Bloomberg News

Obama’s Strengthened Hand May Force Republican Opponents to Deal

November 07, 2012

At first glance, the results of the 2012 election look like a return to the status quo: President Obama was re-elected, Democrats retained the Senate and Republicans held on to the House.

But don’t be fooled. The political dynamic of the next four years will be almost exactly the opposite of the last four.

Sure, partisan bickering will endure. There will still be Red America and Blue America, Fox News and MSNBC. But with one big difference: During Obama’s first term, and particularly in the last two years, the Republican Party had most of the leverage.

Republicans’ willingness to reject stimulus, default on the debt and sabotage the nation’s credit rating --- threats that shook financial markets --- often put the White House at the mercy of the opposition, Bloomberg Businessweek reports in its Nov. 12 edition.

In Obama’s second term, leverage will shift to the Democrats on almost every issue of importance. And that shift has already begun.

The defining struggle in Obama’s first term was the battle for revenue. From the president’s original 2009 stimulus package to last year’s showdown over renewing the payroll tax cut, Obama was unsuccessful in his attempts to generate higher tax revenue to enable further spending.

Obama confronted a Republican party determined to starve government and convinced that its path back to power lay in engineering his failure. As Senate Minority Leader Mitch McConnell, a Kentucky Republican, said in 2010, “The single most important thing we want to achieve is for President Obama to be a one-term president.”

Hold the Line

Republicans mostly held the line.

To keep the economy afloat, the White House cut the deals it felt it had to. Many, such as Obama’s agreement to extend all of the Bush tax cuts in 2010, were poorly received by Democrats. Now comes the payoff.

The expiration of those cuts and the automatic reductions set to take effect at year’s end --- the so-called fiscal cliff --- mean that Obama and the Democrats can gain a huge source of new revenue by doing nothing at all.

Republican priorities are the ones suddenly in peril. The combination of tax increases on the rich, higher capital-gains taxes and sharp cuts in defense spending have congressional Republicans deeply worried. To mitigate these, they will have to bargain.

Tough Talk

Despite their post-election tough talk, Republican leaders have dealt themselves a lousy hand. Obama can propose a “middle- class tax cut” for the 98 percent of American households earning less than $250,000 a year, while letting the Bush tax cuts expire for those earning more, and dare the Republicans to block it. If they do, everyone’s taxes will rise on Jan. 1.

It’s true that going over the fiscal cliff, as some Democrats believe will happen, would set back the recovery and could eventually cause a recession. But Democratic leaders in Congress believe the public furor would be too intense for Republicans to withstand for long.

Going over the cliff would also weaken the Republicans’ greatest point of leverage: renewing their threat to default on the national debt.

Right now, the Treasury expects to hit the debt ceiling in February. But if the cliff can’t be avoided, tax rates will rise and government coffers will swell, delaying the date of default, thus diminishing the Republicans’ advantage.

Date Pushed Back

Alice Rivlin, the founding director of the Office of Management and Budget and a senior fellow at the Brookings Institution, says that “as quickly as the IRS began changing the withholding schedule, the date would be pushed back.”

This new, post-election reality should compel both sides toward the “Grand Bargain” on entitlement and tax reform that President Barack Obama and House Speaker John Boehner, an Ohio Republican, tried, and failed, to strike in the summer of 2011. Most people in Washington expect these negotiations to dominate the 2013 calendar year.

Here again, leverage has shifted from Republicans to Democrats.

“The message of this election is twofold,” says Senator Chuck Schumer, a New York Democrat. “Americans want us to come together around a balanced compromise. And the major issue surrounding the fiscal cliff that was litigated in the election was revenues. Voters clearly sided with us. The president made it a campaign issue, and he won.”

Republican Battle

Privately, some Republicans, especially in the Senate, share this assessment. Many more don’t. The battle to control the Republican Party and determine its course could inflict further damage on the conservative cause.

“The ’right wing of the Republican Party’ has become a redundancy,” says Republican strategist Rich Galen. “It now is the Republican Party, and there simply aren’t enough voters who agree with all of the Tea Party doctrine to win a national election.”

