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 US$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 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 Dec. 31 or risk a recession in the first half of next year, 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 December 31.