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.

Getty
Show Hide image

Want to beat child poverty? End the freeze on working-age benefits

Freezing working-age benefits at a time of rising prices is both economically and morally unsound. 

We serve in politics to change lives. Yet for too long, many people and parts of Britain have felt ignored. Our response to Brexit must respond to their concerns and match their aspirations. By doing so, we can unite the country and build a fairer Britain.

Our future success as a country depends on making the most of all our talents. So we should begin with a simple goal – that child poverty must not be a feature of our country’s future.

The Institute for Fiscal Studies projects that relative child poverty will see the biggest increase in a generation in this Parliament. That is why it is so troubling that poverty has almost disappeared from the political agenda under David Cameron, and now Theresa May.

The last Labour Government’s record reminds us what can be achieved. Labour delivered the biggest improvement of any EU nation in lifting one million children out of poverty, transforming so many lives. Child poverty should scar our conscience as much as it does our children’s futures. So we have a duty to this generation to make progress once again.

In my Barnsley constituency, we have led a campaign bringing together Labour party members, community groups, and the local Labour Council to take action. My constituency party recently published its second child poverty report, which included contributions from across our community on addressing this challenge.

Ideas ranged from new requirements on developments for affordable housing, to expanding childcare, and the great example set by retired teachers lending their expertise to tutor local students. When more than 200 children in my constituency fall behind in language skills before they even start school, that local effort must be supported at the national level.

In order to build a consensus around renewed action, I will be introducing a private member’s bill in Parliament. It will set a new child poverty target, with requirements to regularly measure progress and report against the impact of policy choices.

I hope to work on a cross-party basis to share expertise and build pressure for action. In response, I hope that the Government will make this a priority in order to meet the Prime Minister’s commitment to make Britain a country that works for everyone.

The Autumn Statement in two months’ time is an opportunity to signal a new approach. Planned changes to tax and benefits over the next four years will take more than one pound in every ten pounds from the pockets of the poorest families. That is divisive and short-sighted, particularly with prices at the tills expected to rise.

Therefore the Chancellor should make a clear commitment to those who have been left behind by ending the freeze on working-age benefits. That would not only be morally right, but also sound economics.

It is estimated that one pound in every five pounds of public spending is associated with poverty. As well as redirecting public spending, poverty worsens the key economic challenges we face. It lowers productivity and limits spending power, which undermine the strong economy we need for the future.

Yet the human cost of child poverty is the greatest of all. When a Sure Start children’s centre is lost, it closes a door on opportunity. That is penny wise but pound foolish and it must end now.

The smarter approach is to recognise that a child’s earliest years are critical to their future life chances. The weight of expert opinion in favour of early intervention is overwhelming. So that must be our priority, because it is a smart investment for the future and it will change lives today.

This is the cause of our times. To end child poverty so that no-one is locked out of the opportunity for a better future. To stand in the way of a Government that seeks to pass by on the other side. Then to be in position to replace the Tories at the next election.

By doing so, we can answer that demand for change from people across our country. And we can provide security, opportunity, and hope to those who need it most.

That is how we can begin to build a fairer Britain.
 
 

Dan Jarvis is the Labour MP for Barnsley Central and a former Major in the Parachute Regiment.