WASHINGTON—President Barack Obama proposed a one-year extension of Bush-era tax cuts for families earning less than $250,000 a year but would let them rise for wealthier Americans, a move that both shifts the election debate to tax rates and sets the table for a showdown with Republicans in Congress.

Mr. Obama's move didn't break new policy ground—he essentially repackaged his existing policy for the campaign season. Nor is it likely to pave the way for action from a deeply divided Congress already in the thrall of the campaign.

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