Austerity averted in US

Country hauled back from the fiscal cliff.

At 10:59 PM EST yesterday, the US House of Representatives voted 257-167 to pass a bill originating in the Senate to prevent the government from being forced to implement a damaging mixture of spending cuts and tax rises – popularly known as the fiscal cliff.

To understand how much of a misnomer that title was, consider this: The US had already gone over the "cliff" at midnight on 31 December, 23 hours before the House passed its preventative bill.

The cliff was in fact the date at which the United States would, unless it passed new legislation, implement a series of European-style austerity measures. While these all became law at the stroke of midnight, implementation was to be phased out throughout the next few months. Unemployment benefits would have been cut within a week, while the full tax hikes – caused by the automatic expiration of Bush II's tax cuts – were to have taken several more months to implement. If we must keep the cliff metaphor, then the plummet was slow enough that the House was able to throw a rope down a day later and haul the nation back off the precipice.

Not that everything is peachy. The compromise that the Democrat- controlled Senate and the Republican-controlled House came to was 154 pages of legislation, but still involved kicking a couple of hand-grenades down the road.

Included in the bill was:

  • an agreement to return taxes to Clinton-era levels for families with income above $450,000 (a compromise between the Democrats' desire to do so above $250,000 and Republicans' desire to do so above $1m – or preferably not at all)
  • a similar rise in capital gain and dividend tax above that threshold
  • another rise in estate tax above that threshold (although, for no good policy reason, the estate tax threshold and only the estate tax threshold is to be indexed to inflation)
  • a civil service pay-freeze
  • unemployment benefits extended for another year
  • The Alternative Minimum Tax, which was intended to impose high taxes on the rich but has been affecting more and more middle-class families, will be "patched" to prevent any further mission-creep.
  • And an extension of Obama's tax breaks for low-income households.

In other words, nearly every measure extended yesterday was a tax break, with the exception of the three headline tax rises. There were also – because there always are – a host of other smaller measures added to the bill to ensure its passage. Joe Weisenthal finds six, including tax breaks for Puerto Rican rum and market loss assistance for asparagus farmers.

But two things weren't dealt with yesterday, instead booted down the line. On 1 March, the "sequester" will be enacted. This is the bundle of spending cuts agreed to in summer 2011 as part of the deal which raised the debt ceiling. It is similar in degree to the spending cuts implemented by the UK coalition, and most of the American establishment – the Republican party excepted, as usual – appear to have learned from the lesson Cameron provided, and have no intention to enact austerity in the midst of a depression.

The second fight due to come is over the debt ceiling. Exactly the same debt ceiling which was "dealt with" by enacting the sequester. The ceiling was raised – not abolished – and current Treasury projections suggest that it will have to be raised again in about two months.

The battlefields are drawn, in other words. The White House wants the sequester and debt ceiling extended or abolished; the Republicans want the sequester – and probably further spending cuts – enacted, and are prepared to see government spending hit the ceiling to do so. And unlike the "fiscal cliff", the debt ceiling is a real cliff. If the US hits it, a full government shut-down is required to stop it defaulting on its bonds.

The comparison with the UK is fascinating. Much has been made of the fact that the fiscal cliff, which has taken so much effort to avoid, is more accurately called "austerity"; but while the US legislature has been hosting fake debates in which the Republican party pretends it is fine with the whole thing and the Democrats pretend they don't want to negotiate, there is broad understanding in the rest of the US establishment (including the media) that to do so would be a very bad thing. That serves only to highlight how strange the UK right is in persisting in its defence of austerity. So while it's for the best for the US that it prevented the crippling austerity, it does mean that the evidence-based debate in Europe is deprived of yet another data point showing the damage such policies do.

Republican Speaker of the House John Boehner. 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.

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Is defeat in Stoke the beginning of the end for Paul Nuttall?

The Ukip leader was his party's unity candidate. But after his defeat in Stoke, the old divisions are beginning to show again

In a speech to Ukip’s spring conference in Bolton on February 17, the party’s once and probably future leader Nigel Farage laid down the gauntlet for his successor, Paul Nuttall. Stoke’s by-election was “fundamental” to the future of the party – and Nuttall had to win.
 
