President confronted by budget impasse

Thu, Nov 8, 2012, 00:00

Congress:Barack Obama returned to Washington after his convincing electoral victory over Mitt Romney, braced for emergency negotiations with Congress over the budget stand-off that threatens to send the US economy into recession.

Mr Obama’s comprehensive victory, secured by his sweep of seven battleground states, stretching from Virginia to Nevada, demoralised Republicans and is set to spark a bitter debate within the party over its hardline positions on immigration, tax and abortion.

The surprisingly decisive outcome of the presidential election could bring profound changes to US politics, forcing Republicans to question their reliance on white male voters and build bridges to the constituencies at the core of Mr Obama’s new majority, such as women and Hispanics.

The Republican Party’s support among minorities, who make up the fastest-growing part of the electorate, continues to fall. Mr Obama won more than 70 per cent of the Hispanic vote, exceeding his 2008 margin. Mike Murphy, a Republican strategist and former adviser to Mr Romney, said: “The party is appealing to a static electorate and that is a recipe for disaster.”

The Republican-controlled House of Representatives will also be under pressure to work with the White House and a Democratic Senate to reform America’s immigration system and finally address the status of more than 10 million people who are living in the country illegally.

More immediately, the White House and Congress face a looming crisis in the shape of the so-called ‘fiscal cliff’ – a series of tax rises and spending cuts due to take effect in January that could strip several percentage points off economic output.


Accused by Republicans of being a deeply partisan president, Mr Obama promised in his victory speech to work with Congress to reduce the deficit and reform the tax system. John Boehner, the Republican House speaker, also pledged to find “common ground”, matching similar conciliatory words from Senate majority leader Harry Reid. “Compromise is not a dirty word; we need Republicans to help us,” said Mr Reid.

Mr Obama will face pressure from his own base to stand his ground and insist that any budget deal raises revenues, rather than simply cutting spending. Robert Reich, labour secretary under Bill Clinton, said the president should not consider any deficit reductions until the economy returned to robust growth and unemployment fell below 6 per cent. “Otherwise, you have the danger of following Europe into an austerity trap,” he told CNN.

Republicans are still refusing to consider any tax rises. And many in the party balk at revenue increases in any form, making it difficult to secure a “grand bargain” on the budget deficit. Mr Boehner said Mr Obama had “no mandate for raising tax rates”.

– Copyright The Financial Times Limited 2012