It all boils down to checks and balances.
Obama has won himself another four years in office, but Congress is still split.
If you are pro Republican, that’s a relief; at least President Obama can be held in check. If you are a Democrat that’s a blow, a major blow. Will Congress make Mr Obama a toothless President?
If you are a credit ratings agency, right now you may be looking forward to a spot in the limelight as you prepare to downgrade the US’s credit rating.
But before the why and wherefores are considered, let’s get rid of some nonsense.
Critics of Obama say taxes need to rise. They say his victory in the election is a disaster for the US economy because it means higher taxes. But answer this question: if the problem with the US is that taxes are too high, how is it that by some measures US taxes are close to their lowest level since the end of World War 2?
In 1965 the US government tax receipts accounted for 24.7 per cent of GDP. Today they account for 24.8 per cent of GDP. Across the developed world over the same time period, tax receipts rose from an average of 25 to 34 per cent of GDP. Across the industrial world, only in Chile and Mexico are tax receipts to GDP lower.
There are lots of reasons why the economy in the US has not performed well in recent years, but please don’t say it was because taxes were too high.
The snag is that the US constitution has been designed, quite deliberately, to reign in the power of the President. Major legalisation has to go through Congress. And Congress itself is divided into Senate (where Democrats have a small minority) and the House of Representatives, where Republicans have a larger majority.
There is actually another tier too, The US Supreme Court. Currently, five judges in this court were appointed by Republican Presidents, and four by Democrat Presidents.
This system of checks and balances has largely made Mr Obama, well alas the spam checker will not allow the appropriate word, but it begins with an imp, followed by an ot, and ends with an ent.
This is especially a problem when it comes to the fiscal ceiling. When US debt rises above a certain level, the US Congress has to give its assent. If it refuses, the US has to stop borrowing. 12 months ago, the US approached this fiscal ceiling, and Congress went down to the wire in giving its approval. During this period of uncertainly, Standard and Poor’s downgraded the US credit rating.
On 1 January, the fiscal ceiling is not up for renewal, but the compromise agreed by Congress is. As things stand taxes will rise, spending will fall, and the US may well fall into recession as a result.
The question is: how will Republicans in Congress react? Will they look at the electoral college, see that Obama has won by a pretty convincing margin and then conclude they have to obey the will of the people and assent to Obama’s plans? Or will they look at the popular vote, note that in terms of votes cast across the US Obama and Romney were pretty much neck and neck, and say that means it’s their duty to thwart Obama at every opportunity?
Obama’s error was not to take advantage of the Democrats’ majority during the first half of his first term in office. He can only hope that in two years’ time, Democrats will gain control of the House of Representatives again.
As for the Supreme Court, no less than four of the nine judges are over 70, split 50/50 between Republican and Democrat appointees. Some of these judges will inevitably step down and Obama may have the opportunity to change the balance of power in the Supreme Court.
In the long run, however, demographics are at work. In 2000 18 per cent of US citizens under 18 were so-called Hispanics. In 2010 that number was 23 per cent. Hispanic populations are especially significant in Texas (up to now a Republican stronghold) and Florida (a key state in this election).
Ronald Regan once said all Hispanics are Republicans, but they just don’t know it. Certainly under the former B movie actor, a sizeable minority of Hispanic voters put their X in the Republican box. However, the rise of the Tea Party has put many of these former Republican voters off.
Looking forward, it seems that demographics mean that we will either see many more Democrat Presidents, or the Republicans will be forced to move to the left, or perhaps (but unlikely) we will see the emergence of a third political party.
©2012 Investment and Business News.
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© Investment & Business News 2013