Obama Success on Fiscal Cliff May Hinge on Congress Ties

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President Barack Obama, his re- election victory sealed, is reaching out to congressional leaders to revive bipartisan deficit-reduction negotiations whose failure was a defining disappointment of his first term.

His chances of success, say Republicans and Democrats, depend on Obama’s willingness in his second term to build a rapport he has lacked with lawmakers from both parties and take a stronger role than he has to date in steering negotiations on sweeping changes to entitlements, taxes and spending.

“He’s simply going to have to take a more active and forceful role,” said Democratic strategist Jim Manley, a former aide to Senate Majority Leader Harry Reid of Nevada. “He never got involved in the nitty-gritty of the legislative process. In light of the hyper-partisanship that still surrounds Capitol Hill, he’s going to have to change, and he’s going to have to take more of a lead in breaking the logjam.”

There are already indications that Obama is ready to do so. The president, who said in his Nov. 6 victory speech that he was “looking forward to reaching out and working with leaders of both parties to meet the challenges we can only solve together,” spoke yesterday by telephone with the top congressional Democratic and Republican leaders of the House and Senate.

U.S. President Barack Obama, second left, waves to the crowd with First Lady Michelle Obama, left, U.S. Vice President Joseph "Joe" Biden, second right, and his wife Jill Biden during an election night rally in Chicago, Illinois, U.S., in the early morning on Wednesday, Nov. 7, 2012 Close

U.S. President Barack Obama, second left, waves to the crowd with First Lady Michelle... Read More

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U.S. President Barack Obama, second left, waves to the crowd with First Lady Michelle Obama, left, U.S. Vice President Joseph "Joe" Biden, second right, and his wife Jill Biden during an election night rally in Chicago, Illinois, U.S., in the early morning on Wednesday, Nov. 7, 2012

Voters’ Message

Voters had sent a “message,” Obama told them, according to a White House statement, that both parties “need to put aside their partisan interests and work with common purpose.”

Vice President Joe Biden, a 36-year veteran of the Senate whose post makes him its top member, said he had been making “a lot of phone calls” of his own and voiced optimism that Republicans would cooperate on a compromise on the so-called fiscal cliff to avert tax increases and spending cuts set to go into effect later this year.

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“I think people know we’ve got to get down to work, and I think they’re ready to move,” Biden told reporters traveling with him.

Investors weren’t so sure. The election results spurred fears of an economically damaging budget showdown on Wall Street, sending stocks and oil tumbling and U.S. Treasuries rising as investors sought to reduce risk exposure.

The Dow Jones Industrial Average fell 312.95 points, or 2.4 percent, to 12,932.73, for its worst drop since Nov. 9, 2011. The Standard & Poor’s 500 index lost 2.4 percent to 1,394.53, its lowest level since August. Ten-year U.S. Treasury yields sank 12 basis points, or 12 hundredths of a percentage point, to 1.64 percent. Oil slid almost 5 percent in its biggest decline of the year.

Republican Compromise

Obama can’t do it alone. Prospects for a broad deficit- reduction deal also turn on whether Republicans -- who kept their majority in the U.S. House in the elections while falling short of capturing the Senate -- are willing to compromise with the president on using tax revenue to reduce the deficit. They have refused to consider raising taxes to help pay for a deal, even one underwritten disproportionately by spending and entitlement cuts.

At a news conference on Capitol Hill yesterday, U.S. House Speaker John Boehner, a Republican, said all sides are “closer than many think” to a U.S. tax-code overhaul. Still, he didn’t waver from his party’s opposition to tax increases, which Democrats have said is a prerequisite for any deal that cuts spending on social programs or curbs the growth of programs including Medicare.

Increasing Taxes

Obama campaigned on a proposal to raise taxes on individuals earning $200,000 annually and couples making $250,000. Exit polls indicated that while voters overwhelmingly don’t want to see their own taxes rise, 47 percent back raising taxes on the wealthy.

Senate Minority Leader Mitch McConnell, a Kentucky Republican, said the divided-government election result showed that voters want Obama to do more to collaborate with Congress to fix the nation’s problems.

“It’s time for the president to propose solutions that actually have a chance of passing the Republican-controlled House of Representatives and a closely divided Senate, step up to the plate on the challenges of the moment, and deliver in a way that he did not in his first four years in office,” McConnell said. “To the extent he wants to move to the political center, which is where the work gets done in a divided government, we’ll be there to meet him halfway.”

Reaching Out

Bridging the gap will almost certainly mean Obama must reach out more to lawmakers in both parties. His lack of engagement with Capitol Hill and that of his White House team during his first term prompted grumbling from rank-and-file lawmakers in both parties who prize face-time with and personal appeals from a commander in chief.

Over the last four years, the president has hardly visited Capitol Hill except to deliver his annual State of the Union address, and rarely invited lawmakers to the White House for off-hour social events.

An introvert who eschews the schmoozing that surrounds much of the business conducted in Washington, he has also stayed out of the legislative horse-trading that drives Congress, preferring to stay above the fray while Democratic leaders handled the messy details of potential deals.

“For far too long, the president and his team around him had this attitude of, ‘We don’t need to worry about it -- let Harry take care of it,’” Manley said, referring to Reid, the top Senate Democrat. “Hopefully, that won’t be the case anymore.”

Republican Rebuffs

At the same time, Republicans rebuffed many of Obama’s overtures. While Obama and Boehner played a well-publicized round of golf as deficit talks were getting under way last June, the two have never cultivated a close relationship. Boehner has declined four straight invitations to state dinners at the White House.

“It’s hard to keep on reaching out when you keep getting your hand slapped,” said Brendan Daly, a former aide to House Democratic Leader Nancy Pelosi of California. Still, he added, Obama can do more to show members of both parties he values their input and is factoring in their views. “The president has reached out, but he needs even more outreach -- and Republicans also have to be willing to meet him.”

‘Real Possibility’

Patrick Griffin, former President Bill Clinton’s chief congressional lobbyist from 1994 to 1996, said strategic political calculations were the real obstacle to a debt deal in 2010, rather than any lack of a personal rapport among party leaders. Each side reached a point at which they weren’t willing to budge anymore, in part because the midterm election results emboldened Republican opponents of tax increases, he said.

“Had relationships been better, there might have been clearer communications and quicker insights that might have been actionable,” Griffin said. “But the real dynamic was 2010 and the Tea Party. It made a deal very, very difficult.”

The working relationships between Obama and congressional leaders may become easier as they become motivated to pursue a deal. “Now you have a real possibility that they’re going to have to reach a deal in the end, and interacting will help you do that,” Griffin said.

To contact the reporter on this story: Julie Hirschfeld Davis in Washington at   or Jdavis159@bloomberg.net; Mike Dorning in Washington at mdorning@bloomberg.net.

To contact the editor responsible for this story: Jeanne Cummings at jcummings21@bloomberg.net

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