that the poor needed a special kind of help. in his speech last night the president proposed kind of an amalgam that targeted policies aimed specifically at middle class americans or those trying to claw their way to that status set up a virtual cycle that helps everybody. joining us is harry stein, hadley heath manning, and pete

sipp. pete, there are millions of families clustered to either side of the roughly 52,000-dollar ayear median national income for american families. when you heard the president's proposals last night, were there things that would help people clustered around that pole? >> i had my doubts. i thought for example if the president wanted to aim at the middle and working classes for tax relief, you have to attack the taxes that they pay the most in. that's payroll taxes and ex-size taxes. you do it it for the incomes tax code. you're introducing complexity and hoops to jump through. when you look at the tax burden distributions from the congressional budget office it's hard to make this income tax code much more progressive. >> given that payroll tax as a fairly fixed medicaid and social

security, isn't that where you have some leeway to do some of the tinkering with the things that affect how much better federal income tax a family pays in the end. >> you could do some tinkering and would show up immediately in the paycheck. you can say here is the rate cut and we'll keep it low for at a certain amount, and of course politicians are probably wondering what credit would i get for that politically as opposed to creating a nice new tax form, several lines on the tax form that you get to fill out, and declare and get the money back that way. i think that's part of the reason why we don't see as much pursuit of payroll tax relief. what do you make of what the president suggested? >> i think its great to hear and

focus on the middle class. the costs of a middle class life, child care needs and expenses have gone up. the problems that the middle class have been facing are not problems that barack obama created, but we're seeing a renewed focus. >> hadley, one of the president's guests up in the box with the first lady was from a family in minnesota who wrote to the president to talk about some of the very constitution he was addressing struggles that he was addressing in some of his tax suggestions. did it surprise you that there was a family that had been pointed glout the president has

been focused on using middle class rhetoric. to be in that fifth of income bracket there are many more people outside that have bracket who consider themselves middle class and would answer the question are you in the middle class positively. many people hear the president's speech and consider themselves to be part of the middle class and actually are. i think where the president goes wrong, even though it's it it may be good politics it's not good policy, to say that the american family are static classes. focusing instead on income levels. a lot of inequality in the income that americans have, but that is not a stack tick situation. we want to encourage americans to think of themselves not as a class but as an aspiring individuals and families who look forward to a brighter future. >> with all due respect i think

you're defining middle class in a way that's much more confined you could be seed yourself, to divide all the families in america, many live lives that are similar to each other in the third and fourth, and when you hear about child care costing as much for two years as a year at the university of minnesota, there were more than just people in that middle area nodding their heads knowingly. >> certainly, but i think the president is making a strategic move when he talks in terms of classes. because at the end of the day i believe our hope for every american regardless of if they are in the middle class or if they're very poor or if they're very wealthy is that our economy grows so that we all have more opportunities.

the politics that we implement should be across all income levels. >> pete, wasn't using the tax code as a way to create incentives for certain kinds of economic behavior and disincentives for other kinds of economic behavior, wasn't that popular in the '80s, wasn't that a ronald reagan, tip o'neill move? >> oh sure, and it was popular before then. one of the things that we not think about when we look at tax fairnesses looking across the income scales, not up and down do people with relatively the same income pay relatively the same tax burden? that's not even close. you know, we always focus on do the rich pay more than the poor? how about a fellow who is an auto mechanic making the same amount of money as someone who

might be a manager in an office earning wages, are they paying roughly the same taxes. they're not because of all these provisions. tax reform is about defining the base of taxation, not the rates. the rates come later. you have to define what you're going to tax first. >> but harry stein, strictly speaking when you look at the way that americans earn money and the way we collect taxons it, income is not income is not income. depending on how you earn the money and how it ends up in your pocket, you're going to be taxed in very different ways. >> absolutely. one of the most important differences is something that the president zeroed in on in his speech. if you earn income at work you get tacked at a higher rate than if you get that income through investment, stocks and bonds. it's are generally wealthy people who have the bulk of those stocks and bonds. it's a huge tax subsidy that functions to help the rich get

richer and the president zeroed in on reducing that difference. people earn the same amount of money but one from work and one on investments would be taxed at a closer rate. >> is it class warfare to suggest if you earn money it should not be treated very differently depending on how you earn it, or should we preserve that system to the degree possible? >> we should just keep in mind with any policy whether it a has to do with taxation or subsidization, if you want less of something you tax it. tax something a disincentive for that behavior: if we are raising taxes on 529 education accounts which are savings for college, we're discouraging people from putting that money aside to save for college, which is a middle class sort of education savings account.

so i would point out that whatever we do in terms of tinkering or discouraging certain behaviors and encouraging certain behaviors. this is not so much about different income levels. it's about the different behaviors that the government is trying to nudge us into. >> pete, i want to get a quick answer before we go to break because i have to go to a break. this is a part of the national argument that always fascinate me. i can't remember a time when rich people didn't try to get richer. they always have. using investments, starting new businesses. putting money into companies that they believed had a big future. would they behave in a markedly different way if the capitol gains tax was 28% versus 32.8%. >> in a markedly different way i think some of them would. history shows that.

capital gains realization plunged by half. revenues went up roughly 80% more than they would have following the four-year period of enactment under the than they would have under the higher rate. >> but wasn't that a temporary affect based on certain kinds of frozen capital that caused you to jump in on the jamboree when the rules changed up or down. >> that's the president's goal. he is saying he wants to unlock unproductive capitol that is trapped on this so-called stepped up basis. i think there are better ways of doing that, and one of them would benefit the middle class. we can talk about that on the other side. >> when we come back, a closer look at some of the proposals like a tax break for college tuition or tax credit for double earner families. the president said middle class

economics works. we'll talk about how in a minute. stay with us.

