THE FISCAL CLIFF – WHAT’S REALLY AT STAKE?

PLMR

On Tuesday 6 November, President Obama sealed his second term in office as the Democrats swept swing state after swing state and dealt the Republican party a staggering electoral blow.

But on 7 November, thoughts turned almost immediately to the ‘Fiscal Cliff’, the simultaneous expiration of a raft of tax breaks and kickoff for deep spending cuts that take effect on 31 December if no agreement is reached to prevent it.

Cue an almost immediate return to partisanship, congressional bickering and posturing on both sides of the political divide. Pundits had widely claimed that the election result signaled public rejection of the obstructive tactics used by Republicans over the past two years to stymie Obama-backed legislative initiatives and block cross-party cooperation.

So far, this analysis seems optimistic at best.

Despite the election results, partisanship is alive and well in Washington. As daily stories from all the leading networks remind voters of the countdown to December 31st, leaders from both sides claim to offer compromise whilst laying the blame for the lack of a deal at the opposition’s door.

President Obama has returned to the road in campaign trail-esque appearances to garner public support for his proposals whilst the Republican camp, led by Speaker of the House John Boehner, claim he is doing so to avoid the challenges of real leadership.

Emails from Obama for America (which had mercifully fallen silent after the election) have resumed, asking supporters to call on their congressional representatives to back the President’s plan, which includes raising taxes on Americans earning over $250,000 per year. Republicans oppose the plan on principle, as they reject any proposals seen to penalise individual success and believe the Government will simply squander any tax rise anyway.

But these debates often cover the deeper political pressures at play. The President needs to demonstrate his ability to foster consensus and get things done in his second term after the stalemate of the last two years. At the same time, he must use his political capital carefully rather than exhaust it before the new term even begins.

Republicans are keen to show that although they carry a majority only in the House, they aren’t going to be pushed around – as demonstrated in the Republican-led defeat of US accession to the UN convention on the rights of disabled people. At the same time, congressional terms last only two years so many Republicans are already looking over their shoulders for potential challengers from the right of their party.

Whatever is preventing a deal, the threat of the Fiscal Cliff is real – and not just for technical reasons. If the parties fail to reach an agreement, consumer and business confidence will falter, spurring cuts to investment and worsening unemployment. The reverberations will not only be felt across the US, but throughout the global economy, which is why European leaders such as Angela Merkel have called on the Americans to bang out a compromise as quickly as possible. At the same time, Americans will feel let down by their representatives and could lose faith in the entire political process long before the President’s inauguration on January 21st.

Decision-makers in Washington have no time to waste. Because whatever the economic consequences of falling over the cliff, the jolt to the American psyche may be just as catastrophic.

Gillian Econopouly is an American-British political analyst who recently relocated from Westminster to New York. She specialises in healthcare and employment policy and previously worked at the Recruitment & Employment Confederation, the London Chamber of Commerce and the Arthritis & Musculoskeletal Alliance.

Follow her on Twitter @Econopolitic

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