USA's fiscal cliffA week ago I was in the States and the all the news channels were giving much air time to the so called ‘fiscal cliff’ i.e. what happens if republicans and democrats cannot agree about how best to tackle the USA’s enormous deficit. It was all knockabout stuff, but in the absence of agreement to the contrary, pre-legislated tax increases and reductions in public expenditure take effect from the 1st January, which are potentially so dramatic in their effect that they could throw the country back into recession.

The basic question republicans and democrats are having to consider is should the deficit be reduced by raising taxes or by reducing public expenditure?  Most reasonable minded folk agree it should probably be a combination of both, but the debate that is creating much more heat than light is how to strike a balance between reduced spending and higher taxes, and what the pace of deficit reduction needs to be.

Republicans, who control the House of Representatives which passes federal legislation that affects the entire country (although its bills must also be passed by the Senate and further agreed to by the U.S. President before becoming law), are predominantly the ones who don’t support tax increases. Historically, they have also been reluctant to compromise on limits for government borrowing, the third lever, but there are some in the party who are wobbling which could lead to a lot of in-fighting and introspection. This at a time when you’d think that politicians of all persuasions would be looking constructively to find a lasting solution!

Democrats seem to be intent on adding fuel to the fire by proposing a plan weighted heavily in favour of tax increasesand by committing to expenditure cuts that are illusory  e.g not spending more on wars in Iraq and Afghanistan. Even mid-state republicans will see through that one. But that’s politics. There are careers to be made, scores to be settled and the next presidential election is only four years away. (Haven’t we just had one?).

Now you’d never see that sort of behaviour in British politics would you? Of course you would. You only have to study George Osborne’s budget statement last week, and not very closely at that, to see the obvious parallels.  Still, we only get the governments we deserve because we vote for them.

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