Battles on cuts yet to come after fiscal cliff deal


The White House and congressional Republicans were gearing up for even bigger economic showdowns after a messy compromise on the fiscal cliff crisis was finally agreed by the House of Representatives.

The fiscal cliff deal, passed after days of disarray that highlighted the extent of the partisan divide in Washington, raised taxes on the wealthiest but postponed for two months a decision about $110 billion in spending cuts to the federal budget.

The fudge is almost certain to put the White House and Congress at loggerheads again next month or in early March. As well as the looming battle over spending cuts, the two sides also face a standoff over raising the federal debt ceiling.

President Barack Obama, who arrived back in Hawaii yesterday to resume his interrupted holiday, hailed the fiscal cliff deal as the fulfilment of an election promise to raise taxes on the rich.

However he spent little time savouring the moment, instead devoting much of his statement on the congressional vote to the battles ahead.

Expressing his frustration with Republicans in Congress, he warned that failure to raise the debt ceiling would be dire. “The consequences for the entire global economy would be catastrophic, far worse than the impact of a fiscal cliff.”

New congress

The new 113th Congress is scheduled to begin work today, but the November election left its make-up virtually unchanged from its predecessor. The Republicans retain a majority in the House and the Democrats a majority in the Senate.

Larry Sabato, director of the University of Virginia’s Center for Politics, is pessimistic, viewing the fiscal cliff showdown as unnecessary and anticipating future collisions.

“This whole thing is trumped up,” Mr Sabato said. “We’ve known about the fiscal cliff for 17 months. There’s no excuse for what’s happened. It’s pitiful and it’s going to happen again.”

He said the two sides remained polarised. “The parties don’t speak the same language. It’s very clear that the Republican caucus does not like President Obama personally. There is no deference to an election victory. We always used to have that. You got a bit of a honeymoon and a bit of a mandate when you won an election. And now there’s nothing.”

Tuesday proved to be an especially bad day for the Republicans. The vote in the House exposed the depth of divisions not only between Democrats and Republicans but within the Republican party. In the House, the Bill was passed by 257 to 167, but the breakdown on party lines showed 151 Republicans voting against the measure, with only 85 Republicans in favour of it.

The divide cut through even the party leadership in the House, with speaker John Boehner voting for it, and the majority leader Eric Cantor and the whip Kevin McCarthy, both more conservative figures than Mr Boehner, voting against.

Republicans expressed anger with Mr Cantor and Mr McCarthy for earlier calling on colleagues to rally behind Mr Boehner in voting for the Bill and then doing the opposite themselves.

Many Republicans, especially those backed by the Tea Party, want to remain ideologically pure, able to go back to their districts saying they had not voted for tax increases.

Divisive politics

Mr Boehner’s inability to control his own caucus, in particular the Tea Party bloc, is one of the reasons politics in Washington has become so divisive.

He is up for re-election for speaker soon after the new Congress convenes at noon today, but so far there is no suggestion that Mr Cantor or any other Republican plans to mount a challenge.

Illustrating the extent to which personal relations have broken down, the Politico website reported a confrontation in the midst of the fiscal cliff negotiations last Friday in which Mr Boehner told the Democratic leader in the Senate, Harry Reid: “Go f**k yourself.”

Mr Boehner is reported to have made the comment in the lobby after Mr Reid had publicly said he was more interested in securing re-election as speaker than reaching a deal.

The House passed the Bill only after a day of rancorous deliberations, despite the Senate having voted overwhelmingly in favour of it, by 89 votes to eight, in the early hours of the morning.

The Bill restricts tax rises to individuals earning $400,000 or more a year and households earning $450,000 or more. Estate tax also rises, to 40 per cent from 35 per cent, but inheritances below $5 million are exempted from the increase. Benefits for the unemployed are extended for another year.

AP calculates that for those earning between $500,000 to $1 million a year, it will mean an average tax increase of $14,812 and for those earning more than $1 million, $170,341.

Mr Obama, in his statement from the White House, recalled that in the last showdown over the debt ceiling in 2011, the federal government almost shut down. He did not want to repeat that situation and would leave the latest debt ceiling debate to Congress rather than becoming directly involved.

Debt obligations

In the end, it is difficult to see how the White House can remain aloof, given the consequences of the US being unable to meet its debt obligations.

The president expressed concern that repeated battles with Congress over the economy will eat into time that he hoped to use to push through his second-term agenda.

“We can settle this debate or, at the very least, not allow it to be so all-consuming all the time that it stops us from meeting a host of other challenges that we face: creating jobs, boosting incomes, fixing our infrastructure, fixing our immigration system, protecting our planet from the harmful effects of climate change, boosting domestic energy production, protecting our kids from the horrors of gun violence,” Mr Obama said. – (Guardian service)

The deal what is agreed

* The Bill extends tax cuts to individuals earning up to $400,000 or more a year and households earning $450,000 or more.

* Earnings above those amounts will be taxed at 39.6 per cent, up from 35 per cent

* Estate tax also rises, to 40 per cent from 35 per cent, but inheritances below $5 million are exempted from the increase.

* Benefits for the unemployed are extended for another year.

* Tax credits renewed for child care, college tuition and renewable energy production

* A two-month postponement of automatic spending cuts at the Pentagon and domestic agencies will be financed by $1 in tax revenue for every $1 in spending reductions.