Obama's new term: How much will US policy change?

Projections show Barack Obama winning a second term in office over Republican challenger Mitt Romney. But what does this mean for US policy?

Projections show Barack Obama winning a second term in office over Republican challenger Mitt Romney. But what does this mean for US policy?

The US president faces a fresh challenge confronting the "fiscal cliff", a mix of tax increases and spending cuts due to extract about $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 TV projections, will want to strike a deal with Washington lawmakers before December 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 programmes like the Medicare health program for the elderly and pare the federal deficit.

"They have signalled 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.

At odds
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.

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.

Changes in Washington
Obama's win is not likely to change the dynamic in Washington. His victory will not strike fear into the hearts of Republicans, who are projected to retain control of the House of Representatives. Obama's Democrats will hold on to the Senate, but fewer moderates of either party will be returning to Capitol Hill.

That is a recipe for more white-knuckle showdowns over taxes and spending, and gridlock in other areas. Reaching consensus on even the most routine legislation will be difficult.

"If there's no perception that going against Obama would detrimentally affect Republicans in 2016, there's not going to be a lot of goodwill on the Hill," said Princeton University history professor Julian Zelizer. "The party lines will be hardened after this election."

The economy showed just enough of a pulse to return Obama to office
The United States is still digging out from the deepest recession in 80 years, and employers are barely adding enough jobs to keep up with population growth. But if the economy is not exactly roaring ahead, it improved steadily over the course of the year.

Historically, voters have given a second term to presidents who preside over even modest economic growth during an election year. That pattern appears to have held for Obama.

"It was never going to be a landslide," said John Sides, a political science professor at George Washington University. "But it was always his race to lose."

Obama also was helped by the fact that voters largely blamed the recession on his Republican predecessor, former president George W Bush, and Obama argued that Romney would bring back policies that led to the crash in the first place.

The auto bailout provided a crucial boost in Ohio
Obama scored many legislative victories in his first two years in office, but they have not been terribly popular with the public.

But Obama's 2009 bailout of General Motors and Chrysler has been popular with a crucial slice of the electorate: white men in Ohio, where roughly one in eight jobs is tied to the auto industry.

Obama did not win the white-male vote in Ohio, but he did better with that group in Ohio than elsewhere. According to Reuters/Ipsos exit polls, Obama lost white men nationwide by 20 percentage points. In Ohio, he lost by only 13 percentage points.



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