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Itar-Tass, Russia

Confrontation Instead of Compromise:
Fighting Over Who Is Pushing
the Country Toward a “Fiscal Cliff”

By Andrei Shitov

Translated By Aleksandra J. Chlon

1 December 2012

Edited by Mary Young

Russia - Itar-Tass - Original Article (Russian)

United States authorities are still not showing the genuine willingness to comprise that is needed to protect the country from falling over the so-called “fiscal cliff.” According to most experts, this fall would almost inevitably usher in an economic slump for the United States and would have grave consequences for the entire world economy.

On Friday President Barack Obama campaigned for his approach to solving the economic problems of factory workers in the state of Pennsylvania. He scared them with the prospect of a substantial tax raise (around $2,200 per year for a family of four) and encouraged them to demand that Congress take measures to prevent this. Obama also emphasized that he himself was ready to “pay a little bit more,” and that a slight increase in taxes would not harm the highest-earning 2 percent of Americans.

The president’s main point in this argument with the Republican opposition boils down to the fact that this issue was “a central question in the election — maybe the central question in the election” and was decided on by the voters to the advantage of the the party in power. He now wants citizens to remind the Republican policymakers of this.

The leader of this latter group, House Speaker John Boehner, immediately responded to the head of the administration. He told journalists that Obama and his fellow party members are trying to push “hundreds of thousands” of small business owners in the United States over the fiscal cliff. He called the upcoming tax increases “presidential” and underlined that it would be a “crippling blow” for the economy.

Boehner added that he considered “non-serious” the administration’s suggestions that negotiations have come to a dead end and that so far practically nothing has been achieved. He confirmed that the administration suggested, in particular, raising the tax burden for Americans by $1.6 trillion, and he once more argued against raising tax rates for people of any income, including the rich.

Officially, both sides continue to speak of a desire to come to an agreement. The president expressed his confidence that both parties can work together in the upcoming weeks and find a solution. The House speaker reiterated that Republicans agreed on the abolition of some tax concessions and emphasized that he is striving for a two-party solution that could pass “both chambers of Congress” and be signed by the president in the coming days.

In practice, what is more obvious is a mood of confrontation. That suggestions made to Congress on Thursday by Treasury Secretary Timothy Geithner turned out to be unacceptable to the opposition could in no way have been a surprise for the White House. And immediately after the failure of the initial round of negotiations Obama began to appeal not to his partners in dialogue, but directly to the voters instead. As a matter of fact, even before Geithner’s mission he had already warned that this is what he would do. The point of the warning is that if the country falls off the “cliff” the party in power will lay the entire blame on the opposition.

In fact, this corners Boehner and his supporters. They would have to either capitulate, which would be political suicide, or counter-attack. But this appears suicidal vis-à-vis the entire national economy.

The term “fiscal cliff” includes a few economically important events that would automatically take place in the United States in the new year in accordance with previously adopted laws. Above all, this entails a compulsory radical decrease (sequestration) of all expenses in the federal budget of the country, including military ones, as well as a return to higher tax rates, which existed until the Republican administration of George W. Bush. According to experts, both would be disastrous for the American economy in its current condition.

The sequestration arrangement was initially made and consolidated by law as a result of negotiations over ways to decrease the budget deficit and the national debt. It is an extreme, “in case of fire” option, inadmissible for either side. It was adopted precisely in order to keep both the administration and Congress from conceding and to prevent the creation of the situation that is now called a “cliff” — coined by the chairman of the Federal Reserve, Ben Bernanke. Incidentally, some enlightened observers, for example from the National Associations of Entrepreneurs, are already talking not of a “cliff,” but rather of a “fiscal abyss.”



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