Practice - Regulatory/Compliance
Obama Faces Pressure to Lead on Fiscal Cliff After Victory
by: Kathleen Hunter and Roxana Tiron
Wednesday, November 7, 2012
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President Barack Obama’s victory positions him to claim a mandate for pushing a proposal through Congress that would let tax cuts expire for top earners and avert $1.2 trillion in automatic spending reductions.

Obama now must decide how to contend with opposition from congressional Republicans who demand a tax-cut extension for all income levels.

Obama defeated Republican Mitt Romney to win a second term that will begin with the same balance of power in Congress: Democrats controlling the Senate and Republicans holding the majority in the House. Republicans were counting on either a Romney victory or a Senate takeover to improve their negotiating posture.

Emboldened by the election results, Obama “will offer a brand-new plan of his own,” Steve Bell, senior director of the Economic Policy Project at the Bipartisan Policy Center, said in an interview.

Bell said one option the Obama administration is considering is pushing anew for a “balanced” plan to cut as much as $100 billion in spending as a deficit-reduction down payment while letting the George W. Bush-era tax cuts expire for top earners.

Congressional aides have previously said that lawmakers in both parties are discussing fallback plans for $60 billion to $100 billion in deficit reduction.

Senate Finance Chairman Max Baucus, a Montana Democrat, said this week that he expected Obama to call on Congress soon after the election to pass a deficit-reduction plan that includes revenue increases and spending cuts.

‘Balanced Approach’

“There’s a mandate for a balanced approach, and that means it’s got to be a combination of revenue and cuts,” former Representative Tom Perriello, a Virginia Democrat, said in an interview. He said he would like to see Obama “put a very bold plan out there.”

Unless Congress acts, automatic spending cuts, known as sequestration, will begin in January and the Bush tax cuts will expire Dec. 31. Obama and congressional Democrats want to let the tax cuts expire for top earners, while Republicans advocate extending them for all income levels. The spending reductions and tax increases, amounting to $607 billion in 2013, are known as the “fiscal cliff.”

To help bring Republicans to the table, Obama also may propose “minor changes” to entitlement programs, such as a temporary change in the formula used to calculate annual benefit adjustments, Bell said.

Obama will certainly be very proactive,” he said.

Senate Control

A big question is the degree to which Republicans will back off from their opposition to tax increases.

“For two years, our majority in the House has been the primary line of defense for the American people against a government that spends too much, taxes too much and borrows too much when left unchecked,” House Speaker John Boehner said yesterday at an election event in Washington. “With this vote, the American people have also made clear that there is no mandate for raising tax rates.”

Boehner indicated before the election that the House may be willing to pass short-term legislation to make time for broader talks on reducing the deficit and averting automatic spending cuts over the next decade.

“The American people re-elected the president, and re- elected our majority in the House,” Boehner of Ohio said in a statement. “If there is a mandate, it is a mandate for both parties to find common ground and take steps together to help our economy grow and create jobs, which is critical to solving our debt.”

‘Step Forward’

Eric Ueland, chief of staff to former Senator Bill Frist when the Tennessee Republican was majority leader, said Obama “has a responsibility to step forward quickly and express his specific interest in what he wants to see happen in December and then let Congress react to that.”

Ueland said Obama’s victory increases pressure on him to reach across the aisle.

“While he’ll have the ability to argue that he received an endorsement of his positions, he also has the responsibility of working with the Republicans in the House and Senate,” Ueland said.

Some congressional Republicans, especially in the Senate, have said they may be willing to consider eliminating some tax breaks to help pay for eliminating automatic cuts to defense programs.

Political Center

To the extent that Obama “wants to move to the political center, which is where the work gets done in a divided government, we’ll be there to meet him halfway,” Senate Minority Leader Mitch McConnell, a Kentucky Republican, said in a statement. “That begins by proposing a way for both parties to work together in avoiding the ‘fiscal cliff’ without harming a weak and fragile economy.”

Obama wants to boost top income tax rates to the levels they reached when President Bill Clinton left office in 2001 -- at 36 percent and 39.6 percent. He also wants higher taxes on capital gains and dividends than exist now and a smaller estate tax exemption and higher rate.

In July, the Senate, which Democrats now control 53-47, passed legislation to extend through 2013 the tax cuts for individual income up to $200,000 a year and income of married couples up to $250,000. Above those thresholds, taxpayers would face higher rates for ordinary income, capital gains and dividends.

‘Gridlock and Delay’

Senate Majority Leader Harry Reid, a Nevada Democrat, said yesterday in a statement that voters rejected “the strategy of obstruction, gridlock and delay” he has accused Republicans of employing.

“This is no time for excuses,” Reid said. “This is no time for putting things off until later. We can achieve big things when we work together, and the middle class is counting on us to achieve big things in the months ahead.”

The Republican-led House passed legislation in May to avert defense spending cuts and voted in July to extend all of the expiring tax cuts. Neither measure advanced in the Democratic- controlled Senate. Obama opposed them, too.

The automatic cuts over 10 years would be split equally between defense and non-defense programs. Democratic and Republican lawmakers have raised concerns about the cuts and say they want to avert them.

Representative Chris Van Hollen, a Maryland Democrat, said in an interview before lawmakers left Washington in September to campaign that he was optimistic lawmakers could at least find a short-term solution to allow time for talks on a larger deficit- cutting plan.

“The keys are in the Republican hands,” Van Hollen said. “The minute they decide to take a balanced approach to deficit reduction we can get there.”

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