With last Tuesday’s election and a sweeping victory by President Barack Obama now concluded, the focus in Washington, DC has quickly shifted to the business of running the country and the large challenges to be addressed immediately.

In our analysis below, we will outline President Obama’s path to victory and examine elections in the House and Senate as well as lay out what awaits Congress when it returns to session this week.

Election Recap

The Race for President

Tuesday evening culminated an almost two-year, $6 billion campaign engaged by both parties and related interests for President of the United States. In the end, the President was able to secure a convincing electoral victory (332-206), winning Colorado, Florida, Iowa, Ohio, New Hampshire, Virginia and Wisconsin- a near sweep of the battleground states.

To understand how the President was able to win, despite what was perceived as an enthusiasm gap among his supporters, one need only look at the shifting demographics of the electorate. In 2008, the majority of women voters supported President Obama. In 2012, women voters once again supported the President in major numbers, with 55 percent voting for him. More significant was the huge support the President got from Hispanic voters, a rapidly expanding voting demographic. President Obama won the Hispanic vote by 44 percentage points, 8 percentage points more than in 2008.

But the foregoing figures do not tell the true story, as the winning margins in the swing states were more significant. In Colorado for example, President Obama took an astounding 74 percent of the Hispanic vote, up from 61 percent in 2008. In Florida, a state Republican nominee Mitt Romney was counting on, President Obama’s gains among Hispanic voters likely will prove to be a key factor that allowed him to win the state. He won 60 percent of the Hispanic vote, up from 57 percent in 2008 and 44 percent for John Kerry in 2004.

The Senate Remains in Democratic Control

While several polls had indicated that the President was likely to be re-elected, there is no question that the Senate races went better for the Democrats than anticipated, as they were able to pick up seats in very close races in Indiana, Maine and Massachusetts, while also averting potential defeats in Missouri, Montana, North Dakota, and Wisconsin.

The Senate victories were the result of stronger than expected coat-tails from President Obama, as well as the nomination of very conservative Republican candidates. In Indiana for example, Democratic Representative Joe Donnelly, did what had seemed impossible by taking a Senate seat for the Democrats in a heavily Republican state. The results suggest that for the second consecutive election cycle, Republicans’ hopes for a takeover of the Senate were dashed in large part by their own candidates. In 2010 and 2012, the disappointment could be laid at the feet of a very conservative Republican primary electorate that was determined to sweep out the party’s centrists.

The House of Representatives Holds For the Republicans

While the Democrats had a big night Tuesday, the narrative in the House was quite different, as Democrats fell well short of the 25-seat pickup needed to wrestle control from the GOP.

Due to the redesigning of congressional districts, the election yielded significant incumbent losses on both sides, resulting in the end in a net gain of three seats for the Democrats.

As a result, John Boehner will remain Speaker of the House of Representatives, which will remain a bulwark for conservative ideals on taxes and spending, and the key obstacle to President Obama enacting his agenda for a second term.

Looking Ahead

Fiscal Challenges

President Obama did not have much time to savor Tuesday night’s victory, as a series of major tax and spending policy changes that are scheduled to occur on January 1 and 2, 2013, unless Congress acts, necessitated his quick return to Washington.

While speaking to the nation in his first address since returning to Washington on Friday, President Obama announced that he has invited Congressional leaders from both parties to the White House to begin negotiations over the fiscal cliff.

Among the provisions making up the fiscal cliff are:

  • Sequestration, a provision in the Budget Control Act of 2011 (include link to previous circular), which will require across-the-board cuts totaling 1.5 trillion of the next ten years
  • Expiration of the 2001 and 2003 tax cuts, often referred to as the “Bush Tax Cuts” ($281 billion)
  • Expiration of Payroll Tax Deduction ($115 billion)
  • Tax Extenders and Business Depreciation ($75 billion)
  • Alternative Minimum Tax Expansion ($40 billion)
  • Unemployment Insurance Expiration ($34 billion)
  • Expiration of Medicare reimbursement rates for physicians ($14 billion)

Despite this accelerated timeline, both Speaker John Boehner and Senate Majority Leader Harry Reid offered sharply different interpretations of Tuesday’s elections and what it means for taxes and deficits, underscoring the significant barriers to finding common ground. Speaking shortly after Democratic-control of the Senate had been assured, Reid said that he wants to increase revenue into the federal government by raising taxes on the wealthy. Boehner, on the other hand, said he is willing to raise revenue, but only by eliminating tax loopholes, and not by raising rates. Timing will inevitably be a factor as the year-end fiscal cliff will arrive more quickly than any contemplated “overhaul” to the tax code may occur.

The comments from both sides of the political spectrum are not surprising, particularly since negotiations haven’t even begun yet. Aides from both sides say privately that, if progress is not made in the next few weeks, reaching a compromise will be very difficult.

Leadership Elections

Wednesday afternoon, House Republican leadership will hold its elections. Given the successful retention of their Majority, it is unlikely that we will see a major shake-up in Republican leadership. John Boehner, will, once again, lead the chamber, with the rest of his leadership team remaining intact.

With regard to Committee leadership, there are some notable changes. The long-serving chair of the House Rules Committee, David Dreier (R-CA), decided to retire at the end of this session of Congress. As a result, his chairmanship is available. Due to term limitations imposed by the Republican Caucus, Representative John Mica (R-FL) will step-down as Chairman of the Transportation and Infrastructure when the 113th Congress begins. There is also an opening for the Chairmanship of the House Administration Committee, as Representative Dan Lungren (R-CA), lost his bid for re-election. All open posts will be filled by the Republican Caucus, when they hold their leadership elections next week.

Things are less clear on the Democratic side of the aisle. Nancy Pelosi, currently the highest-ranking Democrat in the House, has chosen to postpone her Caucus’s election until after the Thanksgiving holiday. This has been interpreted by many to indicate that she is strongly considering stepping-down from her post, and wants to give other Democrats the opportunity to wage a campaign for the top spot. If she does decide to step down, Steny Hoyer of Maryland, the second-ranking Democrat in the House will certainly vie for the top post, but he and Pelosi have never been close allies, and it is quite possible that Pelosi will support the candidacy of one her top lieutenants for the job.