Barack Obama has won re-election, but the U.S. president
faces a fresh challenge confronting the "fiscal cliff," a mix
of tax increases and spending cuts due to extract some $US600
billion from the economy barring a deal with Congress.
At stake are two separate issues - individual tax cuts due to
expire at year's end and tens of billions of dollars in
across-the-board federal spending cuts due to kick in the day
after New Year's Day.
Failure to prevent a dive off the cliff could rattle U.S.
markets, and push the U.S. economy into a recession, which
could have global implications.
How Obama fares with a familiar set of challenges - most
notably a Republican-controlled House of Representatives -
could colour his second term.
Obama, who defeated Republican challenger Mitt Romney based
on television projections, will want to strike a deal with
Washington lawmakers before December 31 or risk a recession
in the first half of 2013, budget experts and Democratic
His backers say his win gives him a mandate for an elusive
"grand bargain" he sought in his first four-year term.
Such a pact would raise new revenue, make changes to popular
programs like the Medicare health program for the elderly and
pare the federal deficit.
"They have signalled that they want a big deal and I think
Obama will be aggressive about getting it," said Steve
Endorsement, a former House Democratic senior adviser and now
Obama and most Democrats are at odds with Republicans in
Congress over the stickiest issue - whether to let low tax
rates for the wealthiest Americans expire on December 31.
The president and most Democrats want to raise taxes on
income earned above $250,000; Republicans want to extend the
current low rates for all income levels.
Financial markets and the business community crave long-term
certainty - and that is what a major deal envisioned by Obama
is intended to tackle.
A big X-factor is how congressional Republicans will respond
to an Obama win. The hard line against raising revenue taken
by many Republicans in the House may not abate after the
House Speaker John Boehner said this week that his
Republicans would stand firm on their position opposing any
tax increases, even for millionaires, though he was speaking
before the election results.
Republicans kept control of the House, as expected, and
Democrats were projected to maintain control of the Senate.
An Obama victory "takes a lot of air out of the room for
Republicans," Jim Walsh, a former Republican representative,
who retired in 2009, predicted before the election.
The odds of a grander deal with increased revenue - though
not in the form of higher tax rates - goes up with an Obama
victory, he said.
Former Democratic representative Bart Gordon was unsure
whether more conservative elements of the party, associated
with the Tea Party movement, would go along so easily.
"Those folks don't need much of a reason to fight," Gordon