Obama Wins Round One, but America Loses

Democrats have to tell their voters the bitter truth that the services they want from the government simply can’t be financed by the amount of taxes the broad masses are willing to pay.

America’s politicians love the dramatic: Democrats and Republicans waited until there were only three hours left before the dawn of the new year and the start of automatic and very painful budget cuts before they agreed on a compromise. But it wasn’t enough to really solve America’s fiscal problems.

Actually, they only achieved a few temporary measures such as raising taxes of the wealthiest Americans. Two months from now, the next moment of truth will arrive; continuous tension is guaranteed.

The Ideological Chasm

The agreement at the last minute isn’t the result of effective staging by America’s political parties, which are supposed to help convince their respective bases that they tried everything right to the bitter end and then only relented to avoid a national catastrophe. America’s economic problems are so large and complex and the ideological chasm between the parties is so deep, that a comprehensive agreement in the short period after the presidential election was nearly impossible.

The Eleventh-Hour Agreement

Above all, the Democrats, still intoxicated by Obama’s victory, are in no mood to accept the cuts to social services essential in reforming the budget. This time it was actually the Republicans who met Obama more than halfway and thereby made this temporary compromise possible.

Republicans haven’t voted in favor of any tax increases since 1990. Now they want to support the largest tax increase since 1942, which would primarily impact the wealthiest Americans. Since the Bush tax cuts are due to expire for the middle class at the beginning of 2013, the Republicans face a dilemma: how do they avoid being blamed for hurting the middle class just to benefit the wealthy? In this scenario, Obama has all the leverage.

What appears to be a first round victory for Obama, however, is actually a defeat for America as well as for the principle of U.S. realpolitik. The out-of-control U.S. budget can’t be remedied solely by tax increases on a very small group of people; there must also be reductions in the most expensive programs.

America is Actually European at Heart

In addition to defense, the most expensive programs include the galloping costs of social programs. In 2012, the United States spent fully 44 percent of its budget for Social Security, Medicare and Medicaid. Because the population is getting older and will begin using these services, they are simply becoming impossible to finance under previous conditions.

At heart, America is far more European than Europeans and Americans themselves think. Even on this side of the Atlantic, the economic crisis has caused structural deficits in government budgets. And here, as in America, we see the same phenomenon: in the highly developed Western post-modern democracies, people want to have and keep their social benefits but are far less willing to pay more in taxes to fund them.

Barack Obama and the Democrats have dodged the reality that nothing can happen without some cuts in services. Their stubborn ideological stance against cutting social services is just as stiff-necked as the Republican opposition to any tax increases. In this round, the Democrats again had the leverage and Republicans had to give ground.

But in two months there will be a different landscape. The Democrats will have to come clean with their constituents, telling them that what the broad mass of Americans is willing to pay in taxes for their social services doesn’t cover the bill. So the agreement both sides came to shortly before the new year is just a small beginning. The roughest road to fiscal health still lies before them.