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Cliff Diving Would Pose Dangers For Obama's 2nd-Term Agenda Cliff Diving Would Pose Dangers For Obama's 2nd-Term Agenda

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White House / White House

Cliff Diving Would Pose Dangers For Obama's 2nd-Term Agenda

Clouds roil over the White House in Washington on the morning of Sunday, Dec. 30, 2012.(AP Photo/Jacquelyn Martin)

photo of Caren Bohan
December 27, 2012

Fiscal Cliff Notes

Explainers on what will happen if Congress doesn't make a deal:

If Washington plunges off the fiscal cliff on New Year’s Day, President Obama will have a strong hand to play in the fight over expiring tax cuts and automatic spending reductions set to hit the economy, but a drawn-out standoff could also wreak havoc on his ability to tackle big second-term agenda items such as tax reform, immigration and gun control.

The president has wielded the upper hand in his negotiations with House Speaker John Boehner and other Republicans throughout the fiscal-cliff saga. His Nov. 6 election win validated one of his top campaign themes—the call to allow Bush-era tax cuts on the wealthy to lapse—and his leverage has only grown since then. Polls show Americans favor Obama’s approach on deficit reduction—a mix of spending cuts and tax increases on the wealthy—over the Republican strategy of focusing heavily on spending cuts. Meanwhile, Obama’s job-approval rating has climbed to 56 percent in Gallup’s latest poll, up from 51 percent right after the election.

Republicans seem poised to shoulder much more of the blame if Senate Majority Leader Harry Reid, D-Nev., and Senate Minority Leader Mitch McConnell, R-Ky., fail in their last-ditch effort to reach a limited deal on the cliff by Jan. 1. Once the Bush tax cuts expire, the conversation will shift away from tax increases to enacting tax cuts, putting pressure on Republicans to drop their opposition to legislation that would renew the tax cuts only for the middle class.


Yet cliff-diving also holds plenty of hazards for Obama, who used an interview on NBC's "Meet the Press" that aired on Sunday to warn of a hit to financial markets if lawmakers can't come up with a way to avert the cliff. "If people start seeing that on Jan. 1 this problem still hasn't been solved, that we haven't seen the kind of deficit reduction that we could have had had the Republicans been willing to take the deal that I gave them, if they say that people's taxes have gone up, which means consumer spending is going to be depressed, then obviously that's going to have an adverse reaction in the markets," Obama said.

If the tax hikes and spending cuts are left in place for several months, some economists warn the United States would slide into another recession. Republicans might end up getting the blame for the renewed economic woes but another downturn is probably the last thing Obama wants to see as part of his legacy for a second term.

Carrying the negotiations into the new year also puts an imperative on raising the debt ceiling, an issue that was underscored in Treasury Secretary Timothy Geithner’s letter this week to Senate Majority Leader Harry Reid. Geithner warned the nation will hit the debt limit on Dec. 31, although with extraordinary steps, Treasury could manage the country’s payments for about two more months before risking default. A prolonged and messy fiscal cliff standoff, combined with another fight this winter over the debt limit, could increase the risks of another downgrade of the U.S. credit rating.

Cliff-jumping also would mean that instead of spending the early weeks of January laying out big plans for a second-term agenda, Obama and his staff will be bogged down with negotiations over the myriad issues wrapped up in the cliff, including everything from the tax cuts and across-the-board spending cuts to the alternative minimum tax and the “doc fix," the formula under which physicians receive reimbursement for treating Medicare patients. In the White House’s preferred scenario, a deal addressing key elements of the fiscal cliff would have been clinched by the end of this year and that could have been used to tee up negotiations in 2013 over broad tax reform and a grand bargain on the budget. Obama has set a goal of reaching a long-term budget deal by the first half of next year and hopes to notch up an agreement as part of his legacy.

Not only will the grand-bargain discussions need to await an eventual resolution of the fiscal cliff, but other items on Obama’s second-term agenda could get pushed to the back burner, including gun control and immigration. In the "Meet the Press" interview, Obama listed initiatives on energy and the environment as additional priorities for his second term. The fiscal-cliff saga could slow Obama’s efforts to fill out his Cabinet and limit his political bandwidth for fighting for controversial nominees. After naming Sen. John Kerry, D-Mass., as his pick to succeed Hillary Rodham Clinton as secretary of State, Obama still needs to name a successor for Leon Panetta at Defense, Geithner at Treasury, and Lisa Jackson at the Environmental Protection Agency, among other personnel decisions.

As the fiscal-cliff gloom hit its low point on Thursday, Reid lamented that Americans looking forward to watching the ball drop in Times Square at the stroke of midnight on Dec. 31 might instead have to brace for higher taxes. “It looks like that’s where we’re headed,” Reid said. Obama may need to brace for a start to 2013 that looks an awful like the waning days of 2012.

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