The ‘Fiscal Cliff’ and why it needs solving

If you’ve been following US politics the last few days then you’ll have heard the term ‘fiscal cliff’ bandied about like it was going out of fashion. If you haven’t, it’s the media term (along with the much more exciting ‘Taxmageddon’) for the impending end of the Bush-era tax cuts and beginning of automatic Federal budget cuts, the combination of which will almost certainly lead to the US re-entering recession in 2013.We’ll obviously have to go back a bit to explain how we got here, then we can look into the future and try and work out a way of sorting it all out. As normal, Mark has to come and save the day.....

Surprisingly, I’m not going to start with George W Bush and his nonsensical tax cuts in 2001 and 2003. We’ve got to look a bit further back in order to see where things could go in the future. Back in Clinton’s Presidency he was being badgered so hard by the Republicans in the House of Representatives (led by Newt Gingrich, who ran for the GOP nomination against Mitt Romney) that the Federal budget wasn’t passed in time to pay government employees and so the government literally shut down. Nothing but essential services ran for 28 days spread between November 1995 and January 1996 in what is (imaginatively) known as the ‘government shutdown of ‘95 and ‘96’.

Why is this important? Well, firstly, (on a tangent, naturally) it heightened the role of fiscal conservatism in the US and inspired the likes of Paul Ryan and Rick Santorum, who will carry that torch for the next generation. Secondly (more tangent fun) it weakened the power of the GOP with them losing several seats in the House election (though retaining a majority) and helped Bob Dole to lose the 1996 Presidential election to Clinton.

But it is the third area that this become most important (sorry, I didn’t need to include the other two but I couldn’t help myself and, on reflection, aren’t you a better person for reading them?) because it showed the need for good relations between the President and a hostile Congress to bring about a budget both sides could agree on. The fact is that the US government really could cease working if a budget agreement isn’t reached. This wouldn’t look good to foreign investors (the markets are already worried) and it also wouldn’t look good for either a Republican Party recovering from a drubbing at the polls or for a President wanting to reassure voters for trusting him with 4 more years.

So what about President Bush and his tax policy? Well, in short, GWB brought in some tax codes that ensured the rich paid less without the poor gaining much in turns of life improvement (i.e. the rich and the poor both ended up paying less tax BUT the poor did not benefit because less Federal money could be spent on improving their situation in life). Before we go any further though lets not put all the blame on Bush – Obama ensured the tax cuts continued by signing an extension to them in 2010 that kept the legislation in force until December 31^st 2012.

So why is this an issue? Well, apart from there being very little tax legislation to fall back on (though most analysts think that without action the average income tax level will return to the pre-Bush 39%) Obama now has to hack out some new tax legislation with a hostile Congress that is made up of Republicans who near-religiously oppose any form of tax increase. He has to wrangle out of them an agreement to replace the current tax laws with new ones without promising any change in the tax rate, something that Obama himself is explicitly opposed to. To fail to do so will lead to Taxmageddon, with a limited tax policy and limited government operations until funding issues are resolved.

To summarize, the most obvious ‘solution’ for Obama is to agree with Congress a plan of some sort that will keep taxes at the current level, which will therefore increase spending and the budget deficit. But I think there is another solution for Obama to play with. It is a long shot but it is worth a go. Plus, once he reads this he’ll let me know all the problems with it.

Basically, Obama needs to get John Boehner (pronounced ‘Bay-nor’. I don’t know why), the Speaker of the House of Representatives and the GOP Big Dog (and third in line to the Presidency.......TANGENT) and the rest of his party to agree to a minor increase in tax revenue through closing loopholes in tax legislation. This would allow Obama to take in more money, especially from millionaires, but would also allow the Republicans to keep their election promises and avoid an overt tax rise. I don’t know the figures involved, but it would certainly bring in a bit more money and allow the amount of money borrowed to fall.

Obama, Boehner and co need to come to an amicable, face-saving decision for the good of the US and its economic muscle. Failing to do so would be irresponsible and would lead to them being perceived as weak and ineffective.

US Election Analysis

Hot off the press and constantly up-to-date (!!), here are my thoughts on the US election.

Firstly, the right candidate won......sorta. I put down on my blog before the election that Obama was going to win and that if I had to support one candidate, it would be him. However, as I said at the time, do not think of that as a ringing endorsement. There I many things which are objectionable to Obama in the White House. He is in favour of gay marriage, he opposes any further limits being put on abortion, he lied his way to victory in his first presidential win and he did the same this year.

 

However, there are plus points to an Obama Presidency that I just didn’t see in Romney, and those are on the economy, where he acted bravely to support a motor industry which would have crumbled without Federal support, and internationally, where he is able to hold his own and where a man with 4 years experience will do much better than a fresh-faced newcomer with no idea what to do. On both these things Obama was a better candidate than Romney, who opposed the auto-bailout and was going to brand China a currency manipulator on his first day in office, an empty gesture that would only incur the wrath of China’s new leadership.

 

Secondly, the politics of the US has shifted. The polling data has been showing this for a few years but it is only with a Presidential election that these issues can really be seen. The average voter in the US is happier with single ‘moms’, happier with gay rights, willing to support abortion rights in some form and more open to immigration and the changes in racial demographics this will bring to the US. All these issues were covered by the candidates, and on most of them they took opposite views. Obama took the victory narrowly, but even that victory is a sign of change in US society.

