Fiscal Cliff Cuts Will Diminish Obama’s Second Term
Business + Economy

Fiscal Cliff Cuts Will Diminish Obama’s Second Term


Even if President Obama succeeds in getting Republicans to agree to tax hikes on the wealthy as part of a “fiscal cliff” deal, the country’s grim budget realities will still cast a long shadow — limiting his ambitions as he begins plotting a second-term agenda.

Any agreement is likely to result in less than the $1.6 trillion in new taxes over the next decade that Obama requested in his initial offer to House Republicans, and White House aides are signaling to allies that any new money from taxes would be used almost entirely for deficit reduction — not for ambitious, new spending programs or government expansions.

Where Obama entered office four years ago planning to seize a moment of economic crisis as an opportunity for transformational policies such as the $800 billion stimulus and his health care overhaul, he begins his second four years with few, if any, similarly expansive or costly prospects.

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Instead, any new spending programs will, by necessity, be small and narrow in scope: repairs to roads and bridges, airport renovations and other infrastructure upgrades, for example, or modest grants to help blighted city neighborhoods.

Allies expect Obama to harness the combined political capital of his reelection and the outcome of the tax fight for an aggressive push to legalize millions of illegal immigrants in what could be a signature domestic achievement.

But beyond that, the second-term agenda remains shrouded in uncertainty, with questions about whether he would pursue other politically charged issues such as climate change or voting rights.

How high Obama can aim will depend at least in part on the details of whatever deal he manages to strike in the coming weeks with House Speaker John A. Boehner (R-Ohio).

Democrats say breaking GOP orthodoxy on taxes would be a game-changing moment, weakening the tea party movement’s two-year stranglehold on Republican leaders and paving the way for future deals.

“A good agreement could provide important momentum for the president to accomplish other items on his agenda, like immigration reform, like some energy and infrastructure initiatives,” said Rep. Chris Van Hollen (D-Md.), senior Democrat on the House Budget Committee. “The question is, what does a ‘good agreement’ mean?”

Sen. Richard Durbin (D-Ill.) said Obama’s potential success over the next four years also depends on the president’s ability in the current talks to neutralize GOP threats to use votes on increasing the country’s borrowing limit to force additional spending cuts.

If the debt limit threats continue beyond this month, Durbin said, “there’s no way the president can function or this economy can grow under those circumstances.”

Republicans argue the debt limit votes are their only leverage to curb excessive federal spending. They also have issued warnings in recent days that Obama’s apparent refusal to budge on taxes threatens to damage any hopes of resetting bipartisan relations in his second term.

One House GOP leadership aide said Obama would be unwise “if he comes in here and poisons the well by trying to break as many Republicans as he can. By nature of how politics works, you’re going to see a lot less cooperation going forward.”

Rep. Peter Roskam (R-Ill.), a top Boehner lieutenant, hinted at that sentiment among House Republicans last week when he told reporters Obama had “an unbelievable opportunity to be a transformational president” by bringing the parties together for a debt deal. “Or he can dissolve into zero-sum game politics, where he wins and . . . other people lose.”

No matter what happens, according to people close to the White House, Obama is likely to find himself more on defense during his second four years in the Oval Office, choosing what programs to spare from cuts rather than which ones to create or expand.

That’s because the broad framework for spending was already essentially set last year, when Obama and Republican leaders agreed to pair an increase in the debt limit with across-the-board cuts to the Pentagon and other federal agencies valued at $1 trillion over the next decade. Those cuts and other policies being discussed by the White House and Republicans would just barely satisfy the approximately $4 trillion in deficit reduction over the next decade both sides believe is necessary.

“It’s clear there is a restraint that’s already built into the deal of 2011,” said John Podesta, chairman of the White House-aligned Center for American Progress.

“He’s going to have to find more savings to double up on his investments on his priorities,” Podesta added. “The problem is if he doesn’t get the higher revenues [from the current negotiations] they’ll be even further pressured to cut back even further.”

Another outside ally familiar with White House strategy described the likely second-term agenda this way: “It feels more piecemeal and small-ball. The way they’ve structured this fight, they will not have free dollars on the table.” The person spoke on the condition of anonymity to discuss administration thinking. White House officials declined to comment for this story.

Top Obama aides have shown flashes of frustration that the budget situation will not give them much freedom to operate in the future on programs they see as critical, particularly if they fail to move Republicans further on raising revenues.

“Those numbers are tight now. They are very tight,” said Gene B. Sperling, Obama’s top economics adviser, during a speech last week at the Brookings Institution. “At some point you just start trading off between whether you want a nutrition program or you want biomedical research and you want early childhood. And that’s not a good place to be.”

Obama’s 2013 budget plan, cited by the administration as a basis for negotiations, reflects scaled-back aspirations. The plan, for instance, calls for increasing overall research and development by 1.4 percent next year — a modest goal for a president who has long advocated big, new investments in research programs.

Still, Obama’s new negotiating style during this month’s standoff has left an impression, both among his allies, who are pleased, and his GOP foes, who appear rattled.

His take-no-prisoners approach, refusing to give ground on his demand that tax rates go up for the highest-earning Americans, stands in contrast to his past efforts at negotiation, when many liberals felt he gave too much away too early.

Last year, Obama considered a “grand bargain” deal in which Boehner offered $800 billion in additional revenues in exchange for some cuts to Social Security and Medicare, sacred cows for the Democratic Party. This time, Obama’s initial offer calls for double that revenue number, and while he has left the door open to compromise, he has told allies that Social Security would be discussed only in terms of the program’s long-term solvency and not treated as a source for short-term dollars.

Last year, a politically weakened president, struggling to contend with newly empowered House Republicans, focused on behind-the-scenes negotiations — a series of dysfunctional interactions replete with unreturned phone messages, angry exchanges and bitter feelings. This time, Obama is playing the happy warrior, pushing his views in campaign-style events, such as his kitchen-table chat with a middle-class Falls Church family last week and a planned speech this week in the Detroit area.

Obama has even appeared to enjoy himself at times. The White House produced a video showing Obama tapping away at a laptop and sharing lighthearted moments with aides during a Twitter town hall last week.

He chose to respond to one participant, Mandi, who described herself as a recent college grad wondering about the impact of budget cuts, saying, “I like her hair.” Then he wrote, using typical Twitter shorthand to fit the 140-character limit: “cuts w/out revenue = reductions in student loans; work/study & college tax credits expire. Bad for growth. like your hair! -bo”

Obama is feeling pressure from his own base, too, particularly those who worry that despite his strong initial stance in recent weeks he will still wind up giving away too much in revenues and entitlement cuts.

Rep. Keith Ellison (D-Minn.), co-chairman of a caucus of about 90 House liberals, has requested a meeting with White House staffers to lay out their concerns, though no meeting has yet been scheduled. Ellison said he was pleased with the president’s apparent “resolve” on the tax-rate question, but hopes he would remain committed in a second term to ambitious spending on infrastructure.

“Now he needs to show resolve to get other stuff done,” Ellison said.

White House aides have told allies that they might push for an “infrastructure bank” that might be funded at least partly with private dollars. If the economy were to begin growing faster, that might pump additional dollars into government coffers that could be used for administration priorities.

Some officials still hope for the chance to expand early childhood education, college aid or expensive programs that might help achieve Obama’s stated goal of helping poor Americans climb up the economic ladder. But, as one outside ally familiar with White House thinking put it, “they’re puzzled as to how to accomplish it.”