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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The Brexiteers who hope Article 50 will spark a bonfire of workers' rights

The desire to slash "employment red tape" is not supported by evidence. 

The Daily Telegraph has launched a campaign to cut EU red tape. Its editorial they decried the "vexatious regulations" that "hinder business and depress growth", demanding that we ‘throw regulations on the Brexit bonfire’.

Such demands are not new. Beyond immigration, regulation in general and employment protection in particular has long been one of the key drivers of frustration and fury among eurosceptics. Three years ago, Boris Johnson, decried the "back breaking" weight of EU employment regulation that is helping to "fur the arteries to the point of sclerosis". While the prospect of slashing employment rights was played down during the campaign, it has started to raise its head again. Michael Gove and John Whittingdale have called on the CBI to draw up a list of regulations that should be abolished after leaving the EU. Ian Duncan Smith has backed the Daily Telegraph’s campaign, calling for a ‘root and branch review’ of the costs of regulatory burdens.

The Prime Minister has pledged to protect employment rights after Brexit by transposing them into UK law with the Great Repeal Bill. Yet we know that in the past Theresa May has described the social chapter as a sop to the unions and a threat to jobs.

So what are these back-breaking, artery-clogging regulations which are holding us back? One often cited by Brexiteers is the Working Time Directive. This bit of EU bureaucracy includes such outrageous burdens as the right to paid holiday and breaks, and protection from dangerous and excessive working hours.

Aside from this, many other workplace rights we now take for granted originated from or were strengthened by the EU. From protection from discrimination and the right to equal treatment for agency workers and part time workers; to rights for women and for working parents; and rights to the right to a voice at work and protection from redundancy.

The desire to slash EU-derived employment rights is not driven by evidence. The UK has one of the least regulated labour markets among advanced economies. The OECD index of employment protection shows that the UK comes in the bottom 25 per cent on each of their four measures.

Even if the UK was significantly more regulated than similar countries – which it is not – there is no reason to expect that slashing rights will boost growth. There is no correlation between the strictness of employment protection – as measured by OECD – and economic success. France and Germany both have far more restrictive employment protection than the UK, yet their productivity is far higher than ours. The Netherlands and Sweden have higher employment rates than the UK, yet both have greater protections for those workers. And if EU red-tape was so burdensome, so constraining on businesses, then why has the employment rate continued to increase, standing as it does at a record high?

While the UK certainly doesn’t suffer from excessive employment regulation, too many employees do suffer from insecurity, precarity and exploitation at work. We’ve seen the exponential growth of zero-hours contracts, as well as the steady rise of agency work and self-employment. We’ve seen growing evidence of endemic exploitation and sharp practices at the bottom end of the labour market.

Instead of evidence, it seems the desire to slash employment rates is driven by ideology. Some clearly see Brexit as an opportunity to finish what Margaret Thatcher started, as Lord Lawson, who served as her Chancellor admits. He claims the deregulation of the 1980s transformed the economy, and that leaving the EU provided "the opportunity to do this on an even larger scale with the massive corpus of EU regulation. We must lose not time in seizing this opportunity".

The battle that is to come over employment regulation is just part of a wider struggle over what future Britain should have as we leave the EU. At the start of the year, the Chancellor warned our EU neighbours that if the UK did not get a good deal, we would be forced to abandon the European-style taxation and regulation and "become something different". In a thinly veiled threat, he said that the UK would ‘do whatever we have to’ to compete with the EU. To be fair, the Chancellor said this was not his preferred option. But we know that many see this as the future for the UK economy. Emboldened by both their triumph in Brexit and by an enfeebled and divided opposition, many Brexit-ultras want to build a low-tax, low-regulation, offshore economy that would seek aggressively to undercut the EU. This turbo-charged, Brexit-boosted Thatcherism would not just be bad for our continental neighbours, it would be bad for UK workers too.

Britain faces a choice on leaving the EU. We can either seek to compete in what the last Chancellor called the "global race" by driving up productivity, boosting public and private investment, and improving skills. Or we can engage in a race to the bottom, by slashing rights at work, and making Britain in the words of Frances O’Grady the "bargain basement capital of Europe".

Joe Dromey is a senior research fellow at IPPR, the progressive policy think tank.