Editorial: Mr Obama wins, with or without a budget deal

The broad principles of a long-term solution to the US budget deficit are clear

Share
Related Topics

Elections, it is said, have consequences. However, you would be hard pressed to think so in the US right now. Six weeks after Barack Obama's solid win over Mitt Romney, the President seems as far away as ever from striking a deal with Republicans to prevent the country tumbling over the so-called "fiscal cliff", that many fear would halt the current slow recovery and send the US and perhaps the world into a new recession.

Time is running short. In just 17 days, if nothing is done, the 2001 and 2003 tax cuts passed under George Bush will expire, while mandatory reductions in government spending – part of the compromise that averted disaster in the 2011 deadlock over increasing the US debt ceiling – will kick in. The approaching Christmas holidays mean that, for all intents and purposes, the framework of an agreement should be in place by the end of this week, so that legislation can be passed before the new Congress convenes on 3 January. But there is precious little sign of that happening.

In fact, the broad principles of a long-term solution to the federal budget deficit – now running at seven per cent of GDP – are clear: a modest rise in personal tax revenue, coupled with spending cuts and, above all, steps to rein in the cost of the government's main social programmes, Medicare, Medicaid and Social Security, which, left unattended, threaten a debt explosion in the coming decades.

For the moment, however, there is stalemate, as both sides refuse to compromise on core beliefs. The President insists that taxes must be allowed to rise for wealthier Americans, while Republicans, who still control the House of Representatives that must approve the legislation, are holding out for larger cuts than Democrats can stomach in federal spending and curbs on entitlement programmes. Matters are not helped by the distant personal relationship between the two key players, Barack Obama and John Boehner, the House Speaker, and by the President's instinctive reluctance to wheel and deal – a crucial skill at moments like this.

What happens in the next fortnight is anyone's guess. Conceivably, the tough talk is posturing, and a deal will be reached. The gap between the parties, after all, is not unbridgeable: Mr Obama is seeking $1.4trn of tax increases over 10 years, while Republicans are offering $800bn of extra revenue, to be achieved mainly by closing loopholes in the existing tax code. The biggest sticking point appears to be the White House insistence that, while the Bush tax cuts would be extended for middle-income Americans, the wealthy must accept an increase in the top rate from 35 per cent to the 39 per cent that obtained before the Bush tax cuts.

Alternatively, the deadlock will persist, leading to a $2,000 increase in the average family's tax bill in 2013. Or – and precedent suggests this is most likely – there will be a stop-gap solution that postpones the day of reckoning by a few months. Never underestimate the politicians' ability to procrastinate.

In the longer term, though, November's election has had consequences – and none of them to the Republicans' advantage. With their vote, Americans told the party it had moved too far to the right, while the arch-conservative Tea Party movement had its wings severely clipped. Moreover, every poll since the election shows that a majority support higher taxes for the wealthy and would hold Republicans responsible for a failure to reach a deal. Which would lead to a splendid or disastrous irony, depending on your point of view. The party that since Ronald Reagan's day has fought for lower taxes would be blamed for bringing about America's biggest tax increase of modern times.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

SThree: Trainee Recruitment Consultant - Dublin

£13676.46 - £16411.61 per annum + OTE: SThree: SThree Trainee Recruitment Cons...

Ashdown Group: Marketing or Business Graduate Opportunity - Norwich - £22,000

£18000 - £22000 per annum + training: Ashdown Group: Business and Marketing Gr...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + Commission: SThree: Are you great at building rela...

Ashdown Group: Database Analyst - Birmingham - £22,000 plus benefits

£20000 - £22000 per annum + excellent benefits: Ashdown Group: Application Sup...

Day In a Page

Read Next
Labour leader Ed Miliband unveils Labour's pledges carved into a stone plinth in Hastings  

Election 2015: Smash the two-party system! Smash the voting system!

Armando Iannucci
Tactical voting is a necessary evil of the current first-past-the-post system, where voters vote against what they do not want rather than in favour of what they do  

Election 2015: Voting tactically has become more fraught in new political order

Michael Ashcroft
General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'
Sarah Lucas is the perfect artist to represent Britain at the Venice Biennale

Flesh in Venice

Sarah Lucas has filled the British pavilion at the Venice Biennale with slinky cats and casts of her female friends' private parts. It makes you proud to be a woman, says Karen Wright
11 best anti-ageing day creams

11 best anti-ageing day creams

Slow down the ageing process with one of these high-performance, hardworking anti-agers
Juventus 2 Real Madrid 1: Five things we learnt, including Iker Casillas is past it and Carlos Tevez remains effective

Juventus vs Real Madrid

Five things we learnt from the Italian's Champions League first leg win over the Spanish giants
Ashes 2015: Test series looks a lost cause for England... whoever takes over as ECB director of cricket

Ashes series looks a lost cause for England...

Whoever takes over as ECB director of cricket, says Stephen Brenkley
Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power