Re-elected Obama faces fiscal cliff

2012-11-07 07:25

Washington - Barack Obama won re-election on Tuesday night, but the US president faces a fresh challenge confronting the "fiscal cliff," a mix of tax increases and spending cuts due to extract some $600bn from the economy barring a deal with Congress.

At stake are two separate issues - individual tax cuts due to expire at year's end and tens of billions of dollars in across-the-board federal spending cuts due to kick in the day after New Year's Day.

Failure to prevent a dive off the cliff could rattle US markets, and push the US economy into a recession, which could have global implications.

How Obama fares with a familiar set of challenges - most notably a Republican-controlled House of Representatives - could colour his second term.

Obama, who defeated Republican challenger Mitt Romney based on television projections, will want to strike a deal with Washington lawmakers before December 31 or risk a recession in the first half of 2013, budget experts and Democratic aides say.

His backers say his win gives him a mandate for an elusive "grand bargain" he sought in his first four-year term. Such a pact would raise new revenue, make changes to popular programs like the Medicare health program for the elderly and pare the federal deficit.

"They have signalled that they want a big deal and I think Obama will be aggressive about getting it," said Steve Elmendorf, a former House Democratic senior adviser and now a lobbyist.

At odds

Obama and most Democrats are at odds with Republicans in Congress over the stickiest issue - whether to let low tax rates for the wealthiest Americans expire on December 31.

The president and most Democrats want to raise taxes on income earned above $250 000; Republicans want to extend the current low rates for all income levels.

Financial markets and the business community crave long-term certainty - and that is what a major deal envisioned by Obama is intended to tackle.

A big X-factor is how congressional Republicans will respond to an Obama win. The hard line against raising revenue taken by many Republicans in the House may not abate after the election.

House Speaker John Boehner said this week that his Republicans would stand firm on their position opposing any tax increases, even for millionaires, though he was speaking before the election results.

Republicans kept control of the House, as expected, and Democrats were projected to maintain control of the Senate.

An Obama victory "takes a lot of air out of the room for Republicans", Jim Walsh, a former Republican representative, who retired in 2009, predicted before the election.

The odds of a grander deal with increased revenue - though not in the form of higher tax rates - goes up with an Obama victory, he said.

Former Democratic representative Bart Gordon was unsure whether more conservative elements of the party, associated with the Tea Party movement, would go along so easily. "Those folks don't need much of a reason to fight," Gordon said.

  • nigel.vanysendyk - 2012-11-07 07:41

    Thanks to Bush, Obama has to clean up the Republicans tax mess, at least America had the common sense to do the right thing & face the music that years of irresponsible Republican govt mismanagement have created. Now if only the South African voters had the same sensibility & maturity to vote out the useless corrupt ANC, but I dont think so, they think that moving the deck chairs around on a sinking ship will stop the ship sinking.

      denny.cray - 2012-11-07 17:30

      Obama doubled down on Bush's policies. Its like Bush went out to dinner with his cronies and left the bill for his successor. Obama came along and decided it was a really good idea. Recent US gross debt history: 2001: $5.7 trillion (Bush) 2005: $7.3 trillion (Bush) 2009: $11.9 trillion (Obama takes over here) 2012: $16.3 trillion (Obama - first term not yet complete) In Bush's 2 terms he managed to accrue $6.2 trillion in additional debt. Obama has already managed $4.4 trillion and he hasn't even finished his first term. There is an argument that congress is more responsible for the budget (or the Fed for acting as their enablers) than the president but that applies equally to your comment. Obama's claim that he can fix things by simply taxing the rich more is naive, morally wrong and simply unworkable. The US will continue to spend 40% more than what it takes in via taxes until the markets begin to punish them. The discipline simply will not come from either party.

  • thepatrickwinter - 2012-11-07 09:02

    Just listened to his speech, what an orator, what an awesome spokesman and empowerer. How different two black presidents can be. It has nothing to do with colour. Attitude, compassion and the will ho help build a better tomorrow. Unfortunately our electorate do not have the foresight and will to uplift themselves.

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