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  • Published in Analysis

The markets were celebrating the last minute deal to avoid the 'fiscal cliff' but American workers have been betrayed by Obama writes Sean Ledwith

Obama winks

"The truth of the matter is that my policies are so mainstream that if I had set the same policies that I had back in the 1980s, I would be considered a moderate Republican."

Barack Obama,December 2012

The American ruling class breathed a collective sigh of relief on New Year's Day as Congress passed the American Taxpayer Relief Act, legislation that would - according to its backers - cushion the impact of the much hyped fiscal cliff. The champagne corks would have been flying on Wall Street not only for the traditional reasons but also that Washington politicians had averted a mutually destructive dogfight over the economy.

As New York Times economist Jonathon Weisman pointed out "the Republicans and the wealthy should be having a second New Year's celebration."

They had also succeeded in shifting the mainstream debate onto a narrow ideological terrain that accepts the need for "significant spending cuts and reforms to the entitlement programs that are driving our country deeper and deeper into debt" as Republican negotiator, John Boehner puts it.

Likewise, Senior Democrat Senator, Charles Schumer, commented:

“We know we have to cut some of the mandatory programs and do other cuts...the problem has not been Democrats being willing to do cuts – we did a trillion of them last year. We’re willing to do more this year."

The brinkmanship that had characterised negotiations between Preside nt Barack Obama and his Republican critics towards the end of 2012 had seemingly been transformed into an outbreak of benign bipartisanship,pulling both the US and the world economy back from the precipice of an economic tailspin. Both sides were quick to claim credit for a deal in the national interest.

Legitimising austerity

"There is a path forward, if we focus not on politics, but on what's right for the country", commented Obama in his standard paternalist tone.

Scratch beneath the surface, however,and the deal again exposed the reality that the US ruling class has two establishment parties that serve its interests while engaging in a charade of rivalry, as indicated by the near-identical comments by Boehner and Schumer.

Obama and his congressional opponents both claim to speak for the 'middle class' but ultimately serve the ruling class and utterly neglect the working class. The 'cliffhanger' portrayal of the negotiations only served to disguise the fact that both sides are actually agreed that some form of austerity is necessary for American workers and that corporate profits should only be cosmetically reformed. The 'fiscal cliff' was an artificial deadline the US ruling class had set itself in order to frame an agenda in the mainstream media that would legitimate the necessity of austerity.

The term had been coined by Federal Reserve Chairman, Ben Bernanke, last March to refer to the combined impact of $536 billion of expiring tax cuts and $109 billion of spending cuts (euphemistically labelled as 'sequestration') on New Year's Day 2013. Some analysts predicted the resulting drop of national economic output of 4-5% would tip both the US and world economy back into recession.

Moral panic

According to radical economist, Bill Black, however the fiscal cliff was a 'moral panic' concocted by neoliberals on both sides of the party divide to legitimate US-style austerity. He notes the architects of the deadline deal worked on the basis of two premises:

(1) it was essential to prevent the fiscal cliff by agreeing to the 'Grand Bargain' (sic, Grand Betrayal) immediately because austerity would doom us to falling back into recession absent a deal and, (2) it was essential that the 'Grand Bargain' impose even more severe austerity than the 'cliff' – for a full decade – because only austerity could save us.

The most high-profile point of contention as the clock ticked down to January 1st was Obama's re-election commitment to raise taxes on those earning above $250K per annum. Many of the 60 million Americans who voted him back into the White House last November would have done so in the belief he would pursue this target rigorously. In the event, he capitulated soon after Republican Senate Leader, Mitch McConnell, reputedly laughed at the idea!

Incredibly, John Boehner failed in late December to persuade Tea Party-backed Congressmen to even consider raising taxes on those earning $1 million.

Their recalcitrance was partly influenced by pressure exerted by notorious right-wing lobbyist Grover Norquist from 'Americans For Tax Reform', described by former Green Party candidate, Ralph Nader as "the most powerful, nihilistic movement in Washington today".

Obama's surrender

Obama's surrender on the threshold level was finally set at $400K. According to his chief negotiator, Vice-President Joe Biden, this represented a significant victory over the congressional hardliners who had previously nailed their colours to Norquist's no new taxes pledge. In fact, this will only adversely affect an estimated 0.7% of the elite and leaves the majority of the super rich-those on between $250K and $400K- to enjoy the benefits of a permanently secured tax cut.

As Jonathon Weisman puts it:

"Just a few years ago, the tax deal pushed through Congress on Tuesday would have been a Republican fiscal fantasy, a sweeping bill that locks in virtually all of the Bush-era tax cuts, exempts almost all estates from taxation, and enshrines the former president’s credo that dividends and capital gains should be taxed equally and gently."

The mainstream media had focused most of their coverage on this relatively small part of the deal in an attempt to push the familiar 'we are all in it together' narrative being pushed by the global elites seeking to justify austerity. The most damaging aspect of the deal for the majority of Americans did not grab the headlines for obvious reasons. A 2% cut in payroll tax (equivalent of national insurance) was not renewed. Estimates suggest this will cost 163 million Americans (about 75% of the population) an extra $1,000 in federal taxes. The working class will inevitably take the brunt of this hit.

As Bill Black again notes:

"The payroll tax is our most regressive tax, so cutting it creates the greatest percentage boost to demand. It helps those who need the relief. The single worst decision involving the 'fiscal cliff' was the refusal to extend the partial moratorium on collecting the payroll tax."

Retrograde as this policy is, the most potentially destructive aspect of the fiscal deal was the decision to postpone negotiation over the public sector spending cuts until the renewed discussion of the US debt ceiling in two months time. This means Republican hardliners will now recharge their austerity batteries and take clear aim at the foundation of the US welfare state - Medicare, Medicaid and Social Security. As the Mother Jones website noted:

"Republicans will once again try to use the debt limit to hold the country hostage, hoping that Obama will—once again!—play the role of the responsible adult in the room and cave in to their demands because he understands that America can't default on its debts."

Leverage lost

The most frustrating aspect of Obama's surrender is that in the wake of his convincing electoral triumph in November he possessed what capitalist politicians like to call 'leverage' - a clear negotiating advantage over his opponents. That strong hand has now been frittered away because he predictably caved in when the parasitical ratings agencies made noises about downgrading the US economy if the deal was not sealed by the time the markets re-opened after the New Year holiday.

The negotiations between Democrat and Republican politicians had gone to the wire and technically the deadline of January 1st had been crossed when the deal was sealed. The Senate had voted 89-8 in favour of the deal on New Year's Eve but then there were a tense few hours until the bill could be passed in the House of Representatives by 257 votes for and 167 against. Ominously, 151 Republicans voted against the deal. These Grover Norquist fans will form the backbone of a full frontal attack on the US public sector when the issue is re-visited next month.

Striking back

Fortunately, there are promising signs that there is a potentially more powerful force stirring to fight for the system that Obama is unwilling to defend.

America's Walmart workers struck against the largest employer in the world last November. According to organisers, strikes hit a hundred US cities, with hundreds of retail workers walking off the job. In the same month, hundreds of fast food workers in New York branches of McDonald's had taken action in protest at their derisory wages.

Their struggles are a reminder that not all Americans have bought into the myth of the fiscal cliff and that many are coming round to the view that it is the capitalist system which needs to be thrown over the edge.

Sean Ledwith

Sean Ledwith

Sean Ledwith is a Counterfire member and Lecturer in History and Politics at York College, where he is also UCU branch secretary. Sean has also written for Marx and Philosophy Review of Books, Historical MaterialismPolitical Studies Review and Reviews in History 

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