WASHINGTON — After an election focused heavily on the economy and the soaring national debt, Washington will immediately turn to a year-end debate that has the potential to dramatically affect both: the looming "fiscal cliff."
Unless Congress acts by New Year's Eve, taxes will rise for nearly 90 percent of Americans on Jan. 2, and the White House will be forced to carry out nearly $100 billion in automatic cuts to the Pentagon and other agency budgets.
With neither party on track to take complete control of the White House, Senate and House, the fiscal cliff will require a compromise that has for the past two years eluded President Barack Obama and House Republican leaders. Failure to achieve consensus has the potential to throw the nation back into recession as households absorb a hit to their finances averaging $3,500.
"When we wake up Wednesday morning, the fiscal-cliff clocks will start," said Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget. "Hopefully, the fiscal cliff will be the excuse for the parties to start working together. Hopefully, it will provide the excuse and cover for both sides to come to the table."
During the campaign, Obama and Republican challenger Mitt Romney vowed to take very different approaches to the year-end convergence of expiring tax breaks and spending cuts.
As the campaign wound down, it became clear that Obama's reelection would set the stage for an epic battle over taxes and spending with potentially far-reaching consequences. Democrats said a freshly reelected Obama would draw a line in the sand over his demand for increasing tax rates for the wealthy. He would invite Republicans to acquiesce to this demand or risk taking the blame for a dangerous political gridlock, as they did during the 2011 battle over the federal debt limit.