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The Obama Administration: Now What?

Barack Obama campaigned on an agenda of change -- from increased financial oversight to health-care reform. But with an economic crisis that shows no signs of letting up and a Democratic Congress that has its own set of priorities, how will the first year of his administration actually shape up?

So what's next?

Barack Obama arrived in Washington this week with an ambitious agenda as well as an expanded Democratic majority in Congress, but the economic crisis scrambles the situation. Just debating the next round of stimulus proposals may consume most of the oxygen on Capitol Hill; when added to the appropriations and presidential appointments Congress must consider, there could be little time left to tackle big new projects. And if the stimulus packages total a trillion dollars, as many estimates suggest, that's "going to push the deficit to levels that are really going to constrain other types of policy making," says Sarah Binder, a senior fellow at the Brookings Institution. It's doubtful, for example, that meaningful immigration reform will be on the minds of many people walking the corridors of Washington power in the next couple years.

But how the Obama administration sets its priorities will certainly matter. "The further you get into the administration, the less political capital Obama will have," Binder says. "His best bet is to come out of the starting blocks with a whole range of priorities, and to link them together." Much, too, will depend on the new president's relationship with Congress -- and not just the Republican minority. Though many freshman Democrats are centrists from red states, the party is much more unified around a progressive agenda now than the last time it controlled the legislature. It's a "distinct possibility," Binder says, that they may be more liberal than the president.

With that in mind, here's how several Beltway insiders expect issues important to small business may play out in the 111th Congress.

Taxes: It's possible that stimulus legislation in early 2009 will include a permanent fix to the Alternative Minimum Tax, according to Dan Danner, executive vice president for public policy and politics at the National Federation of Independent Business. But despite the teetering economy, the chance of the wealthy avoiding a tax hike is "close to zero. The top rate's going up. I think the only question is to how much, and above what level," Danner says. "I don't think there'll be any hesitancy, even in a recession, to raise the top rates." (A majority of the rich may not care: 52 percent of those making over $200,000 voted for Obama despite his promise to raise their taxes, according to exit POLLS.)

If nothing else, Democrats could simply let the Bush tax cuts expire after 2010. But Danner believes higher taxes could arrive as soon as next year, because "they'd like to use some of the dollars that would be generated by raising the top rate to do other things." Danner anticipates omnibus tax legislation later in 2009 that would trade tax hikes for the rich for middle class and corporate tax cuts, and would also revisit rates on capital gains and dividends. "It will be a bit of a divide-and-conquer strategy, and a little bit something in there for as many people as you can," Danner says. "And you could probably get a tax bill done."

Health Care: Health-care reform's time may finally have come. The children's insurance program known as SCHIP is due up for reauthorization in March, and that "could present some opportunities to do more than just SCHIP authorization," says Bruce Josten, executive vice president for government affairs at the U.S. Chamber of Commerce. Many in Congress, though, have bigger plans, and already several senators have put their staffs to work at drafting competing bills. Both Josten and Danner have sat in on regular meetings in Massachusetts Senator Ted Kennedy's office. Kennedy, a Democrat, who is battling brain cancer, would like to complete a bill quickly.

Josten doubts that major reform will reach the Senate floor before 2010, notwithstanding Kennedy's urgency -- Congress has too many immediate obligations that take precedence, and the topic is simply too contentious. Yet, despite big disagreements looming, Josten sees a consensus emerging on several important elements. Much in the Obama and McCain campaign proposals on health care was similar, he says, and when it comes time to reconcile the competing approaches, "I think you'll see 50 percent overlap right from the get-go. From there, you pretty much need to do insurance market reforms in the individual market and small-group market, which gets you probably instantly to an individual mandate at the very least. Perhaps connected to that, although not necessary, would be a pay-or-play mandate on employers." Employers could support such initiatives, Josten says, provided the final bill also includes cost-cutting measures and premium tax deduction for the self-employed. Even so, the bill isn't guaranteed to reach Obama's desk. "Pick a big constituency," Josten says. "The employers, unions, the docs and hospitals, and the insurers -- any one of them is capable of killing this."

Financial Regulation: Shortly after Washington intervened to broker the sale of Bear Stearns to JPMorgan Chase, Obama proposed reform that would both extend oversight to transactions not currently regulated and streamline the myriad and often competing regulatory authorities. With a majority of Democrats and enough Republicans coalescing behind the idea, most observers Inc.com spoke to expect some measure of financial re-regulation to become law in the next Congress. As Binder puts it, "One would be hard-pressed to say that the finance industry is working well. It's not. It's broken."