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
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What will the 2017 local elections tell us about the general election?

In her timing of the election, Theresa May is taking a leaf out of Margaret Thatcher's book. 

Local elections are, on the whole, a much better guide to the next general election than anything the polls might do.

In 2012, Kevin Cunningham, then working in Labour’s targeting and analysis team, surprised his colleagues by announcing that they had lost the 2015 election. Despite gaining 823 councillors and taking control of 32 more local authorities, Cunningham explained to colleagues, they hadn’t made anything like the gains necessary for that point in the parliament. Labour duly went on to lose, in defiance of the polls, in 2015.

Matt Singh, the founder of NumberCruncherPolitics, famously called the polling failure wrong, in part because Labour under Ed Miliband had underperformed their supposed poll share in local elections and parliamentary by-elections throughout the parliament.

The pattern in parliamentary by-elections and local elections under Jeremy Corbyn before the European referendum all pointed the same way – a result that was not catastrophically but slightly worse than that secured by Ed Miliband in 2015. Since the referendum, thanks to the popularity of Theresa May, the Conservative poll lead has soared but more importantly, their performance in contests around the country has improved, too.

As regular readers will know, I was under the impression that Labour’s position in the polls had deteriorated during the coup against Corbyn, but much to my surprise, Labour’s vote share remained essentially stagnant during that period. The picture instead has been one of steady deterioration, which has accelerated since the calling of the snap election. So far, voters buy Theresa May’s message that a large majority will help her get a good Brexit deal. (Spoiler alert: it won’t.)

If the polls are correct, assuming a 2020 election, what we would expect at the local elections would be for Labour to lose around 100 councillors, largely to the benefit of the Liberal Democrats, and the Conservatives to pick up around 100 seats too, largely to the detriment of Ukip.

But having the local elections just five weeks before the general elections changes things. Basically, what tends to happen in local elections is that the governing party takes a kicking in off-years, when voters treat the contests as a chance to stick two fingers up to the boost. But they do better when local elections are held on the same day as the general election, as voters tend to vote for their preferred governing party and then vote the same way in the elections on the same day.

The Conservatives’ 2015 performance is a handy example of this. David Cameron’s Tories gained 541 councillors that night. In 2014, they lost 236, in 2013 they lost 335, and in 2012 they lost 405. In 2011, an usually good year for the governing party, they actually gained 86, an early warning sign that Miliband was not on course to win, but one obscured because of the massive losses the Liberal Democrats sustained in 2011.

The pattern holds true for Labour governments, too. In 2010, Labour gained 417 councillors, having lost 291 and 331 in Gordon Brown’s first two council elections at the helm. In 2005, with an electoral map which, like this year’s was largely unfavourable to Labour, Tony Blair’s party only lost 114 councillors, in contrast to the losses of 464 councillors (2004), 831 councillors (2003) and 334 councillors (2002).  This holds true all the way back to 1979, the earliest meaningful comparison point thanks to changes to local authorities’ sizes and electorates, where Labour (the governing party) gained council seats after years of losing them.

So here’s the question: what happens when local elections are held in the same year but not the same day as local elections? Do people treat them as an opportunity to kick the government? Or do they vote “down-ticket” as they do when they’re held on the same day?

Before looking at the figures, I expected that they would be inclined to give them a miss. But actually, only the whole, these tend to be higher turnout affairs. In 1983 and 1987, although a general election had not been yet called, speculation that Margaret Thatcher would do so soon was high. In 1987, Labour prepared advertisements and a slogan for a May election. In both contests, voters behaved much more like a general election, not a local election.

The pattern – much to my surprise – holds for 1992, too, when the Conservatives went to the country in April 1992, a month before local elections. The Conservatives gained 303 seats in May 1992.

What does this mean for the coming elections? Well, basically, a good rule of thumb for predicting general elections is to look at local election results, and assume that the government will do a bit better and the opposition parties will do significantly worse.

(To give you an idea: two years into the last parliament, Labour’s projected national vote share after the local elections was 38 per cent. They got 31 per cent. In 1985, Labour’s projected national vote share based on the local elections was 39 per cent, they got 30 per cent. In 2007, the Conservatives projected share of the vote was 40 per cent – they got 36 per cent, a smaller fall, but probably because by 2010 Gordon Brown was more unpopular even than Tony Blair had been by 2007.)

In this instance, however, the evidence suggests that the Tories will do only slightly better and Labour and the Liberal Democrats only slightly worse in June than their local election performances in May. Adjust your sense of  what “a good night” for the various parties is accordingly. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.

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