DAVOS, Switzerland (Reuters) - The rich and powerful of the world were divided at their annual huddle on Wednesday over Barack Obama's threat to raise their taxes, with some saying policies that go after the wealthy will hurt growth, but others saying Obama was right to address capitalism's imbalances.
Obama's State of the Union address focussed on channeling middle class anger at inequality, including a call for a 30 percent minimum tax on millionaires that could make the wealth of Republican rival Mitt Romney a central election issue.
It was delivered on the eve of World Economic Forum in the Swiss ski resort of Davos, which found many of the world's titans of industry and politics in reflective mood, focusing more than ever on the question of whether capitalism needs to be more fair if it is to be successful.
Many of the wealthy at Davos made clear they don't like being in the president's crosshairs.
"I don't think any presidential election in the history of America has been won on the politics of envy and I think if anything it divides the country more than unites it," said John Studzinski, senior managing director of investment and advisory firm Blackstone Group.
Roger Altman, chairman of investment advisory group Evercore, disagreed and said improvements in the U.S. economy and the Republican party's difficulties selecting a presidential candidate meant "the picture is brightening" for Obama's re-election chances in November.
"I liked the speech," said Altman. "I can understand why some people in the business community, particularly gauging the reaction to it, may not like it. But I thought it was a reasonable speech.
"It's actually a relatively moderate speech by historical standards. Has the president taken a move on the spectrum towards more populism? Yes. Is it an extreme move, or a big move by historical standards? I don't really think so," he said.
As for the 30 percent minimum millionaire's tax proposal - known as the "Buffett tax" because it is favoured by billionaire Warren Buffett - Altman said: "Speaking for myself, I find that hard to argue with."
"TAX ON GROWTH"
Investment income from dividends and capital gains is taxed at a much lower top rate than wages in the United States, an issue that is likely to gain more notice now that Romney, a wealthy former businessman and one of the favourites to be Republican nominee, has released returns showing he paid less than 14 percent of his income in federal tax last year.
"I think this issue is going to become an important political issue. There has been a widening of wealth and income inequality both in the United States and across advanced economies," said economist Nouriel Roubini, once known as "Dr. Doom" for bearish views predicting the financial crisis.
"Having 15 percent tax on carried interest, or capital gains or dividends, is something that is creating a wedge in the country, so that's an issue that has to be addressed. So politically it's going to help Obama this year," Roubini said.
But Harvard economist Kenneth Rogoff said the 30 percent rate could hurt the economy. "The solution I think is a flat tax or something like that. I think what's being proposed of making the tax system more superficially progressive is just going to be a growth-slower," he said.
Obama also turned his fire on banks, promising tough regulation and threatening to find and punish those responsible for the financial crash. Bankers in Davos were unsurprisingly wary.
"We should not throw the baby out with the washtub. When it comes to banks, there is no mechanism by which a modern economy can grow without strong banks and a strong financial sector," said Jacob Frenkel, chairman of JP Morgan Chase International.
Whatever they think of Obama's plans, business chiefs praised his political acumen, and others said they expect inequality to remain at the top of the agenda this year.
Sir Martin Sorrell, CEO of communications giant WPP, said Obama's address "was a very good political campaign speech and I think probably heightens the probability that he will be re-elected in mid-November." Sorrell spoke on the CNBC network.
Rogoff said rhetoric such as Obama's is likely to continue from both the left and the right.
"There is so much anger out there, the Tea Party tap into in their way, President Obama is tapping into it in his way. And I'm afraid we're in for a lot of (that)."
With the Eurozone in crisis, U.S. economic growth dragging and protesters across much of the world demanding greater economic equality, there is an undercurrent of humility at this year's Davos meeting. One of the first sessions of the meeting was a debate on capitalism, sponsored by Time magazine.
Sharan Burrow, general secretary of the International Trade Union Confederation, said, "When you have the greatest inequity since just before the '30s depression, this is actually bad news for capitalism."
"If you look at taxation, this is a national sport everywhere, avoid taxation," Burrow said. "We need to say if capitalism is going to sustain itself, if it is going to provide secure jobs, it has to distribute wealth evenly and it has to make a contribution to the common good."
Sounding a humble note, Coca-Cola CEO Muhtar Kent told CNBC: "We all have to ensure that capitalism is better connected to society than it has been so far, and we all have to regenerate jobs.... We all have to find a better evolving model than what we have in our hands today."
(Reporting by Ben Hirschler, Emma Thomasson and Jon Boyle; Writing by Warren Strobel and Peter Graff; For full Reuters coverage from Davos, go to www.reuters.com/davos)