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U.S. President Barack Obama delivers his State of the Union address on Wednesday. ((Kevin Lamarque/Reuters))

U.S. President Barack Obama vowed to make job creation his top priority in 2010 as he urged Democrats and Republicans to work together to face the country's "big and difficult challenges" in his first State of the Union address to Congress on Wednesday night.

State of the Union

Read the full transcript

"What the American people hope — what they deserve — is for all of us, Democrats and Republicans, to work through our differences, to overcome the numbing weight of our politics," Obama said in his 7,000-word speech.

"For while the people who sent us here have different backgrounds and different stories and different beliefs, the anxieties they face are the same."

Obama bluntly said he "hated" the bailout of Wall Street but supported it to prevent a deeper meltdown of the economy.

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Obama says he "hated" the Wall Street bailout. ((Tim Sloan/Reuters))

"I hated it. You hated it. It was about as popular as a root canal."

With a national unemployment rate hovering at 10 per cent, Obama announced a Robin Hood-like job creation bill that would take from the rich and give to the needy.

The plan would use $30 billion of the money that the country's biggest banks have repaid to the government "to help community banks give small businesses the credit they need to stay afloat," he said.

Obama also announced a new tax credit for small businesses that hire workers or raise the wages of current employees, and proposed eliminating all capital gains taxes on small-business investment.

With his prized health-care overhaul in jeopardy following the election last week of Republican Scott Brown to the late Ted Kennedy's Massachusetts Senate seat, Obama pleaded with Congress not to walk away from reform.

"Not now. Not when we are so close. Let us find a way to come together and finish the job for the American people," he said.

Brown's stunning win in a Democratic stronghold, which Kennedy had held for almost 50 years, gives the Republicans 40 senators, enough to push Obama's legislative agenda off course.

"If the Republican leadership is going to insist that 60 votes in the Senate are required to do any business at all in this town, then the responsibility to govern is now yours as well," he said.

"Just saying no to everything may be good short-term politics, but it's not leadership. We were sent here to serve our citizens, not our ambitions. So let's show the American people that we can do it together."

Obama proposed monthly meetings with both the Democratic and Republican leadership in Congress to help boost bi-partisanship co-operation.

Among the other highlights:

Economy

  • Said it's time to slash tax breaks for companies that move jobs overseas and extend them to companies that create jobs in the U.S.
  • Set a goal of doubling exports over the next five years, contending it will support two million jobs at home.
  • Announced an initiative to help farmers and small businesses increase their exports. Promised to reform export rules.

Financial Overhaul

  • Urged Senate to follow the House and pass a financial overhaul bill to protect consumers from industry abuses and make sure they have the information they need to make decisions about what to do with their money.

Federal Spending

  • Proposed a three-year freeze on most domestic spending, beginning in 2011. Spending on national security, Medicare, Medicaid and Social Security would be exempt.
  • Announced he will issue an executive order creating a bipartisan task force to recommend ways to reduce the deficit. The Senate recently blocked a similar proposal.   

Open Government

  • Called for requiring lobbyists to report each contact with his administration or Congress.
  • Called for "strict limits" on lobbyist contributions to candidates for federal office.
  • Urged lawmakers to pass a bill to undo a recent Supreme Court ruling that allows companies and labour unions to spend freely on campaign ads that promote or target particular candidates by name.
  • Called on Congress to publish on one website all special-interest spending known as "earmarks" before bills are voted on.       

Iraq

  • Reiterated pledge to remove all U.S. combat troops from Iraq by the end of August.

Gays in the military

  • Pledged to work with Congress and the military to allow gays to serve openly in the military.

Education

  • Urged Congress to eliminate taxpayer subsidies for banks that provide student loans.
  • Proposed $10,000 tax credit for four years of college.
  • Proposed capping student loan repayments at 10 per cent of income and forgiving all student loan debt after 20 years, or after 10 years if the student enters public service.

Immigration

  • Said the government should continue working to fix a broken system by securing borders and enforcing laws.

Energy

  • Urged Senate passage of comprehensive energy and climate legislation to help the country shift toward cleaner energy sources and help create jobs.
With files from The Associated Press