* Pending tax increases, spending cuts pose problem
* Fate of global markets, economy at stake
By Kim Dixon
WASHINGTON, Nov 7 Barack Obama won re-election
on Tuesday night, but the U.S. president faces a fresh challenge
confronting the "fiscal cliff," a mix of tax increases and
spending cuts due to extract some $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 U.S.
markets, and push the U.S. 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 color 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 2013, 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
"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
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 Dec. 31.
The president and most Democrats want to raise taxes on
income earned above $250,000; Republicans want to extend the
current low rates for all income levels.
Financial markets and the business community crave long-term
certainty - and that is what a major deal envisioned by Obama is
intended to tackle.
A big X-factor is how congressional Republicans will respond
to an Obama win. The hard line against raising revenue taken by
many Republicans in the House may not abate after the election.
House Speaker John Boehner said this week that his
Republicans would stand firm on their position opposing any tax
increases, even for millionaires, though he was speaking before
the election results.
Republicans kept control of the House, as expected, and
Democrats were projected to maintain control of the Senate.
An Obama victory "takes a lot of air out of the room for
Republicans," Jim Walsh, a former Republican representative, who
retired in 2009, predicted before the election. The odds of a
grander deal with increased revenue - though not in the form of
higher tax rates - goes up with an Obama victory, he said.
Former Democratic representative Bart Gordon was unsure
whether more conservative elements of the party, associated with
the Tea Party movement, would go along so easily. "Those folks
don't need much of a reason to fight," Gordon said.