Establishment conservatives recognize this problem.

“It’s clear that, with our losses in the presidential race and a number of key Senate races, we have a period of reflection and recalibration ahead,” Senator John Cornyn of Texas, chairman of the National Republican Senate Committee, said on Nov. 7. “While some will want to blame one wing of the party over the other, the reality is candidates from all corners of our GOP lost tonight. Clearly, we have work to do in the weeks and months ahead.”

Activist Base

The trouble for Republicans is that the party is dominated not by Washington figures like Cornyn and the consulting class but by its activist base. Once a welcome source of energy that catapulted Republicans to control of the House in 2010, the Tea Party has become a millstone. Flawed candidates have twice cost Republicans control of the Senate, in 2010 and 2012, and could do so again in 2014.

At the same time, the Republican Senate caucus has moved further to the right. Relative moderates such as Kay Bailey Hutchison of Texas and Scott Brown of Massachusetts are departing; staunch right-wingers like incoming Senators Ted Cruz off Texas and Deb Fischer off Nebraska will replace them.

And the senior party members who might steer a safer path are hemmed in by the threat of Tea Party challenges back home. Cornyn, McConnell, Lindsey Graham of South Carolina and Saxby Chambliss of Georgia are all up for reelection in two years, and they are aware of the fate that befell ousted colleagues such as Richard Lugar of Indiana and Bob Bennett off Utah.

Immigration Issue

Where this tension could hurt Republicans most in Obama’s second term is on immigration, the other big issue sure to come to the fore in the next two years.

In September, Obama was taken to task in a Telemundo candidate forum for not having fulfilled his pledge to push for a path to citizenship or legal work status for the nation’s 12 million illegal immigrants.

He lamely submitted that “you can’t change Washington from the inside. You can only change it from the outside.”

A month later, in an off-the-record interview with the Des Moines Register soon made public, he shared his true thoughts. “Since this is off the record,” he said, “I will just be very blunt. Should I win a second term, a big reason is because the Republican nominee and the Republican Party have so alienated the fastest-growing demographic group in the country, the Latino community. And this is a relatively new phenomenon. I am fairly confident that they’re going to have a deep interest in getting that done.”

Tidal Wave

Obama could see coming, as any poll-watcher could, the demographic tidal wave that swamped Republicans on Nov. 6.

Exit polls show that 89 percent of Mitt Romney’s votes were from whites, compared with 56 percent for Obama. Latinos went to Obama in record numbers, 71 percent to Romney’s 29 percent, down sharply from the 44 percent George W. Bush won in 2000. Obama also carried 93 percent of blacks and 73 percent of Asians. In 1980 whites cast about 90 percent of all votes; this year they cast 72 percent, and that number falls an average of two percentage points every four years.

Republicans have become prisoners of demography, helpless to break free from the nativism of their activist base. Bush failed to persuade a much more moderate Congress to pass immigration reform in 2007.

Obama will soon try again. In the process, he will expose the deep fissure among Republicans that, if not bridged, will consign the party to minority status, certainly in presidential elections. Solving this problem and ending the party’s unconscionable voter suppression efforts stand as the Republicans’ two greatest challenges to broadening their appeal in the years ahead.

Brighter Picture

For Democrats, the picture is brighter.

Obama’s first-term achievements, including the health-care law and Wall Street reform, are now secure. A second term marked by an improving economy and capped with historic tax and entitlement reform seems well within reach.

That would put Obama among a select group of Democratic presidents. When the scope of his Nov. 6 victory became clear, some giddy liberals likened Obama to Ronald Reagan, the Republican whose legacy defined much of the last quarter century of American politics.

Such comparisons may be premature. But looking four years out, they are not unthinkable.

To contact the reporter on this story: Joshua Green in Washington at jgreen120@bloomberg.net

To contact the editor responsible for this story: Wes Kosova in Washington at wkosova@bloomberg.net


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