One week on, Nuttall has failed that test miserably and thrown the fundamental questions hanging over Ukip’s future into harsh relief. 

For all his bullish talk of supplanting Labour in its industrial heartlands, the Ukip leader only managed to increase the party’s vote share by 2.2 percentage points on 2015. This paltry increase came despite Stoke’s 70 per cent Brexit majority, and a media narrative that was, until the revelations around Nuttall and Hillsborough, talking the party’s chances up.
 
So what now for Nuttall? There is, for the time being, little chance of him resigning – and, in truth, few inside Ukip expected him to win. Nuttall was relying on two well-rehearsed lines as get-out-of-jail free cards very early on in the campaign. 

The first was that the seat was a lowly 72 on Ukip’s target list. The second was that he had been leader of party whose image had been tarnished by infighting both figurative and literal for all of 12 weeks – the real work of his project had yet to begin. 

The chances of that project ever succeeding were modest at the very best. After yesterday’s defeat, it looks even more unlikely. Nuttall had originally stated his intention to run in the likely by-election in Leigh, Greater Manchester, when Andy Burnham wins the Greater Manchester metro mayoralty as is expected in May (Wigan, the borough of which Leigh is part, voted 64 per cent for Brexit).

If he goes ahead and stands – which he may well do – he will have to overturn a Labour majority of over 14,000. That, even before the unedifying row over the veracity of his Hillsborough recollections, was always going to be a big challenge. If he goes for it and loses, his leadership – predicated as it is on his supposed ability to win votes in the north - will be dead in the water. 

Nuttall is not entirely to blame, but he is a big part of Ukip’s problem. I visited Stoke the day before The Guardian published its initial report on Nuttall’s Hillsborough claims, and even then Nuttall’s campaign manager admitted that he was unlikely to convince the “hard core” of Conservative voters to back him. 

There are manifold reasons for this, but chief among them is that Nuttall, despite his newfound love of tweed, is no Nigel Farage. Not only does he lack his name recognition and box office appeal, but the sad truth is that the Tory voters Ukip need to attract are much less likely to vote for a party led by a Scouser whose platform consists of reassuring working-class voters their NHS and benefits are safe.
 
It is Farage and his allies – most notably the party’s main donor Arron Banks – who hold the most power over Nuttall’s future. Banks, who Nuttall publicly disowned as a non-member after he said he was “sick to death” of people “milking” the Hillsborough disaster, said on the eve of the Stoke poll that Ukip had to “remain radical” if it wanted to keep receiving his money. Farage himself has said the party’s campaign ought to have been “clearer” on immigration. 

Senior party figures are already briefing against Nuttall and his team in the Telegraph, whose proprietors are chummy with the beer-swilling Farage-Banks axis. They deride him for his efforts to turn Ukip into “NiceKip” or “Nukip” in order to appeal to more women voters, and for the heavy-handedness of his pitch to Labour voters (“There were times when I wondered whether I’ve got a purple rosette or a red one on”, one told the paper). 

It is Nuttall’s policy advisers - the anti-Farage awkward squad of Suzanne Evans, MEP Patrick O’Flynn (who famously branded Farage "snarling, thin-skinned and aggressive") and former leadership candidate Lisa Duffy – come in for the harshest criticism. Herein lies the leader's almost impossible task. Despite having pitched to members as a unity candidate, the two sides’ visions for Ukip are irreconcilable – one urges him to emulate Trump (who Nuttall says he would not have voted for), and the other urges a more moderate tack. 

Endorsing his leader on Question Time last night, Ukip’s sole MP Douglas Carswell blamed the legacy of the party’s Tea Party-inspired 2015 general election campaign, which saw Farage complain about foreigners with HIV using the NHS in ITV’s leaders debate, for the party’s poor performance in Stoke. Others, such as MEP Bill Etheridge, say precisely the opposite – that Nuttall must be more like Farage. 

Neither side has yet called for Nuttall’s head. He insists he is “not going anywhere”. With his febrile party no stranger to abortive coup and counter-coup, he is unlikely to be the one who has the final say.