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November 7, 2012 6:15 am
President Barack Obama’s re-election on Tuesday night – combined with little change in the balance of power in Congress – means the same forces that have been gridlocked on budgetary policy for the past few years will now be in charge of steering America away from the “fiscal cliff”.
This combination was always seen as potentially the most dangerous – particularly if both Mr Obama and Republicans, who retained control of the House of Representatives, claim a mandate from voters to stick to the tough positions on taxes and spending that led to the current paralysis.
But it also offers a fresh opportunity for Mr Obama and John Boehner, the Republican House speaker, to rekindle talks on a broad deficit reduction agreement that were abandoned in acrimony in July of last year.
The “fiscal cliff” is a $600bn mix of automatic tax hikes and spending cuts due to take effect on January 1 if lawmakers and Mr Obama do not strike a deal to avert it. For months, Republicans and Democrats have been circling each other awaiting the results of the election before making any concessions to the other side.
Mr Obama’s victory clearly hands him some leverage in his effort to force Republicans to accept higher taxes on the rich as one of the solutions to both the short-term fiscal cliff and America’s longer term deficit problems. But the reaction from Mr Boehner and his rank-and-file members will be key, since it is unclear whether House Republicans will be in any mood to cave on allowing Bush-era tax cuts for Americans earning more than $250,000 to lapse as Mr Obama proposes.
“All the major players – Obama, Boehner and Reid – will feel entirely vindicated in their strategic decisions. That feeling will only harden when their troops return to Washington,” says Mike Franc, vice-president of government studies at the Heritage Foundation.
“Call it the election of many mandates. I do not see why the results tonight would cause any one of them, or any of the rank and file, to relent on a strongly held principle (such as tax increases) in the next few weeks,” Mr Franc says.
Indeed, in a sign that Republicans may not be prepared to yield much ground, Mitch McConnell, the top Republican in the Senate, said the burden was on the president to move to the “political centre” and propose a path to a deal.
President Barack Obama defeats Mitt Romney to win a second term in office
But some are more optimistic. For one, Mr Obama’s re-election assures that the “fiscal cliff” can be tackled almost immediately. If Mr Romney had won, the assumption was always that there could be a short-term extension of current policies which would have punted the big decisions and negotiations into sometime next year.
However, more significantly, there is hope that both Republicans and Democrats will feel pressure to make divided government work this time around in a way that it failed to during the past two years, amid low approval ratings from voters and intensified engagement from business groups looking for more certainty on fiscal policy.
Mr Obama has on several occasions said he would like to pursue in a second term a broad bipartisan deficit agreement roughly tracking the design of the 2010 deficit commission co-chaired by Alan Simpson and Erskine Bowles. And he may quickly pick up the phone and ask Mr Boehner to engage in those discussions.
“We continue to think the greatest obstacle to a big, balanced deal is the ideological wings of each party’s base,” says Gabe Horwitz, director of the economic programme at Third Way, the centrist Democratic think-tank. “But with exit polls showing that six in 10 Americans support tax increases, it is clear that momentum will only be growing for a balanced deal,” he said.
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