Meanwhile, as the 111th Congress winds down with a lame-duck session (Nov.29 to Xmas), toothless Democrats are up against emboldened conservatives blocking pending essential legislation including one to fund the Federal Administration in fiscal 2011, which had begun in October. With a single-minded pursuit of a strategy to freeze spending and shrinking Government, Republicans are making no secret of their higher ambition to recapture the White House denying President Obama a second term.

Having taken over control of the House of Representatives with a solid gain of 60 seats, and securing a significant addition closer to the half-way mark in the 100-member Senate, Republican dominance of the 112th Congress from January will prove even more thorny for President Obama to navigate his growth, jobs and fiscal responsibility policies.

Faced with legislative constraints between now and 2012, President Obama has been trying to reach out to Republican leaders to work out some consensual approaches to the core issues of economy, jobs and fiscal discipline. The first of such a bipartisan meeting was held on November 30. All this is a far cry from the days when President Obama seemed to be in full command of the situation to outline his visions of remaking America, laying the foundation for a new economy, rid of boom-bust cycles ,and focused on investments, jobs, clean energy, higher education, innovation and global competitiveness to restore America’s pre-eminence.

In his first two years, Mr Obama had gone great lengths to lift the economy out of recession, modernize and extend health care to millions uninsured and put in place historically the strongest regulations for the financial sector where the global banking and economic crisis originated. He was equally transformative in regard to reshaping America’s relations with the rest of the world with several new initiatives such as nuclear non-proliferation leading to disarmament, climate change and peace in Middle East.

But the economic hurt from the deepest recession, persistently high levels of unemployment, and foreclosures in housing market had spread frustration and anger among Americans which the Republicans exploited to their political advantage at the cost of Democrats. There is, however, ambiguity about the voter message which came out, with Republicans projecting it as a mandate for them to undo the fiscal damage and reverse the big government policies of Obama Administration. The President instead read it as one urging both parties to cease bickering and work together to change the way the Congress and Government functioned in Washington.

The Republicans, flushed with success, want to dictate terms to the Obama Administration calling for freeze on Federal spending, indefinite extension of Bush era tax cuts (2001 & 2003) which are due to expire at the end of the year, and scaling down of deficits and debt without any tax increase. Democrats and the President have strongly emphasized that the tax cuts should continue only for the 98 per cent of American families with incomes below 250,000 dollars or less a year and not for the top 2 per cent of millionaires and billionaires.

Republicans are in fact holding the middle class tax cut hostage to making cuts equally applicable to the top income earners. This would be among the first issues that would have to be sorted out in meetings between President Obama and Congressional leaders from both parties. Speaking a day earlier, the President hoped that the meeting on November 30 would mark “a first step towards a new and productive working relationship” in the spirit of a “shared responsibility” to deliver results to the American people.

On the Bush era tax cuts, the President has argued all along that the middle class, backbone of the economy, which saw their income decline over a decade, should continue to have the tax cuts, and it is only they who would spend and give a boost to the economy, two-thirds of which rely on consumer spending. He is against extension of the cut for the high income groups which would mean a revenue loss of 700 billion dollars over a decade – an amount to be made up by borrowing.

Suggestions have been floated for an extension of the cuts for high income earners for two or three years, as the economy is still to pick up steam, or raising the ceiling for tax cuts to families with incomes upto one million dollars. Originally these tax cuts were made with gaps uncovered besides the unfunded wars in Iraq and Afghanistan, which moved the budget to big deficits. President Obama inherited trillion dollar deficit when he took office in January 2009.

His February budget for fiscal 2011 envisaged a gradual reduction of deficits over a ten year period to a level of roughly 4 per cent of GDP in 2013. He also enforced a three-year freeze on non-security discretionary spending. Later in the year, he set up a bipartisan National Commission on Fiscal Responsibility and Reform, which was due to present its report on December 1. To underline his continuing concern for fiscal responsibility, the President announced on November 29 a two-year pay freeze for all civilian Federal workers. This would yield a saving of two billion dollars for 2010 and 28 billion dollars in cumulative savings over the next five years.

With a dramatic change in the political scene, the President is settling down to establish a working relationship with Republicans and it would, to begin with, cover two major issues, the future of the Bush era tax cuts and ratification of the new US-Russian START (Strategic Arms Reduction Treaty). Republicans in the Senate led by Mr Jon Kyl have expressed reservations on START and favour putting off ratification till next year. The White House has mounted efforts to get the ratification of the Treaty, as a “national security imperative”, which was also looked forward to not only by Russia but all over Europe. NATO Secretary-General said delay in ratification would be “damaging for security in Europe”.

The initial understanding that can be arrived at on some of these issues by the President with Republicans as well as Democrats would determine the way forward for the Obama Administration, which is committed to get federal spending under control and bring down deficits which had grown for most of the last decade taking debt to 62 per cent of GDP at present. It would also be a test for co-operation and compromise in the context of the President’s hope that Republicans would not revert to “old ideologies'. He has ruled out steps that might derail economic recovery or efforts to put Americans back to work. (IPA Service)