The fiscal cliff isn't scary to anyone but Republicans

Taxmageddon could be a blessing in disguise.

Now that Barack Obama has won re-election, the focus in the US has turned to the next crisis brewing: the fiscal cliff. The event was named by Fed Chairman Ben Bernanke, and although I have always preferred "taxmageddon", it's stuck.

The "cliff" is the automatic introduction of roughly $600bn of tax increases and spending cuts, and is due to hit in early 2013, and the nature of what it involves has led some, like Annie Lowrey, the New York Times' economics reporter, to argue that a more apposite name might be the "austerity cliff". In fact, if it hit, the fiscal cliff would be one of the most severe austerity policies the world had ever seen. This chart, from Quartz's David Yanofsky, lays it out in comparison to other notable contractions:

But while the cliff is indeed dangerous if the country were allowed to jump off it without a safety net, the political danger it poses for Barack Obama has been overstated.

The policy has been compared to the debt ceiling debacle of last summer, and the similarities are clear. The executive may well end up facing a similar level of obstructionism from a Republican congress determined to use the crisis to their political advantage, and the hard-and-fast deadline of the negotiations – a rarity in politics as normal – lends the whole thing an extra edge.

But the difference between the two comes from the results of letting that deadline lapse – and it's there where the cliff could be a blessing in disguise for Obama.

The debt ceiling involved the Republican party turning what should have been a routine vote to raise the amount of debt that the US can hold (the ceiling has been raised roughly once a year since it was introduced) into a chance to gain huge concessions on the level of spending the government was planning. The game was entirely played out on a political stage, with each side trying to convince the other that if the deadline hit and a full government shut-down ensued, their opponents would take the blame in the eyes of the public.

The negotiations themselves were relatively the simple: the Democrats wanted to change nothing, the Republicans wanted to change something, and the argument was about where those two extremes should fall.

The debates around the fiscal cliff are different, though. Each side wants some, but not all, of the programs which are expiring to be extended. So while the Democrats want to let the Bush tax cuts expire for the richest Americans, the Republicans call for, in the words of Slate's Matt Yglesias:

Draconian reductions in the federal government's commitment to financing health care for the disabled, the elderly, and the poor.

So far, so much like the debt ceiling. The difference comes after the deadline passes.

Currently, the Obama administration is, in effect, arguing for tax rises, while the Republican party argues for spending cuts. But if the deadline passes, what happens is that massive tax rises and spending cuts kick in – far bigger than both parties desire. If that happens, the negotiating calculus changes: from that point, both parties agree on the need for tax cuts and spending increases, and just disagree on the magnitude of it.

The Democrats are then put in a position where they can offer the Republicans targeted tax cuts – re-instating the payroll tax, and the Bush tax cuts for those earning under $250,000 – and even though the Republicans would prefer more, they'll be inclined to take it because it's a preferred alternative.

Similarly, so long as the spending increases the democrats offer are preferred to keeping the across-the-board cuts of the fiscal cliff, the Republican party is likely to take them.

It all comes down to who has the power to set the agenda – and in this situation, that seems likely to be president Obama.

If the players were truly rational actors, of course, all of this would mean that the fiscal cliff wouldn't even need to hit; the Democrats ought to be able to explain this endgame, and the Republicans accept it. That seems unlikely to happen.

The fiscal cliff could actually be a blessing in disguise for Obama. By putting him and the Republicans on the same side of the status quo, he could succeed in opening his second term facing the most obstructionist congress in history with a grand bargain that creates a more liberal America.

Or the Republicans may just throw the baby out with the bathwater and hurt their interests, and America's, to score points against the president. Again.

Cliffs of the non-fiscal variety. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty Images
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The buck doesn't stop with Grant Shapps - and probably shouldn't stop with Lord Feldman, either

The question of "who knew what, and when?" shouldn't stop with the Conservative peer.

If Grant Shapps’ enforced resignation as a minister was intended to draw a line under the Mark Clarke affair, it has had the reverse effect. Attention is now shifting to Lord Feldman, who was joint chair during Shapps’  tenure at the top of CCHQ.  It is not just the allegations of sexual harrassment, bullying, and extortion against Mark Clarke, but the question of who knew what, and when.

Although Shapps’ resignation letter says that “the buck” stops with him, his allies are privately furious at his de facto sacking, and they are pointing the finger at Feldman. They point out that not only was Feldman the senior partner on paper, but when the rewards for the unexpected election victory were handed out, it was Feldman who was held up as the key man, while Shapps was given what they see as a relatively lowly position in the Department for International Development.  Yet Feldman is still in post while Shapps was effectively forced out by David Cameron. Once again, says one, “the PM’s mates are protected, the rest of us shafted”.

As Simon Walters reports in this morning’s Mail on Sunday, the focus is turning onto Feldman, while Paul Goodman, the editor of the influential grassroots website ConservativeHome has piled further pressure on the peer by calling for him to go.

But even Feldman’s resignation is unlikely to be the end of the matter. Although the scope of the allegations against Clarke were unknown to many, questions about his behaviour were widespread, and fears about the conduct of elections in the party’s youth wing are also longstanding. Shortly after the 2010 election, Conservative student activists told me they’d cheered when Sadiq Khan defeated Clarke in Tooting, while a group of Conservative staffers were said to be part of the “Six per cent club” – they wanted a swing big enough for a Tory majority, but too small for Clarke to win his seat. The viciousness of Conservative Future’s internal elections is sufficiently well-known, meanwhile, to be a repeated refrain among defenders of the notoriously opaque democratic process in Labour Students, with supporters of a one member one vote system asked if they would risk elections as vicious as those in their Tory equivalent.

Just as it seems unlikely that Feldman remained ignorant of allegations against Clarke if Shapps knew, it feels untenable to argue that Clarke’s defeat could be cheered by both student Conservatives and Tory staffers and the unpleasantness of the party’s internal election sufficiently well-known by its opponents, without coming across the desk of Conservative politicians above even the chair of CCHQ’s paygrade.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.