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 $600 billion 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 color 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 signaled 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.
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