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Obama needs rainmaker to steer around fiscal cliff

There are striking parallels between Barack Obama’s re-election victory last week and that of George W. Bush in 2004.

Both incumbents began with mediocre job-approval ratings; each had a political albatross: the Iraq war for Bush, the economy this time; and both managed to define the race and the opposition before their slow-to-react challengers could. They both narrowly won, with about the same popular vote margin, though Obama did much better in the Electoral College.

The architects of this year’s successful campaign, David Axelrod, David Plouffe and Jim Messina, emulated the strategy and success of Ken Mehlman and Karl Rove eight years earlier.

The danger for Obama is that the parallels will continue to apply after Nov. 6. Failing to appreciate the need to change internally and adopt bipartisan compromise, Bush’s second term was a failure. Successful second-term presidents — Ronald Reagan, for example — realize the new political calculations and govern differently.

Two signs of trouble for the incumbent several months from now: If the narrative on filling key posts at State, Treasury and the White House centers around Obama’s comfort level, and if the political base, which re-elected him, isn’t complaining.

The fiscal issue — taxes, spending and debt — is the gateway through which all subsequent actions have to follow.

If the president and Congress cut a credible deal, a lot of options flow for both parties; if they don’t, the next two years will be like the last two.

Political chips

The Democratic White House and Republican House both believe they have political chips. A cocky post-election Team Obama revels in a commanding victory; this evokes shades of the false mandate that George W. Bush and Dick Cheney claimed.

House Republicans retained almost all their seats, brushing back attacks for their positions on Medicare and tax cuts for the rich. They have no fear of this White House.

Democrats say they’re willing to go over the so-called fiscal cliff and allow all the Bush-era tax cuts to expire and, if they can’t de-link them, drastic automatic spending cutbacks to take effect. Fears of an economic cataclysm would force Republicans to eventually back down, they say.

Privately, more than a few Republicans say “bring it on.” If a showdown forces a severe economic downturn, each side will blame the other; ultimately, failure to act would hurt the party controlling the White House, they figure, and the political cycle points to Republican gains in 2014. This would be reckless, not irrational.

The only way to avoid this outcome would be major cutbacks in Medicare and tax increases exceeding the $800 billion that House Speaker John Boehner was willing to negotiate a year and a half ago.

On taxes, if Republicans, insist that the top rate can’t exceed the current 35 percent, they have to give a lot on loophole closers as well as on increasing capital-gains taxes, and/or the estate tax, both of which primarily benefit the wealthy.

At the beginning of the second Reagan administration, the president outsourced economics to his new Treasury secretary, Jim Baker, and his deputy, Richard Darman. Over a year and a half, they brilliantly negotiated a tax-reform measure that cut rates and broadened the base, but also raised capital-gains taxes and corporate taxes.

Medicare cuts

Today’s Republicans say they’ll never cut a deal unless they get permanent changes in health-care costs, especially Medicare. They will push to introduce a system of vouchers or premium support, as advocated by Mitt Romney’s running mate, House Budget Committee Chairman Paul Ryan. That’s a nonstarter for Democrats, who trashed the idea throughout the autumn campaign.

That forces the White House to devise serious alternatives such as significantly enhancing competitive bidding, cracking down on overpayments, changing co-payment arrangements, reducing benefits for wealthier retirees and raising eligibility ages.

The president can rely on smart political sharpshooters and experienced policy experts, including White House Chief of Staff Jack Lew and National Economic Council Director Gene Sperling. He’s had those assets for the past several years, without moving Republicans.

He needs a game changer, a major figure with influence in the business community who could help pressure recalcitrant Republicans.

The reality is that it’s Republicans who are most dug in and resistant to the need for a sensible compromise. The exit polls in the Nov. 6 elections showed that 60 percent of voters rejected the Republican argument that tax increases on the wealthy are a bad idea.

One possibility is to enlist as a special negotiator the man who helped bail out the president this fall, former President Bill Clinton. There is no one who can better frame the economic/fiscal issue or knows more about dealing with the Republicans, who told us all year how fondly they remembered the Clinton years.

Obama confidants will argue you can’t outsource a major presidential responsibility. Some already resent the narrative that Clinton helped turn the election for the president.

The rhetoric from both sides in recent days on avoiding the fiscal cliff is positive, and rosier than the reality. If the president sticks with the regular order, look for no deals or a small-ball deal; the issue then will hang over his entire second term.

Hunt is Washington editor at Bloomberg News.

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