I know we are still in year two until mid-January, but now seems as good a time as any to start talking about the Obama administration's third year. This will be the first year in which President Obama will have to govern with Republicans in control of the House, and he will have to contend with a diminished Democratic majority in the Senate. The night of the 2010 midterms, when analysts saw things going south for the Democrats, predictions of legislative gridlock abounded. Yet yesterday we saw a major compromise between Republicans and Democrats: I think this is a terrific compromise in which both parties gave up something for which they had publicly advocated. Obama has made a point of opposing tax cuts for the wealthiest Americans, Republicans in the past have stalled votes on the extension of unemployment benefits. Yet now people without work have an extra year of support while they search, meanwhile the nascent recovery has two years to find firmer footing. It may worsen our long term budget outlook, but not drastically so. Given America's past experience in the 1930s, and what happened to Japan in the 1990s, it is better to err on the side of caution and avoid increasing tax hikes before the recovery has gained steam. Plunging the economy back into recession from a pre-mature tax hike would surely do more damage to the country's long term outlook. Obama and the GOP have wisely compromised here. This may be telling for the trajectory of his third year. Analysts have doubted whether the administration has the ability to "pivot" from its ambitious reformist agenda to a small-ball, incremental one rooted in the principles of triangulation. Others have questioned whether the president even has the ability to work with Republicans at all, and vice versa. Today's events show that things can still get done. While today's vote set an encouraging tone, more pitfalls await that could fray ties between the two parties. How is the START treaty going to fare? Dick Lugar hasn't been effective at rallying other Republicans to support it, and now there is talk that the Tea Party may challenge him in a primary. Other moderate Republican senators are up for re-election in 2012 as well. Are they going to take a hard turn to the right to stave off a Tea Party challenger, like McCain against Hayworth? What is that going to mean for bipartisan solution-seeking? What about health reform? Repealing it has been a Republican goal since the bill was signed. How is this going to work? I expect this battle to dominate much of Obama's third year. As the opening poster, I will offer my opinions: the START treaty is going to stagnate in the Senate or be voted down. I just don't see a road to 67 votes, even if it is passed during the lame-duck session. Obama will compromise further with Republicans on ways to "retool" the health care bill. It will still exist a year from now. Perhaps Obama could cut a deal with the Republicans offering promises to rework the health law with them in exchange for passing the START treaty. What are you all anticipating in year three?