Domestic and international challenges for the second Obama Administration
16 Nov 2012|

Image courtesy of The White House.

On 6 November 2012, President Barack Obama won a convincing election victory. The Democratic incumbent beat the Republican challenger, Governor Mitt Romney, carrying virtually all of the battleground states that were the subject of serious contest. Only in Indiana and North Carolina, did the President lose Electoral College votes over 2008. This was a remarkable outcome given the sluggish performance of the US economy. The final result was Obama/Biden 332 to Romney/Ryan 206.

But while the Senate remained in Democratic hands, thanks to some poor Republican candidates in states such as Missouri, Virginia and Indiana, the House of Representatives is still under Republican control. This means that there’s still the potential for the politics of gridlock to dominate Washington, DC. In this, the first of two posts, I’ll comment on some of the domestic challenges facing Obama. These are important to Australia because of the impact they potentially have on US defence spending.

However, the President having been returned lends momentum to the Obama White House in pursuing an agenda which moves to avoid the ‘fiscal cliff’ which looms as of 1 January. This is a process mandated by law, by which over $600 billion is cut from the federal budget across the board unless Congress can agree upon a budget.

These cuts would apply to the Pentagon and spending on the military and national security as much as it would in the area of entitlements: social security, Medicare and Medicaid. Not surprisingly, both Democrats and Republicans would prefer to avoid the odium of slashing budgets in these areas of federal responsibility. As well, Defense Secretary Leon Panetta has made it very clear to Congress that the Pentagon regards the prospect of across the board cuts to its programs as being nothing short of catastrophic.

The pressure is therefore real, in the early days of the ‘lame duck’ Congress as it reassembles in Washington, DC to strike a budget agreement. The President has made it clear that he expects tax increases on the wealthiest Americans to apply. This is reflected in part in Obama’s determination to see the tax cuts of the Bush era lapse. Republicans are vehemently opposed to any tax increases. However, an interesting phenomenon occurred during the 2012 election at state levels—voters in various states approved measures to raise taxes to spend public money in specific areas.

The most noteworthy of these proposals was ‘Proposition 30’ in California, which called for state tax hikes on Californians earning well above average incomes, in graduated steps up to a figure of $1,000,000 a year. Governor Jerry Brown (Democrat) made it specifically clear that the money would be used not only to plug a hole in the Californian state budget, but to address gaps in education funding. The voters agreed.

So there is momentum for tax increases on the wealthiest Americans, given that the President ran specifically on this issue. Moreover, organised labour in the United States has reminded the President of his campaign pledge. The president of America’s largest union federation has been outspoken on this and nearly 150 liberal and other left-leaning groups have already made their views clear to Washington, DC.

A successful budget negotiation lifts the US economy—and by extension the global economy—to a new level of confidence, initiative and growth. The reverse also applies. Failure to achieve a satisfactory budget outcome may well nudge the United States into a new recession.

There’s much posturing in the capital at the moment. In the background, there is much tension in the Republican Party over the loss of the Presidential campaign. Prominent figure Speaker John Boehner faces a potential challenger from the party’s right. And, while the Tea Party has been rebuffed in more than a few places by the voters, the Republicans are having trouble coming to terms with reasons for the defeat.

Not only is there much soul searching needed by the Republicans but a significant shift back into the centre in terms of policy and profile is obviously required. This means that the forthcoming debate on reform of America’s complicated immigration laws is going to attract a great deal of attention—a particular challenge for the Republicans who lagged 40 points behind the Democrats among Latino voters. Climate change will also return to the US national agenda, in part courtesy due to the devastation of Hurricane Sandy.

In my next post I’ll talk about the key international challenges facing Obama, including the posture of American forces in the Asia–Pacific.

Stephen Loosley is the Chair of the Australian Strategic Policy Institute Council and Strategic Counsel for Minter Ellison. The views here are his own. Image courtesy of The White House.