CONFUSED? Understandable, so is America. The US slid over the fiscal cliff at midnight on Hogmanay – sort of. But, as we go to press, the country seems to have kept a reasonably good grip on a tree stump at the summit that means all is not yet lost.
President Barack Obama said a Congressional deal to stop billions of pounds of tax rises and spending cuts that could plunge the US into recession again was “within sight but not done”. That came before the Democrat-dominated Senate passed legislation to block both the tax rises that would have hit 98 per cent of Americans and deep cuts in federal spending by an overwhelming 89-8.
All now depends on the vote of the Republican-led House of Representatives, which could be imminent or soon this month. The House is a higher constitutional hurdle for Obama to mount due to the Republicans’ visceral dislike of tax rises of any sort, even for millionaires.
But, amid the budget brinkmanship in Washington, the mood music has changed subtly with the post-midnight Senate vote. Despite the bluster, and remaining potential for maverick filibuster, nobody really wants to be responsible for a package of measures that could kick America back into recession and bring the global economy down with it.
Both sides made concessions in the White House-backed legislation, which enraged both the left-wing of the Democrat party and right-wing Republicans. Obama’s legislation prevents middle-class taxes from rising sharply, but raises rates on incomes over $450,000 (£275,000). However, that is twice the $250,000 threshold the president campaigned on and a sign of how far he has had to compromise in a febrile, distrustful US political atmosphere.
But, in return, Republicans in the Senate agreed to $24 billion of federal spending cuts over the next two months being deferred; unemployment benefits being extended for the long-term jobless; and a block on a 27 per cent cut in fees for doctors who treat Medicare patients.
Medicare is a particular Republican bugbear, and the Grand Old Party may well demand tougher concessions on Obama’s flagship healthcare programme as the price for getting the legislation through the lower Congressional house.
As Wall Street and many other financial markets worldwide were closed yesterday, no immediate damage was done by the continuing cliffhanger. In fact, many markets rallied on Hogmanay as prospects rose of a deal being struck.
The fiscal cliff is not banished. But I think there is just enough in what has been agreed to get the job done, and the automatic tax rises and spending cuts that were triggered on New Year’s Eve reversed.
If that is the case in the land of the global consumer of last resort, the world should breathe a collective sigh of relief.
More of the same is the best we can hope for
THE raffish Damon Runyon once diverged from the poets among us by asserting that the race is not always to the swift, nor the battle to the strong, but that’s the way to bet. And on that maxim of going with the balance of probabilities, I agree with the Institute for Public Policy Research, the left-wing think-tank, that 2013 is likely to see a “groundhog year” for the UK economy. Things are likely to feel very much the same as the past 12 months.
The macro backdrop, from austerity at home to the struggling eurozone hobbling Britain’s exporters, is just too weak to suggest strong rebounds from the five-year downturn.
Indeed, I suggest that if we achieve growth of, say 1 to 1.5 per cent, many will opine this time next year that it was quite a relief given the continuing headwinds.
Let’s hope for the best, then, but accept that a mixture of incremental economic recovery and inflation slightly above mid-term targets, as was the case with 2012, would be no disaster.