President Barack Obama has told congressional Republicans that he is still willing to reduce the deficit, but only with a mix of increased taxes and reduced spending, reiterating an offer he made during budget talks that collapsed at the end of last year.
Republicans say they reject raising more tax revenue.
In his State of the Union speech, Mr Obama reiterated his proposal to reduce spending by $US900 billion and increase taxes by $US600 billion through a tax overhaul.
Mr Obama said America's key task was working to stabilise its budget, and said looming automatic spending cuts due to hit in March that could throw the economy into chaos and increase unemployment were "a really bad idea".
"A growing economy that creates good, middle-class jobs - that must be the North Star that guides our efforts," Obama said.
"It is our generation's task, then, to reignite the true engine of America's economic growth - a rising, thriving middle class."
The combined $US1.5 trillion in deficit reduction would also reduce government payments on the debt. Mr Obama intends to use some of those savings to pay for initiatives meant to create jobs.
The $US900 billion in cuts include reductions of $400 billion in spending on Medicare and other health care programs.
Mr Obama said his proposals would not increase the deficit "by a single dime". But with unemployment persistently high and consumer confidence falling, he was pressing a progressive case for Washington's role in reigniting the economy.
He urged a divided congress to boost job creation and strengthen the middle class through a package of government-backed proposals.
He called for increasing the federal minimum wage, spending more to fix the nation's roads and bridges, and expanding early childhood education.
EU-US free trade talks flagged
Breaking new foreign policy ground, Mr Obama announced the formal beginning of talks between the United States and Europe on a trans-Atlantic trade pact and previewed a new plan to thwart cyber attacks on US infrastructure.
"Tonight, I am announcing that we will launch talks on a comprehensive Transatlantic Trade and Investment Partnership with the European Union - because trade that is free and fair across the Atlantic supports millions of good-paying American jobs," Mr Obama said.
Proposed years ago, the US-EU trade pact idea has been revived recently as both sides of the Atlantic seek avenues for growth and job creation for their weak economies.
The US president, criticised for doing too little as nearly 70,000 people have died in civil war in Syria vowed to keep up pressure on the Assad regime and said he would stand firm in defence of Israel, which he will visit next month.
Mr Obama, in line with his core mission of ending a draining decade of foreign wars, announced the return of 34,000 of the 66,000 US troops remaining in Afghanistan by next February, ahead of a full withdrawal in 2014.
"This drawdown will continue. And by the end of next year, our war in Afghanistan will be over," he said.
Congress told to act on climate change
Mr Obama told congress that he will act on his own to tackle climate change unless lawmakers come up with their own market-based plan to reduce carbon emissions.
"I urge this congress to pursue a bipartisan, market-based solution to climate change, like the one John McCain and Joe Lieberman worked on together a few years ago," he said.
"But if congress won't act soon to protect future generations, I will.
"I will direct my cabinet to come up with executive actions we can take, now and in the future, to reduce pollution, prepare our communities for the consequences of climate change, and speed the transition to more sustainable sources of energy."
Proposals to set up a "cap-and-trade" system that restrict emissions have failed in the Senate. Obama has since focused on executive actions such as tightening standards for power plants, to the anger of many Republicans.
Rubio to challenge Obama to abandon tax cut "obsession"
United States senator Marco Rubio, in the Republican response to Mr Obama's State of the Union speech, will challenge him to abandon his tax "obsession" and find a way to boost growth and cut the deficit.
The rising political star from Florida, widely tipped as a 2016 presidential candidate, will lay out the framework of his party's economic vision in his formal response Mr Obama's address.
"The tax increases and the deficit spending you propose will hurt middle-class families," he will say, according to excerpts released in advance.
"There's no realistic tax increase that could lower our deficits by almost $US4 trillion.
"That's why I hope the president will abandon his obsession with raising taxes and instead work with us to achieve real growth in our economy."
Mr Rubio returned to a recurring Republican theme of the 2012 presidential campaign and beyond: that Democrats are fixated on raising new tax revenue in order to pare back the swelling US deficit and debt.