WRAPUP 5-Time to "turn the page" and help middle class ...

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WASHINGTON Jan 20 (Reuters) - President Barack Obama will challenge a skeptical Republican-led Congress on Tuesday to back tax increases on the wealthy to help lift up middle-class Americans in a State of the Union speech that will outline his vision for his last two years in office.

On foreign policy, Obama will call on lawmakers to pass a new authorization of military force against Islamic State militants to replace powers that were given to President George W. Bush to prosecute the Iraq war.

He will say the U.S.-led effort to stop Islamic State from advancing in Iraq and Syria is working without dragging the United States into another ground war in the Middle East.

Obama will credit his "middle-class economics" for a surge in the U.S. economy and say it is time to "turn the page" from recession and war and to focus on growth for all, including the middle class, according to excerpts of his 9 p.m. EST (0200 GMT Wednesday) televised speech released by the White House.

"Will we accept an economy where only a few of us do spectacularly well? Or will we commit ourselves to an economy that generates rising incomes and chances for everyone who makes the effort?" Obama will say.

An improving economic picture has buoyed Obama, prompting him to take the offensive against Republicans rather than retreating to a defensive crouch in reaction to the rout of his Democrats in November midterm elections.

The proposals offered in his speech reflected a defiant tone after the Republicans seized the Senate and strengthened their grip on the House of Representatives.

Obama is proposing tax increases of $320 billion over the next 10 years to pay for expanded tax credits and educational benefits for the middle class. He also wants to complete trade deals with Asia and Europe to create more export-related jobs.

The idea of raising the top capital gains and dividends tax rate to 28 percent from 23.8 percent is popular with Democrats who are looking beyond Obama's tenure to the 2016 elections.

But the proposal seems dead on arrival given opposition from Republicans.

"Let's iron out loopholes to lower rates - and create jobs, not pay for more government spending," said Iowa Republican Senator Joni Ernst in excerpts from remarks that were to be the official Republican response.

For Obama, seeking to burnish his legacy with two years left in office, Tuesday's speech will be his best opportunity of the year to talk to millions of Americans about the improved economy six years after he first took office with the country in the grips of a crippling financial crisis.

"At this moment - with a growing economy, shrinking deficits, bustling industry, and booming energy production - we have risen from recession freer to write our own future than any other nation on Earth. It's now up to us to choose who we want to be over the next 15 years, and for decades to come," he will say.

SEEKING FAST-TRACK TRADE AUTHORITY

Obama will also urge Congress to pass cybersecurity legislation following a hack of Sony Pictures that the FBI has blamed on North Korea. Pyongyang denies responsibility.

"No foreign nation, no hacker, should be able to shut down our networks, steal our trade secrets, or invade the privacy of American families, especially our kids," he will say.

Obama is also expected to urge Congress to grant him fast-track authority needed to negotiate trade deals with the European Union and a group of Asian nations. Many Democrats oppose granting this authority, concerned about the impact of the trade deals on American labor.

Republicans were looking for Obama to pressure Democrats.

"If President Obama can be more forward-leaning with members of his party, starting with tonight's State of the Union address, I think we can get this (fast-track authority) done quickly. That is what I am committed to do," said Republican Senator Orrin Hatch, chairman of the Senate Finance Committee, in a speech to the U.S. Chamber of Commerce.

Relations between Obama and Republicans have gotten off to a rocky start this year. Obama has threatened to veto seven bills so far, as well as a proposal for tougher Iran sanctions.

Obama will also defend his decision to seek to normalize diplomatic relations with Cuba. Alan Gross, the U.S. aid worker whose release from detention by Cuba helped pave the way toward restoring diplomatic ties with the Communist-ruled island, will be among Michelle Obama's guests for the speech.

Speaker John Boehner, the top House Republican, and Republican Senator Marco Rubio, a Cuban-American who is a potential presidential candidate in 2016, have invited Cuban dissidents who oppose Obama's move.

The White House has taken some of the suspense away from the speech this year, sending Obama on the road during the past two weeks to roll out themes he plans to highlight, like the need to beef up cybersecurity and invest in infrastructure. (Additional reporting by Roberta Rampton, Susan Heavey and Susan Cornwell; Editing by Grant McCool and Frances Kerry)

FILED UNDER: Financials

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