Obama prepares to take on ‘fiscal cliff’

By Julie Pace
Associated Press

obama09_01
President Barack Obama and first lady Michelle Obama wave while boarding Air Force One before leaving O'Hare International Airport in Chicago, Wednesday. AP Photo/Paul Beaty)

WASHINGTON: President Barack Obama is making the nation’s high-stakes fiscal crisis his top priority coming out of the election, underscoring the vital importance of averting severe year-end tax increases and spending cuts.

Obama is also weighing replacements for high-profile officials expected to leave his Cabinet and the White House soon. Treasury Secretary Timothy Geithner and Secretary of State Hillary Rodham Clinton both want to step down but have indicated a willingness to push their departures into next year, or at least until successors are confirmed. Defense Secretary Leon Panetta also wants to retire next year.

“The first thing is to try to find a way out of the box we’re in with regards to the fiscal cliff,” said Tom Daschle, the former Senate majority leader who is close to Obama. “When the new Congress convenes they’ll begin the nominating process for what I expect will be a good number of vacancies.”

Obama privately delved into both issues Thursday, his first full day back in Washington following his re-election on Tuesday. The president and his team were also assessing how congressional Republicans were positioning themselves following the election before saying much publicly about his second term.

The president will make his first postelection comments on the economy and the fiscal cliff today at the White House.

In his victory speech early Wednesday, Obama offered a call for reconciliation after a divisive campaign. But he made clear he had an agenda in mind, citing a need for changes in the tax code, as well as immigration reform and climate change.

Obama aides want to avoid what they believe was an overreach by President George W. Bush, who declared after narrowly winning re-election that he had “political capital” and intended to spend it. One of Bush’s first moves was to push to privatize Social Security, a plan that was roundly rejected by Congress and the public.

Raising taxes

The White House believes Obama has a clear mandate on one key issue: raising taxes on families making more than $250,000 a year. Obama senior adviser David Plouffe said voters “clearly chose the president’s view of making sure the wealthiest Americans are asked to do a little bit more” to help shrink the federal deficit.

The president has long advocated allowing tax cuts first passed by Bush to expire for upper-income earners. But he gave in to Republican demands in 2010 and allowed the cuts to continue, angering many Democrats.

Both parties agree that the combination of tax increases and spending cuts set to hit on Jan. 1 could plunge the economy back into recession.

House Speaker John Boehner, R-West Chester, said Wednesday that he wanted to compromise with the re-elected president. And he said the House would be willing to accept higher tax revenue under the right conditions as part of a more sweeping attempt to reduce deficits.

The tax and spending changes, which Congress will dig into next week, would cut the federal deficit by $503 billion through next September, said the Congressional Budget Office report. But the adjustments also would cause the economy to shrink by 0.5 percent next year.

The analysis assumes there is a protracted impasse in Washington and the government falls off the “cliff” for the entire year, which most Capitol-watchers now think is unlikely.

All sides want to avoid the severe automatic changes, which are a one-two punch of expiring tax cuts and major across-the-board spending cuts to the Pentagon and domestic programs.

But Neel Kashkari, the man responsible for overseeing former President George W. Bush’s $700 billion economic bailout program, said Thursday that bipartisanship is not a given.

Kashkari, 39, a Stow native and a 1991 graduate of Western Reserve Academy, is now the head of global equities at Pacific Investment Management Co. in Newport Beach, Calif.

“There have been little signs of Republicans and Democrats really coming together to solve the fiscal cliff,” he said at a conference in New York. “More likely, we’re going to see brinkmanship like we saw with the debt ceiling a year ago.”

The largest component of the changes comes with the expiration of tax cuts enacted in 2001 and 2003 and extended two years ago after Obama’s drubbing in the 2010 midterm elections. Extending the full range of Bush tax cuts would cost the government $330 billion through the September end of the 2013 budget year.

Republicans want to temporarily renew all of the Bush tax cuts, but Obama wants to hike the top two income tax rates to Clinton-era levels. The top tax rate is now 35 percent; Obama would raise that to 39.6 percent. If the rival sides can’t enact a bargain by January, the full menu of tax cuts would expire.

The spending cuts would be imposed as a consequence of the failure of last year’s deficit-reduction “supercommittee” to reach agreement..

The White House wants consistency in its fiscal cliff negotiating team, meaning Geithner is likely to put off his departure from Treasury until Obama and lawmakers can reach some agreement.

Leading candidates

White House chief of staff Jack Lew is seen as a leading candidate to replace Geithner. Lew is well-respected in Washington by both parties and served as budget director under both Obama and former President Bill Clinton.

Another person often mentioned as a possible successor to Geithner is Erskine Bowles, a White House chief of staff under Clinton and the co-chief of the White House’s 2010 deficit reduction commission.

Both Lew and Bowles would bring an intimate knowledge of the intricacies of the federal budget and could be expected to take a leading role in trying to negotiate a broad budget agreement with Congress. The selection of either would signal that the administration intends to make resolution of the government’s deficit problems a priority.

At State, the leading candidates to take over as the nation’s top diplomat are Sen. John Kerry, D-Mass., and Susan Rice, the U.S. ambassador to the United Nations.

But Rice has faced criticism this fall from Republicans for providing initial accounts about the deaths of Americans in Benghazi, Libya, that later proved false. The White House has vigorously defended Rice, but the prospect of starting a second term with a contentious confirmation hearing may be unappealing.

Kerry, an early Obama backer, has long coveted the State Department job. He made a well-regarded foreign policy speech at the Democratic convention and even played the role of Romney during campaign debate preparations this year.

Other Cabinet secretaries who have talked about leaving are Attorney General Eric Holder and Transportation Secretary Ray LaHood, the only Republican in the Cabinet. Both have said they would speak with the president before making a final decision.

Second term shake-ups are also sure to hit Obama’s West Wing inner circle. Plouffe is expected to be among those departing. And if Obama taps Lew for the Treasury Department, he’ll have to add chief of staff to the list of vacancies.

Bloomberg News contributed to this report.


© 2014 The Akron Beacon Journal  ●  Ohio.com  ●  Enjoy  ● 44 E. Exchange Street, Akron, Ohio 44308