 

Thirdly, demographics. It is easy to forget that some people were predicting a Romney landslide in 2012. Now I think they were misguided, but they weren’t just plucking those figures out of nowhere. These were people who know their stuff and were willing to predict a GOP win. And they were BADLY wrong. Like, really, really BADLY wrong. Florida’s vote is now in and it went with Obama (along with Colorado they clearly didn’t read my memo – 2 states of a correct prediction, grrr), give the President a win of 332 to 206 in the Electoral College. That landslide is revealed in the breakdown of voter profiles.

 

As an example, Obama didn’t just beat Romney in getting the black and Latino vote. He thrashed him, winning 90% and 70% of their votes respectively. Romney lost the single woman’s vote by 36 points. His only main demographic wins were the white vote (60%) and married women (7% over Obama). But these simply reflect the values that are diminishing. Marriage rates are falling, the numbers of white Americans are falling year on year to Latino, black and other racial backgrounds and roughly 65% of Americans are in favour of loosening immigration laws (though I’m a tad sceptical of that poll and the way it was conducted).

 

Fourthly, the future. All this shows that a shift is coming to US politics as the Republicans seek to embrace new views whilst keeping to their foundations. As I’ve mentioned before the Latino vote will continue to grow, to the extent that Texas will be a swing state within the next 20 years. The GOP will need to find ways to reach out to this community, whether that’s by changing views on immigration or the economy (though I hope and pray they don’t change on gay marriage or abortion).

 

But the Democrats will need to change as well. They had the demographic boost this year and as long as they can keep to that they can win. But they will not be able to play racial politics for too many elections without people seeing what they’re doing. They will need to deliver on policies they promote, they will need to attract people to them because of firm ideals and not just because of stereotyping. All this could take a long time to come to fruition but it will need to take place.

 

And so, in talking to the future, we come to the obligatory random guess as to who should run next time. I banged the drum for Chris Christie to run this time round but in the Lord’s good providence he didn’t (maybe he doesn’t read this blog.....nah, that’s crazy talk) and so was able to deal with Superstorm Sandy and the needs of the people of New Jersey. I think that will boost his credibility and enable him to reach across the party divide in the years to come. He has a gubernatorial election next year which he will win (before Sandy he was still mid-50s in approval ratings), so he will have to decide whether to run or not and then if he runs and wins whether he leaves early to launch a White House bid. It is all awkwardly timed for him – not standing will announce SUPER early that he is going for the White House, stepping down as Governor could be a bad PR move. Paul Ryan (Romney’s running mate) would also be a strong candidate but I fear he may lead to an even bigger defeat for the Republicans than this year with his strong hardline economic views.

 

And what about the Democrats. One thing is for certain, Obama won’t be running as a President is limited to 2 4-year terms (under the 22nd Amendment for all you geeks out there). SO who is a rising star? Well Hillary Clinton could run, especially as she won’t be Secretary of State in Obama’s second term. But I think that she might be a long shot as she’ll be 69 by 2016. For me the more likely choices are Andrew Cuomo or Michael O’Malley, Governors of New York and Maryland respectively or, from the lower tier of government that is Mayor-dom (is that a word?), Antonio Villaraigosa of LA or Julian Castro of San Antonio, both of whom gave great speeches at the Democratic National Convention in September. His twin brother Joaquin is also a good candidate for the future and currently serves as one of Texas’ Congress members. If I had to pick out of that list, it would be for O’Malley, closely followed by Villaraigosa.

 

So, another exciting US election down and a phenomenal result for Obama, captured through excellent campaigning and a good tactical get out the vote campaign. It was a tremendous victory as Obama fought against every statistic to stay in the White House, even beating the never-fails-except-when-it-fails Redskins rule. Interestingly he made far less outrageous campaign promises this time round so we shall see where things go in the future.

 

For those who care, the next election in the world is in Sierra Leone on November 17^th. There has already been significant controversy over candidates not turning up for debates and rumours of bribery and vote-rigging. Join with me in praying that election goes smoothly and that the candidate there is as gracious in defeat as Romney was.

 

Debate warmly encouraged

Final Attempt – US Election Predictions

As before, below are 3 tables. The guesses are the same as last time, I’ve just removed ‘Predictions’ and ‘Leanings’ 

My conclusion is a win for Obama with 281 votes, just over the 270 votes needed

 

Debate warmly encouraged

 

Arizona	11
Colorado	9
Florida	29
Indiana	11
Iowa	6
Michigan	16
Minnesota	10
Missouri	10
Nevada	6
New Hampshire	4
New Mexico	5
North Carolina	15
Ohio	18
Pennsylvania	20
Virginia	13
West Virginia	5
Wisconsin	10
	198

Romney

Alabama	9
Alaska	3
Arkansas	6
Georgia	16
Idaho	4
Kansas	6
Kentucky	8
Louisiana	8
Mississippi	6
Montana	3
Nebraska*	5
North Dakota	3
Oklahoma	7
South Carolina	9
South Dakota	3
Tennessee	11
Texas	38
Utah	6
Wyoming	3
	154
	+ swing states = 257

Obama

California	55
Connecticut	7
Delaware	3
Hawaii	4
Illinois	20
Maine*	4
Maryland	10
Massachusetts	11
New Jersey	14
New York	29
Oregon	7
Rhode Island	4
Vermont	3
Washington	12
District of Columbia#	3
	186
	+ swing states = 281