Obama Is Greeted by Looming Fiscal Crisis

Back to Work, Obama Is Greeted by Looming Fiscal Crisis

Newly re-elected, President Obama moved quickly on Wednesday to open negotiations with Congressional Republican leaders over the main unfinished business of his term — a major deficit-reduction deal to avert a looming fiscal crisis — as he began preparing for a second term that will include significant cabinet changes.

 

Doug Mills/The New York Times

A block from President Obama’s Chicago home on Tuesday, supporters waited for the president’s motorcade to pass by. Mr. Obama flew back to Washington late Wednesday. More Photos »

Mr. Obama, while still at home in Chicago at midday, called Speaker John A. Boehner in what was described as a brief and cordial exchange on the need to reach some budget compromise in the lame-duck session of Congress starting next week. Later at the Capitol, Mr. Boehner publicly responded before assembled reporters with his most explicit and conciliatory offer to date on Republicans’ willingness to raise tax revenues, but not top rates, together with a spending cut package. 

“Mr. President, this is your moment,” said Mr. Boehner, a day after Congressional Republicans suffered election losses but kept their House majority. “We’re ready to be led — not as Democrats or Republicans, but as Americans. We want you to lead, not as a liberal or a conservative, but as president of the United States of America.” 

His statement came a few hours after Senator Harry Reid, leader of a Democratic Senate majority that made unexpected gains, extended his own olive branch to the opposition. While saying that Democrats would not be pushed around, Mr. Reid, a former boxer, added, “It’s better to dance than to fight.”

Both men’s remarks followed Mr. Obama’s own overture in his victory speech after midnight on Wednesday. “In the coming weeks and months,” he said, “I am looking forward to reaching out and working with leaders of both parties to meet the challenges we can only solve together: reducing our deficit, reforming our tax code, fixing our immigration system, freeing ourselves from foreign oil.” 

After his speech, Mr. Obama tried to call both Mr. Boehner and the Senate Republican leader, Mitch McConnell, but was told they were asleep. The efforts from both sides, after a long and exhausting campaign, suggested the urgency of acting in the few weeks before roughly $700 billion in automatic tax increases and across-the-board spending cuts take effect at year’s end — the “fiscal cliff.” A failure to reach agreement could arrest the economic recovery. 

While Mr. Obama enters the next fray with heightened leverage, both sides agree, the coming negotiations hold big risks for both parties and for the president’s ability to pursue other priorities in a new term, like investments in education and research, and an overhaul of immigration law. 

The president flew back to Washington from Chicago late on Wednesday, his post-election relief reflected in a playful race up the steps of Air Force One with his younger daughter, Sasha. At the White House, he prepared to shake up his staff to help him tackle daunting economic and international challenges. He will study lists of candidates for various positions that a senior adviser, Pete Rouse, assembled in recent weeks as Mr. Obama crisscrossed the country campaigning. 

The most prominent members of his cabinet will leave soon. Secretary of State Hillary Rodham Clinton and Treasury Secretary Timothy F. Geithner long ago said they would depart after the first term, and Defense Secretary Leon E. Panetta, previously the head of the Central Intelligence Agency, has signaled that he wants to return to California in the coming year. Also expected to depart is David Plouffe, one of the president’s closest confidants. 

Mr. Obama is expected to reshuffle both his inner circle and his economic team as he accommodates the changes. For example, Jacob J. Lew, Mr. Obama’s current White House chief of staff and former budget director, is said to be a prime candidate to become Treasury secretary. For the foreseeable future, the holder of that job is likely to be at the center of budget negotiations, and Mr. Lew has experience in such bargaining dating to his work as a senior adviser to Congressional Democrats 30 years ago in bipartisan talks with President Ronald Reagan. 

 

“They’ve been thinking about this for some time and they’re going to have a lot of positions to fill at the highest levels,” said former Senator Tom Daschle, who has close ties to the White House. 

