How Obama Is Getting Ready for 2011

Flash-forward to late January 2011. A humbled President Barack Obama, putting the final touches on his State of the Union address, ponders offering an olive branch to the new House Speaker, John Boehner. "Should I work across party lines on a budget-balancing deal, or maybe a free-trade accord?" the President muses. "Or should I just make sure my veto pen has plenty of ink?"

To triangulate or not—that's the dilemma Obama will confront if, as nearly every poll now suggests, the Democrats lose control of the House in November and hold the Senate by a nose or two. Past Presidents have sought to avoid gridlock by recalibrating their agendas and governing style and shaking up their teams. Obama may follow suit, though some say the odds of success are slim. "Nobody should be under the illusion that there is an easy path to compromise," says Vin Weber, a Republican strategist and former House member from Minnesota. One reason is that the new Congress is likely to be even more polarized than the current one, dominated by conservative Republicans who challenged party regulars in primaries and won. The Democratic caucus will be more liberal because it will be mostly swing-state centrists who will lose in November, Weber says.

The recent master of triangulation was President Bill Clinton, who claimed the political center in 1996 with his "frenemies" approach, famously declaring, "the era of big government is over." He went on to score landmark legislation that reformed the welfare system, and he balanced the budget.

So what might such an approach look like this time around? Obama is already remaking his team. On Sept. 21 the White House said Lawrence H. Summers, the director of the National Economic Council and architect of Obama's recovery plan, will return to Harvard University at yearend. His is the third economic team departure, along with budget director Peter R. Orszag and Christina D. Romer, whose replacement as chairman of the Council of Economic Advisers, Austan D. Goolsbee, clashed with Summers over automaker bailouts, which Goolsbee in part opposed. Chief of Staff Rahm Emanuel is also likely to depart, possibly in early October, to run for mayor of Chicago.

The vacancies will let Obama reshape his agenda and address a criticism that the White House, lacking a top West Wing aide with corporate experience, doesn't understand business. Sources familiar with the President's thinking say he's considering adding a corporate ambassador to his economic team. Among those being discussed: Anne Mulcahy, the former Xerox (XRX) chief executive, and Richard D. Parsons, the Citigroup (C) chairman and former Time Warner (TWX) head. "I think they are looking for someone who businesses can feel they can talk to," says Martin N. Baily, CEA chairman under Clinton.

It may be easier for Obama to decide on an agenda than a new staff. He would like to rewrite the immigration laws and cap carbon emissions, two pieces of unfinished business. That won't be possible. The focus will have to be more mundane—making sure health-care and financial system reforms are implemented. Republicans, infused with Tea Party passions for limited government, will do their utmost to stymie him.

On Sept. 23, House Republicans were set to unveil their agenda, which will call for a three-day waiting period for citizen review of legislation before a vote. It will also advocate a certification process to make sure the Constitution authorizes bills and congressional approval of any new regulations. Some Republicans already have staked out their ground—and it's not middle-of-the-road. Representative Pete Sessions (R-Tex.) will try to freeze government hiring to block Obama from bolstering the agencies that will implement the health-care and financial system changes. Senator Richard Shelby (R-Ala.) wants to defang the Consumer Financial Protection Bureau, a centerpiece of the financial revamp.

That doesn't bode well for bipartisan overtures. Still, there could be room for dealmaking. Obama's debt commission, expected to report on Dec. 1, could propose a combination of spending cuts, tax increases, and entitlement reforms attractive to both parties' deficit hawks. "If we're going to confront the fiscal issues of the country," Goolsbee says, "it has to be done in a bipartisan way." If the commission proposes tax reforms that include a consumption tax, a senior Administration official says, Obama would certainly consider it. The enormity of the national debt may be the one thing that spurs Republicans to put aside their differences with Obama, says former House Ways and Means Chairman Bill Archer (R-Tex.). "People are definitely scared," he says.

Free-trade pacts could also open Republican doors. Obama has said he wants to reach a deal on the U.S.-Korea Free Trade Agreement during a November trip to Seoul. And while he is unlikely to seek legislation to create a market for trading carbon credits, he may try to pass energy legislation piecemeal. Republicans may also get behind Obama's recent proposals to expand tax incentives to encourage business investment and to extend permanently a research-and-experimentation tax credit.

Some congressional curve balls could come from Representative Darrell Issa (R-Calif.), who would get the Oversight and Government Reform gavel if Republicans take the House. Issa plans to wield his subpoena authority aggressively, judging by a report he released on Sept. 21 that says he would investigate the $814 billion stimulus bill and Administration claims to have created or saved millions of jobs, among other areas.

The presence of Tea Party-aligned lawmakers could be a new and unpredictable force. Already they are signaling they'll be even more obstructionist than Newt Gingrich, with whom Clinton had to contend. Rectangulation, anyone?

The bottom line: Losing Democratic control of the House could force Obama to adjust his agenda and seek common ground with Republicans.

With Patrick O'Connor, Hans Nichols, and Julianna Goldman

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