>> welcome back. i'm ray suarez . the al jazeera monmouth university poll said that the economic recovery has not yet touched their families. the president roughed out proposals for wage earners and families in the middle of the wage tables last night. how would they work? would they bring the kind of relief intended. if you give a subsidy of whatever kind to a couple paying for child care, do you get some of that money back in increased economic activity. >> you absolutely do. one of the things we talked about, one of the things that keeps people out of the workforce that can't afford

child care for the kids. it makes more sense for the second earner to stay home with the kids. when you may the tax credits larger for families. that enables the kids to get a job, have their kids looked after in a quality setting . >> hady health manning, wouldn't families welcome that relief? >> i'm sure some families would. the choice of what to do with a child when both parents want to go back to work or in a single family parent home, most families when asked what would they like to do for their child, most respond they would like to have one of the spouses or close family member care for their child. some families make the choice to stay home.

that's a costly choice for many families, but in some instances these goes beyond the world of economics and the values they want to make about parenting. one of the problems for tax credits and success subsidies. they favor some choices that some families makeover the choices that other families make make. >> the older the families getser the more likely that the mother will go back in the workforce. >> there are after school programs and other types of child care services. the child care services we're discussing with a young child might be is often during those years when parents might stay at home. not necessarily the mother, but in many cases yes. >> i would just say that i think our goal out to be that every

family ought to make the decision that is most sense for them. you've got a lot of families where somebody my want to go back in the workforce but they can't forward to do that because they can't forward child care. they enables them to make that choice. if they instead want to stay home and care for their child at home. that's great. they ought to have that choice as well. we need to make sure that we're raising wages so that it's oh possible for a single breadwinner. not all of them on the tax side. we're focused on the tax policies but we want to make sure that families can make whatever choices are best for them. >> pete, some of this is made to feel mysterious. i worry a little bit because i hope there is a more reliable way of knowing when you give somebody a $500 tax credit which they can use towards college tuition that we can

contemplate the pay back for that. the federal government saying we're not going to collect that in taxes. you go and get four credits, and another four in the semester after that, and you earn more money, and higher property taxes, send kids off to school who are more likely to finish more years of school because you did, and so on. do we know that there is a pay back? >> there are some studies that attempt to quantify this. the further our you try to get to predict the fall out good or bad from tax policies, the thinner ice you're on. that's the problem. you give somebody child care subsidies so someone can go and complete a degree, you're trying to predict 10 or 20 years down the line how much different their income is going to be. that's not always easy to trace back to a tax credit. >> maybe not for an individual

but don't we know haven't there been calculations for years about lifetime earnings, and the life-time earning gaps. >> oh, yes, and there are good calculations on the effects of policies on investments, the amount of revenue that will come into the government. this is the thing that we always speak about when the president talks about tackling oil and gas and take away loop loopholes. you have to remember the energy that he praise so much, you have to take into account if you're going to talk about changing policy there. >> we'll be back with more inside story. when we return, the politics of the president's proposals when the president tells a joint session of congress that he want low-income americans to get a raise, whether or not he's right, is it a good look for the party that's running capitol

hill to sit on its hands? stay with us.

>> your ' watching "inside story."

i'm ray suarez. during the state of the union address when the reps democrats cheered and every else sat quiet about health care insurance. and still with me as we turn from the policy to the politics of so-called middle class economics are harry stein, hadley heath manning, and pete sepp. hadley, has the president set a trap for the people on the other side of the aisle? >> i don't believe so. i think republicans could spend some time responding to some of the proposals that the president has made, but they would be better off, quite frankly, focusing on their own agenda for

the future. they need to do a better job communicating exactly how many of their policy provides, which priorities, these changes they need to make sure americans understand explicitly how those changes would benefit the americans that the president consistently addresses when he says middle class. people who are middle income where are they going to see benefits from a republican sort of policy agenda? >> but last night we saw people sitting quietly, hadley, as half the house cheered lustily for raising the minimum wage, for instance. is mitch mcconnell going to sit with a bunch of people making $8.25 an hour and explain why it would be bad for them $10.25 an hour? >> no, instead the republicans should focus on explaining what

the country really needs is real wage growth that happens naturally because our economy is growing and adding jobs. not wage growth that comes through government mandate. those kinds of wage increases don't benefit the workers in that group because so many of them will lose a job or face price inflation because of the impact of those policies. at the end of the day the republicans can paint a brighter future for every income earner rather than responding to the political talking points about minimum wage. >> it sounds like a tall order to tell a minimum wage earner why it would be better to get one type of raise versus another. it may be totally true but politics is different than policies. >> yes, and i think if republicans are smart they'll give their messages depending on who they're talking to.

one way to appeal to middle class investors, you can take inflation into account when you're calculating your capitol gains so you're no longer paying taxes on phantom gains. that would be an easily sellable proposal to someone who is 60 years old. they've held a mutual fund or something for 20-30 years. why should they pay taxes on inflationary gains. that's as easy to explain as the stepped hundred up proposal that the president has and it would bring some appeal. >> have they neutralized some of the gaps that exist between democrats and republicans? >> i hope so. i think at a minimum the victory of middle class economics is that at least we're all talking about the right problem. we're all talking about the problem of how do we grow wages for everybody? we do have economic growth. we are creating jobs, but wages remain stagnant, and costs are going up.