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.

Photo: Getty Images/Christopher Furlong
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A dozen defeated parliamentary candidates back Caroline Flint for deputy

Supporters of all the leadership candidates have rallied around Caroline Flint's bid to be deputy leader.

Twelve former parliamentary candidates have backed Caroline Flint's bid to become deputy leader in an open letter to the New Statesman. Dubbing the Don Valley MP a "fantastic campaigner", they explain that why despite backing different candidates for the leadership, they "are united in supporting Caroline Flint to be Labour's next deputy leader", who they describe as a "brilliant communicator and creative policy maker". 

Flint welcomed the endorsement, saying: "our candidates know better than most what it takes to win the sort of seats Labour must gain in order to win a general election, so I'm delighted to have their support.". She urged Labour to rebuild "not by lookin to the past, but by learning from the past", saying that "we must rediscover Labour's voice, especially in communities wher we do not have a Labour MP:".

The Flint campaign will hope that the endorsement provides a boost as the campaign enters its final days.

The full letter is below:

There is no route to Downing Street that does not run through the seats we fought for Labour at the General Election.

"We need a new leadership team that can win back Labour's lost voters.

Although we are backing different candidates to be Leader, we are united in supporting Caroline Flint to be Labour's next deputy leader.

Not only is Caroline a fantastic campaigner, who toured the country supporting Labour's candidates, she's also a brilliant communicator and creative policy maker, which is exactly what we need in our next deputy leader.

If Labour is to win the next election, it is vital that we pick a leadership team that doesn't just appeal to Labour Party members, but is capable of winning the General Election. Caroline Flint is our best hope of beating the Tories.

We urge Labour Party members and supporters to unite behind Caroline Flint and begin the process of rebuilding to win in 2020.

Jessica Asato (Norwich North), Will Straw (Rossendale and Darween), Nick Bent (Warrington South), Mike Le Surf (South Basildon and East Thurrock), Tris Osborne (Chatham and Aylesford), Victoria Groulef (Reading West), Jamie Hanley (Pudsey), Kevin McKeever (Northampton South), Joy Squires (Worcester), Paul Clark (Gillingham and Rainham), Patrick Hall (Bedford) and Mary Wimbury (Aberconwy)

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