In the wrangle over America's Fiscal Cliff, Barack Obama holds all the cards

There is no incentive for the Democrats to be conciliatory on the budget negotiations; nor, after the last few years of partisan bad feeling, will there be much inclination among them to do so.

As of now, it looks like the US will go off the so-called “fiscal cliff” tonight at midnight. Several days of extraordinary manoeuvring on and around Capitol Hill in Washington have so far resulted in no deal, and with one day left to galvanise America's behemoth political machinery the chances of one looks slimmer and slimmer.

This means that previously agreed measures (under a deal resolved with a kick-the-can-down-the-road Budgetary Control Act in 2011) will slot into place at midnight, removing a whole raft of tax breaks as well and making sadistically deep cuts to federal spending.

At a glance, it is hard to see why the Republicans are trying to make a deal at all. After all, weren't vicious spending cuts exactly what Romney and Ryan spent an election campaign demanding?

Part of the reason is, however, that the Republicans are afraid of public backlash. A recent Reuters/Ipsos poll found that almost twice as many people blamed the Congressional Republicans for the fiscal cliff than the President; a PEW/Washington Post poll from earlier this month said the same. If the country goes off the cliff, the mid-term elections are going to be very hard on the GOP.

Looked at in detail, going off the cliff looks very unpleasant indeed. Sure, it will cut 607 billion dollars from the national deficit – according to the nonpartisan Congressional Budget Office – but its effects on people directly are brutal. Tax breaks for parents will be halved and the Earned Income Tax Credit will go, affecting low and middle-income workers. A 2% payroll tax break for workers will vanish. Capital gains tax will increase, as well as the tax paid on dividends.

Dramatically, more than 40% of the five million people who have been unemployed for longer than six months will lose their unemployment benefits. There will also be cuts to tax credits for families paying college tuition. High-earning Americans won't escape bracing tax hikes either, especially those who earn more than a million dollars a year.

On top of that, all federal services, from roads to schools to homeland security – with a few exceptions including Medicaid and veterans benefits – face cuts, and perhaps redundancies. The defence budget in particular will be hit very hard, and of course that will have a knock-on effect on the vast number of tertiary industries employed by the Pentagon. All of this, experts agree, will hit the stock market hard, perhaps plunging the country back into recession.

Congress, like schoolchildren, have put off doing their homework until the very last minute, and Senators have been told not to make new years' eve plans. This is going right down to the wire: if a deal is going to be reached, it has to happen today.

It is very possible – almost probable – that America will go over the cliff; but – whisper it – it might not actually be so bad. Many of the harsher of these measures can and almost certainly will be reversed straight out of the gate; and the cuts in federal spending are due to be staggered over the course of the next decade. Obama has already stated that if the country goes off the cliff, then the Senate – controlled by Democrats – would act to pass emergency measures to prevent the loss of unemployment benefits and tax increases on lower-income families. In doing so, he would look like the hero. Certainly, there is no incentive for the Democrats to be conciliatory; nor, after the last few years of partisan bad feeling, will there be much inclination among them to do so.

Politically, Obama is holding most of the cards. The situation is lose-lose for the Republican party. If the country goes off the cliff, the House's Republican Speaker John Boehner and his party will probably be percieved as responsible for it – and are going to be forced into helping the Democrats clean up some of the mess. If it doesn't happen, the President is likely to get the credit. Boehner tried to re-cast this narrative with him as the problem solver with his alternative, the so-called “plan B” - but it was a flop, ridiculed by the Democrats and the media.

Now, he and his Congressional colleagues are scrabbling for anything they can to make the deal palatable to Republicans but still acceptable to the Democrats. They aren't being handed many scraps.

Barack Obama returns to Washington. Photo: Getty

Nicky Woolf is a writer for the Guardian based in the US. He tweets @NickyWoolf.

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The problems with ending encryption to fight terrorism

Forcing tech firms to create a "backdoor" to access messages would be a gift to cyber-hackers.

The UK has endured its worst terrorist atrocity since 7 July 2005 and the threat level has been raised to "critical" for the first time in a decade. Though election campaigning has been suspended, the debate over potential new powers has already begun.

Today's Sun reports that the Conservatives will seek to force technology companies to hand over encrypted messages to the police and security services. The new Technical Capability Notices were proposed by Amber Rudd following the Westminster terrorist attack and a month-long consultation closed last week. A Tory minister told the Sun: "We will do this as soon as we can after the election, as long as we get back in. The level of threat clearly proves there is no more time to waste now. The social media companies have been laughing in our faces for too long."

Put that way, the plan sounds reasonable (orders would be approved by the home secretary and a senior judge). But there are irrefutable problems. Encryption means tech firms such as WhatsApp and Apple can't simply "hand over" suspect messages - they can't access them at all. The technology is designed precisely so that conversations are genuinely private (unless a suspect's device is obtained or hacked into). Were companies to create an encryption "backdoor", as the government proposes, they would also create new opportunities for criminals and cyberhackers (as in the case of the recent NHS attack).

Ian Levy, the technical director of the National Cyber Security, told the New Statesman's Will Dunn earlier this year: "Nobody in this organisation or our parent organisation will ever ask for a 'back door' in a large-scale encryption system, because it's dumb."

But there is a more profound problem: once created, a technology cannot be uninvented. Should large tech firms end encryption, terrorists will merely turn to other, lesser-known platforms. The only means of barring UK citizens from using the service would be a Chinese-style "great firewall", cutting Britain off from the rest of the internet. In 2015, before entering the cabinet, Brexit Secretary David Davis warned of ending encryption: "Such a move would have had devastating consequences for all financial transactions and online commerce, not to mention the security of all personal data. Its consequences for the City do not bear thinking about."

Labour's manifesto pledged to "provide our security agencies with the resources and the powers they need to protect our country and keep us all safe." But added: "We will also ensure that such powers do not weaken our individual rights or civil liberties". The Liberal Democrats have vowed to "oppose Conservative attempts to undermine encryption."

But with a large Conservative majority inevitable, according to polls, ministers will be confident of winning parliamentary support for the plan. Only a rebellion led by Davis-esque liberals is likely to stop them.

George Eaton is political editor of the New Statesman.

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