"The defining issue of our time is how to keep that promise alive. No challenge is more urgent. No debate is more important," Obama said of the need to enact an agenda that bolsters the middle class.

"We can either settle for a country where a shrinking number of people do really well, while a growing number of Americans barely get by. Or we can restore an economy where everyone gets a fair shot, everyone does their fair share, and everyone plays by the same set of rules," he said.

"What's at stake are not Democratic values or Republican values, but American values," he added. "We have to reclaim them."

Obama's moment in the spotlight and on the national stage came at a crucial moment in his first term, with the economy showing continued signs of progress, his job approval ratings up slightly, and his Republican rivals divided over choosing their nominee.

Obama seized the opportunity to highlight his accomplishments over the past three years and "set the tone" for his re-election campaign, tacitly framing the November election as a choice between two starkly different political philosophies, rather than a referendum on his controversial tenure.

The president accentuated themes from a fiery populist speech he delivered in Kansas in December, telling his audience because of his economic and foreign policies "the state of our Union is getting stronger."

"We've come too far to turn back now," he said.

At the heart of Obama's case for the restoration of "American values" was formally imposing the so-called Buffett Rule -- the idea that millionaires and billionaires should not pay a lower percentage rate in taxes than members of the middle class.

"You can call this class warfare all you want. But asking a billionaire to pay at least as much as his secretary in taxes? Most Americans would call that common sense," he said, calling for a new legal requirement that Americans making more than $1 million a year pay a minimum effective tax rate of at least 30 percent.

The secretary of billionaire investor Warren Buffett was a the guest of first lady Michelle Obama this evening so as to illustrate that point made by her boss.

Obama also discussed proposals to boost American manufacturing, invigorate energy production and expand the skill sets of U.S. workers that included a series of new taxes and new spending measures as well as at least two new government departments.

He called for an end to tax deductions for housing, health care, retirement and child care for millionaires and the elimination of federal subsidies, such as food stamps, for the same, an idea put forth by Republican Sen. Tom Coburn, of Oklahoma.

Adding details to an idea he hinted at last week, Obama called for an end to tax incentives for companies that move work overseas or shut down their factories, while proposing new, lower overall tax rates for U.S. manufacturers, particularly those that relocate factories to economically hard-hit communities.

"It's time to stop rewarding businesses that ship jobs overseas, and start rewarding companies that create jobs right here in America," he said. "Send me these tax reforms, and I'll sign them right away."

Obama also repeated his call for no tax increases on the middle class, including an extension of the payroll tax cut through the end of 2012 – a line that drew bipartisan applause.

To enforce the rules in a "fair shot" economy, the president envisioned two new government agencies. A Financial Crimes Unit within the Justice Department would target large scale financial fraud, he said, while a new Trade Enforcement Unit would work to hold international trading partners accountable for unfair practices.

"A return to the American values of fair play and shared responsibility will help us protect our people and our economy," said Obama.

He said the fairness doctrine should apply to federal government and educational institutions as well, with rules prohibiting lobbyists from bundling for political candidates and bundlers from lobbying; a ban on insider trading by members of Congress; and an end to federal aid for colleges that don't keep net tuition down and provide good value.

On housing, Obama proposed a new plan to let every homeowner who has kept up with mortgage payments to re-finance at current low rates, including those who have equity in their homes.

While on education, he called on every state to require students to stay in high school through graduation or age 18, a policy 20 states already have in place. He also reiterated a pledge he's already made to make college more affordable and loans less burdensome by boosting tax credits and increasing federal student aid.

Republicans Respond

Republican greeted the ideas – some of which are not new -- largely with disapproval, blasting the president before he even began speaking for what they characterized as a campaign-style approach on the heels of three months of public castigation of lawmakers as a "do-nothing Congress".

"The president checked out last Labor Day. He spent the last four months doing nothing but campaigning. He hasn't been engaged in the process," House Speaker John Boehner told CBS News ahead of the address. "If the President wants us to be engaged in the process, it takes two to tango."

There is simmering anger among congressional Republicans that came to a head recently over the recess appointments of Richard Cordray to the Consumer Financial Protection Board and three others to the National Labor Relations Board. And there's a lingering resentment over the bruising payroll tax cut fight and the rejected Keystone XL oil pipeline, a shovel-ready project Republicans said would create thousands of jobs.

Boehner invited three small oil company executives he dubs "job creators" who say their businesses would receive a boost from the Keystone plan.

Indiana Gov. Mitch Daniels, who delivered the official Republican response to Obama's speech, cast aside the president's economic class contrasts -- which some conservatives have decried as "class warfare" -- calling instead for a "passionate pro-growth approach" that benefits everyone.

"No feature of the Obama presidency has been sadder than its constant efforts to divide us, to curry favor with some Americans by castigating others. As in previous moments of national danger, we Americans are all in the same boat," said Daniels.

Intellpuke: You can read more of this article by ABC World News correspondents Jake Tapper and Devin Dwyer, reporting from Washington, D.C., in context here: abcnews.go.com/Politics/OTUS/state-union-obama-makes-case-economic-fairness-term/story?id=15432673#.Tx-uz4H9KYQ