US President Barack Obama suffered a defeat in the battle over raising the US debt limit that may have repercussions for his efforts to restore growth to the US economy and win re-election next year.
The outcome of the debt battle dismayed Obama’s liberal base just when he needs them for fundraising and support and emboldened his Republican adversaries who forced him to accept more spending cuts than he wanted.
The debate also did nothing to help Obama clear his biggest hurdle to re-election — the country’s 9.2 percent jobless rate. In fact, it ratcheted up the bar by generating so much uncertainty that businesses sharply cut back investing and hiring.
Now Obama will likely turn his attention to a big push on measures to help the economy and keep it from dipping back into recession. That could include an extension of a payroll tax cut and approval of stalled trade deals with Panama, Colombia and South Korea.
That, and time, could help him overcome the damage from the debt debate. It could, in fact, be a blip on the screen as voters consider Obama against a field of Republican candidates that many analysts see as weak.
“I think he gets credit for being the reasonable guy in the room,” Democratic strategist Bob Shrum said. “I think he has to take a temporary hit looking like he wasn’t able to command the whole process.”
Americans seem to blame Republicans more for the crisis that almost drove the US to an unprecedented default and that will help Obama. A Reuters/Ipsos poll last week found 31 percent of Americans blamed Republicans for the debt impasse, while 21 percent blamed Obama.
“Certainly he’s exposed in this,” Ipsos pollster Julia Clark said. “That all said, Americans do put more of the blame for the prolonged failure of these talks at the feet of Republican lawmakers, so they may bear the most brunt.”
Still, Obama was bruised in the debt struggle, forced to accept deep spending cuts without tax increases, as he had wanted. Looking to next year, that leaves him exposed on the left.
“I don’t think he looks great,” said Jennifer Duffy, a political analyst at the non-partisan Cook Political Report. “One, obviously a lot of the progressive groups are unhappy. They think that he caved, that he gave Republicans whatever they wanted.”
He is not giving up on taxes and it may serve as a key issue of next year’s campaign — whether Americans are willing to put at risk funding for popular, but expensive social programs in order to preserve former US president George W. Bush’s tax cuts.
His goal in coming months is to convince Americans of the need for more tax revenue, believing voters will side with him that it would be better to raise taxes on wealthier Americans to preserve the social safety net.
Obama has argued in the past for ending the Bush tax cuts for the wealthy to no avail, but now he could have a vehicle to do so — a bipartisan congressional committee created under the debt deal to recommend ways to cut the deficit by the end of the year.
White House officials say increased tax revenues will inevitably emerge from the recommendations of the committee. They point to some proposals for raising taxes that have already been floated by a bipartisan group of US senators.
And even US House of Representatives Speaker John Boehner, the top Republican, had agreed to US$800 billion of new revenue increase in a version of a deficit-cutting package with Obama, a deal that fell apart.
Obama thinks he has an ace in his hand to play. If the committee does not produce tax reform ideas, he will veto any legislation that would extend Bush-era tax cuts for high earners beyond next year.
“I think he’s got to run a Trumanesque campaign, that he’s out there fighting for ordinary people, and draw distinctions on tax cuts for the wealthy,” Shrum said.
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