For a list of the current Friends of the Scottish Review, click here
Answers to citizenship questions:
If what you see and what you read are to be believed, America is in a panic. As the country gears up for the holiday season and the new year, it faces what’s become known as the ‘fiscal cliff’.
For years, Republicans and Democrats have argued about tax cuts and spending plans. But last year, the fight was particularly nasty. Republicans refused to allow more spending unless there was movement on taxes. The deadlock threatened America’s ability to pay its bills and meet its commitments. The uncertainty led to an unprecedented downgrade in the US credit rating and severe wobbles in the international financial markets before agreement was reached to raise the debt ceiling, the level at which the country could raise money.
To try to avoid a repetition, a ‘super committee’ was formed with senior figures from both parties to agree a deal on $1.2 trillion in targeted budget savings over 10 years. The idea was to introduce tax and spending reforms and share the pain for both sides. As an incentive to reach a deal, a plan was agreed that would automatically trigger tax rises and spending cuts. It didn’t work. There was no deal, and now the Budget Control Act of 2011 will go into effect at midnight on 31 December. The country will go off the ‘fiscal cliff’.
What it means is that more than 1,000 government programmes, including the defence budget and health care provision for the elderly, face deep automatic cuts. And temporary tax cuts will end, meaning a 2% rise in tax for every worker. It’s estimated that the average family will be paying around $2,000 more a year in taxes. The shock to the financial system could throw America – still the world’s biggest economy – in recession.
The reality, however, is that the fiscal cliff won’t mean immediate economic devastation. At any point, Congress and the White House could reach a deal which would kill any of these measures. An agreement could be put together in the first days and weeks of the new year before any of the doomsday changes begin to bite. It’s not so much of a cliff, more of a slope.
Both parties seem reluctant to sort things out. With one eye on the endless campaigning that exists in the US and the mid-term elections in two years, the Democrats are arguing against changing entitlement programmes and insist that there must be higher taxes for anyone earning over $250,000. The Republicans continue to stick to their pledge not to raise tax rates, instead talk about changing the tax code and removing allowances. Some Republicans have begun to acknowledge rates must be raised to get a deal. Right-wing commentators say that this could spark a war in the party.
Barack Obama and the speaker of the House, the senior Republican John Boehner, talked face-to-face on Sunday and some observers suggest that means a big announcement could follow. But there’s a worry that any deal will probably be short-term. It will be passed by a lame-duck Congress which will have little time to debate the full implications for the economy and important social safety nets because of the artificially created deadline. It will, however, allow both parties to argue they have to have ‘something’ to take back to their supporters.
What it is unlikely to do is lay the foundations to stop such panic in the future.
Alan Fisher is an Al Jazeera correspondent
