Fiscal cliff deal: Biden and McConnell's self-congratulation is unjustified

http://www.guardian.co.uk/world/2013/jan/01/fiscal-cliff-deal-self-congratulation

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It's funny what passes for a success in Washington. In the early hours of New Year's Day, as American senators finally agreed a deal on tax and spending, both main parties were almost bubbling over with self-congratulation. "I feel very, very good," Barack Obama's vice-president, Joe Biden, declared. "I think we can say we've done some good for the country," said the key Republican on the other side of the trade, Senator Mitch McConnell. His assessment may sound respectably tentative, but it is by no means tentative or modest enough.

The deal struck by Washington politicians neither avoids tax hikes on middle-class Americans; nor raises them on many rich ones. It neither halts massive spending cuts, nor puts in place the much-touted grand bargain to restore order to Washington's finances over the long run. And it does little to boost confidence that Mr Obama will set about his last term with greater conviction – and, yes, fight – than he has showed thus far. It also shows yet again what kind of Washington the president is up against: a legislature where politicians, reflecting the polarised, vastly unequal economy and society that elected them, now cannot agree on even basic things. Finally, it prepares the ground for a series of confrontations over budget policy. To sum up: if the agreement inked in the US Senate this week is supposed to be an answer to something, then the question can't have been much good.

And the framing of America's budget problems has been singularly ill-suited to generating solutions. Believe the vast majority of the news outlets and, should Washington politicians fail to agree to avert a wave of drastic tax hikes and spending cuts by the end of 2012, then the US economy would immediately tumble off a "fiscal cliff" into deep recession. Britons will recognise this picture: it is basically the coalition's austerity programme – which makes it poignant to hear the British right describe the fiscal cliff in such lurid terms.

In any case, this picture was always unhelpfully melodramatic: while the Congressional Budget Office does project that the tax hikes (actually, the expiry of the tax cuts brought in by George Bush over a decade ago) and spending cuts would have been a hammer blow for an already-weak US economy, that was only if that austerity were allowed to continue for months, which never looked likely.

This week's Senate bill at least averts the onset of too much austerity, too soon. But there will still be some tax pain. It will be felt by individuals earning over $400,000 a year, who will see their tax rates rise. Mr Obama went into these negotiations promising to make that threshold $250,000: he has conceded ground here, even while wringing out of the party of Grover Norquist the concession that taxes will need to rise to protect America's welfare state. But while the top 1% of American earners may hardly notice the change to their incomes, the middle class will also lose, as the Democrats have now surrendered their temporary reduction in payroll taxes (the American equivalent of national insurance). That is worth $1,000 (£610) a year to anyone on an annual salary of $50,000 (£30,810) – a noticeable loss. As for the spending cuts, they are only suspended for two months – just in time for the next row on America's debt ceiling, the cap on how much government can borrow.

America's government cannot continue forever with a system that spends one in every four dollars, but taxes only one in every five. Yet the middle of a slump is not the time to begin redressing that imbalance. Indeed, there is a good reason for the US to go for another round of stimulus aimed at serious job-creation. Instead, what we have this week is a jerry-built compromise that neither deals with the slump nor faces up to the long-term. After last November, Mr Obama has the mandate and the best arguments – but neither the majority of the House nor the willingness to throw his weight around. And the Republican party has not really accepted anything very much about the 2012 election. Truly, a depressing start to the year in Washington.