Both Presidents Bill Clinton and George W. Bush ended up replacing about half of their cabinet members between terms, and Mr. Obama could end up doing about the same, especially since his team has served through wars and economic crisis. John D. Podesta, a chief of staff for Mr. Clinton and Mr. Obama’s transition adviser, said, “There’s a certain amount of new energy you want to inject into any team.”

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Jonathan Ernst for The New York Times

Speaker John A. Boehner said Wednesday, “We’re ready to be led — not as Democrats or Republicans, but as Americans.” 

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Carolyn Kaster/Associated Press

Mr. Obama and Jacob J. Lew, the White House chief of staff, in March. Mr. Lew is said to be a candidate for Treasury secretary. More Photos »

There is talk about bringing in Republicans and business executives to help rebuild bridges to both camps. The one Republican in the cabinet now, Transportation Secretary Ray LaHood, has said he will leave. One possible candidate, advisers say, could be Senator Olympia J. Snowe, a Republican moderate from Maine who is retiring. 

A front-runner for secretary of state appears to be Senator John Kerry, Democrat of Massachusetts, and Democrats said worries about losing his Senate seat to the Republicans in a special election had diminished with Tuesday’s victories. Another candidate has been Susan E. Rice, the ambassador to the United Nations, but she has been a target of Republicans since she provided the administration’s initial accounts, which proved to be wrong, of the September terrorist attack on the diplomatic outpost in Benghazi, Libya. 

While no one in the White House blames her, “she’s crippled,” said one adviser who asked not to be named discussing personnel matters. Another possible candidate, Thomas E. Donilon, the national security adviser, has told Mr. Obama he wants to stay in his current position, according to a White House official. 

Attorney General Eric H. Holder Jr., once expected to leave, now seems more likely to stay for a while. Janet Napolitano, the secretary of homeland security, would like to be attorney general and is widely respected in the White House. 

Among other cabinet officers who may leave are Ron Kirk, the trade representative; Steven Chu, the energy secretary; Ken Salazar, the interior secretary; Tom Vilsack, the agriculture secretary, and Lisa P. Jackson, the Environmental Protection Agency chief. But Valerie Jarrett, the president’s longtime friend and senior adviser, plans to stay, according to Democrats close to her. 

It may be weeks before Mr. Obama starts making personnel announcements. His first priority is policy, and its politics — positioning for the budget showdown in the lame-duck session, to try to avoid the fiscal cliff by agreeing with Republicans to alternative deficit-reduction measures. 

If Mr. Obama got a mandate for anything after a campaign in which he was vague on second-term prescriptions, he can and will claim one for his argument that wealthy Americans like himself and his vanquished Republican rival, Mitt Romney, should pay higher income taxes. That stance was a staple of Mr. Obama’s campaign stump speeches for more than a year. And most voters, in surveys of those leaving the polls on Tuesday, agreed with him. 

Specifically, Mr. Obama has called — over Republicans’ objections — for extending the Bush-era income tax cuts, which expire Dec. 31, only for households with taxable income below $250,000 a year.

“This election tells us a lot about the political wisdom of defending tax cuts for the wealthy at the expense of everything else,” a senior administration official said early on Wednesday. 

But Mr. Boehner, in his public remarks on Wednesday, sought to avoid a White House tax trap that would have Republicans boxed in as defenders of the wealthy at the expense of everyone else.

Speaking for Republicans after a conference call with his Congressional colleagues, Mr. Boehner said he was ready to accept a budget deal that raised federal revenues, but not the top rates on high incomes. And the deal, he said, also would have to overhaul both the tax code and programs like Medicare and Medicaid, whose growth as the population ages is driving projections of unsustainable future debt. 

Instead of allowing the top rates to go up, which Republicans say would harm the economy, Mr. Boehner said Washington should end some deductions and loopholes to raise revenues. The economic growth that would result from a significant deficit reduction compromise would bring in additional revenues as well, he said.

Mr. Boehner entered the ornate Capitol room with none of his usual bonhomie, walked to a lectern and spoke in formal tones from two Teleprompters. He then hastened out of the room, ignoring shouted questions.