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Obama Faces Immediate Spending, Tax Issues

November 07, 2012

Newly re-elected U.S. President Barack Obama faces an immediate confrontation with Congress over key tax and spending issues even before he is sworn in for a second term in January.

The president and lawmakers in Congress delayed decisions until after the election on how to deal with the country's looming "fiscal cliff" - $600 billion in automatic tax increases and spending cuts that are set to take effect January 1.

Now, they have just until the end of the year to reach an agreement to delay the mandated tax hikes and cuts in key defense and domestic programs - or find a compromise that has proved elusive in the past.

Economic analysts say that if Obama and Congress fail to act and the tax increases and spending cuts take effect, it could plunge the American economy into another recession. The country's economy, the world's largest, is advancing, but only sluggishly, as it struggles to recover from the worst economic downturn since the Great Depression in the 1930s.

But reaching an agreement is likely to be difficult.

The "fiscal cliff" mandates were set only because the president, a Democrat, and the Republican-controlled House of Representatives stalemated over numerous tax and spending issues during the last two years. Neither the president nor his political opponents want the mandates to take effect, but put the possibility of them in place as a way to force an agreement by a certain deadline.

One key issue is whether to extend tax cuts that affect all American workers. Republicans want to keep all of them in place. Obama has long sought - unsuccessfully - to end them for the country's wealthiest taxpayers, such as for couples earning more than $250,000 a year.

But the Republican leader of the House, Speaker John Boehner, told those gathered at his victory celebration Tuesday night that the results of the election showed that Americans do not want higher taxes.

"The American people have also made clear there's no mandate for raising tax rates. Americans want solutions that will ease the burdens of small businesses, bring jobs home and let our economy grow," he said.

As the cumulative U.S. government debt total continues to mount, the U.S. will also face a decision early in 2013 whether to increase the amount the country can borrow beyond the current $16 trillion level. Obama has pledged to work for a plan that would reduce the debt level over a period of years, but also has been unable to reach an agreement on that issue with his political opponents.

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