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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Exclusive: Labour MEPs call for Jeremy Corbyn to resign as leader

Letter demands Corbyn's departure and attacks his office for "promoting" the work of the Leave campaign. 

Labour's MEPs have called for Jeremy Corbyn to resign in the latest challenge to his leadership. In a letter sent to Corbyn and leaked to the New Statesman, Glenis Willmott, the chair of the European Parliamentary Labour Party (EPLP), wrote: "We find it hard to see how any Labour leader can continue in that role if they do not have the support of their MPs." Corbyn yesterday lost a no confidence vote among the Parliamentary Labour Party by 176 to 40. The letter also attacked the leader's office for an "official Labour briefing document" which "promoted the work of Kate Hoey and Gisela Stuart for the Leave campaign."

The demand for Corbyn's resignation is described by sources as the "majority position" of Labour's 20 MEPs. Their stance could prove crucial if the leader is not automatically included in any new contest (a matter of legal dispute) and is required to seek 50 nominations from MP/MEPs (20 per cent of the total). 

The letter reads: 

"The European Parliamentary Labour Party met today for its first meeting since the referendum and concluded that we should send you this letter today.

"The EPLP has always striven to have a loyal and constructive relationship with our party leader, and we have worked hard to cooperate with you over recent months. However, we have very serious concerns in the light of Labour's defeat in the referendum campaign.

"Responsiblity for the UK leaving the EU lies with David Cameron. That being said, we were simply astounded that on Friday morning, as news of the result sank in, an official Labour briefing document promoted the work of Kate Hoey and Gisela Stuart for the Leave campaign.

"Labour's loyal and dedicated teams of activists had just spent weeks on the doorstep and on street-stalls making the case to remain in the EU and countering leave campaign arguments. Yet you and your office authorised a briefing that put the whole Labour campaign on a par with two Labour politicians who had been appearing for weeks alongside right-wing politicians, such as Nigel Farage and Boris Johnson.

"Separate from the referendum issue, it has become clear in recent days that you do not have the confidence of the Parliamentary Labour Party. We find it hard to see how many Labour leader can continue in that role if they do not have the support of their MPs.

"So it it with a heavy heart that we urge you, for the sake of the Labour Party and for the people in our country who need a Labour government, to reconsider your position as Labour leader."

Yours sincerely,

Glenis Wilmott MEP

On behalf of the European Parliamentary Labour Party 

George Eaton is political editor of the New Statesman.