The president's in-tray: six challenges facing Obama

Fiscal cliff:The looming Fiscal Cliff means there will be no honeymoon period for the re-elected president. Congress and the White House have been at loggerheads over moves to balance the federal budget since the Democrats lost control of the House of Representatives in 2010.

Without bipartisan agreement over the next eight weeks, a $600 million package of tax increases and spending cuts will be activated automatically on January 1st – including the ending of a series of reliefs aimed at wealthier Americans that were introduced under the last Bush administration.

The Congressional Budget Office and private sector economists have warned that such a step – amounting to about 3.5 per cent of GDP – would tip the US economy over a cliff and into recession.

To make matters worse, the federal government will hit its $16.4 trillion debt limit at about the end of the year. Agreement on increasing that ceiling is essential if Washington is to avoid the prospect of default in early 2013.

All of this has to be faced by a lame duck Congress when it reconvenes next week, with newly elected senators and representatives not taking their seats until the new year.

And the election has done nothing to change the broader political landscape with Democrats retaining the Senate and Republicans keeping their grip on the House.

On the plus side, the key players on either side remain in place and are well versed in the issues. Exit polls have also bolstered the drive for a balanced deal, with exit polls on Tuesday showing that six out of 10 American voters supporting some tax increases.

Markets are also in no mood for dithering. Concern over the impasse saw stock markets and the dollar weaken yesterday. Separately Fitch Ratings said the US will likely lose its AAA credit rating in the absence of accord, echoing a previous warning from rival Moodys.

The third major ratings agency, Standard Poor’s, has already downgraded the US rating to AA+ from AAA after the acrimonious row over raising the debt limit in the summer of 2011.

Even if a comprehensive accord must await the incoming Congress, interim measures will have to be approved by year end. The clock is ticking. DOMINIC COYLE

Divided Congress

President Obama faces a divided Congress, just as he has since the mid-term elections in 2010 overturned a Democratic majority in both Houses dating from 2008. The make-up of the new Congress for the two main parties will be: House of Representatives (435 seats): 232 Republican – 191 Democrat; GOP majority of 41. Senate (100 seats): 45 Republican – 51 Democrat; Democrat majority of 3.

In 2008 when Obama was elected first, Democrats had working majorities in both houses (257 congressmen and women, and 57 senators) meaning initiatives by the White House were virtually guaranteed congressional support. That changed in the 2010 mid-terms when the Republicans gained a 49-seat majority in the House of Representatives, leaving the Democrats with a majority only in the Senate and resulting in legislative gridlock.

Obama’s challenge will be to engineer detente with a wounded, angry and almost certainly, at least initially, unco-operative Republican House of Representatives. The omens are not great.

House speaker John Boehner told party faithful at an election-night rally he and fellow Republicans had “offered solutions and the American people want solutions and tonight they responded by renewing our House Republican majority”.

While Boehner, who has led obstruction to presidential initiatives for the past two years, said he would work with “any willing partner”, he warned that he would continue battling Democratic moves to raise taxes on the rich. “With this vote, the American people also made clear there’s no mandate for raising tax rates,” he said. PETER MURTAGH