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Election over, Obama, Boehner set to renew fiscal battle

Source: Thomson Reuters Foundation - Wed, 7 Nov 2012 14:50 GMT
Author: Reuters
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* Pending tax increases, spending cuts pose problem

* Course of global markets, economy at stake

By Kim Dixon and Thomas Ferraro

WASHINGTON, Nov 7 (Reuters) - The top Republican in the U.S. House of Representatives was set to issue a new challenge on Wednesday to a re-elected President Barack Obama to work together to avert the looming "fiscal cliff" that threatens to push the U.S. economy into a recession.

Fresh from the result of Tuesday's election, House Speaker John Boehner moved quickly to remind Obama of the country's pressing economic issue. Boehner planned to deliver a statement at 3:30 p.m. EST (2030 GMT) at the Capitol on the need for both parties to "find common ground and take steps together," an aide said.

Boehner has made it clear, however, that he intends to stand firm against any income tax increases, which Obama's Democrats contend are essential to any viable deal.

Tuesday's election maintained a divided government - handing Obama a second term while Republicans retained control of the House and Democrats kept the Senate.

A senior Democratic aide said the White House may end up trying to cut a deal on the other side of the U.S. Capitol, with Senate Republican leader Mitch McConnell.

Obama is expected to make a push of his own in coming days, perhaps as early as Wednesday, for a bipartisan accord.

At stake in the fiscal cliff 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 U.S. markets, and push the U.S. economy into a recession, which could have global implications. How Obama fares with a familiar set of challenges - most notably the Republican-controlled House - could color his second term.

Obama, who scored a decisive win over Republican challenger Mitt Romney, will want to strike a deal with Washington lawmakers before Dec. 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.


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 Dec. 31.

The president and most Democrats want to raise taxes on income earned above ${esc.dollar}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 achieve.

The big question is how congressional Republicans will respond to Obama's win. The hard line against raising revenue taken by many Republicans in the House may not abate after the election.

An Obama victory "takes a lot of air out of the room for Republicans," Jim Walsh, a former Republican U.S. 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 Congressman 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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