The Republicans likely to be hurt most if America falls off its "fiscal cliff"

By Tim Montgomerie
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There are only four days to go until America falls off the so-called fiscal cliff. Here's your guide to what's it all about...

What is the fiscal cliff? Automatic tax increases and spending cuts (especially to defence) will be triggered if President Obama and GOP leaders in Congress cannot agree a deal by the end of the year. No deal looks likely. Just before Christmas House leader John Boehner couldn't get a majority of his fellow Republicans to support his own compromise deal and his Speakership may now be in danger. Many voters are going to conclude that 'if Republicans can't even agree among themselves...'

...Neither the Democrat-controlled Senate nor the Republican-controlled House can currently agree a plan that can pass their own chamber - let alone both chambers. Technically both sides have outline* deals but the Republicans want as many spending cuts as tax rises in their proposed package. Obama and the Democrats want $300billion more in tax increases than spending cuts. See this graphic.

Where is public opinion? While the Washington Post concludes that all of the nation's politicians will lose the little esteem they have left if they can't reach any agreement most think - correctly - that the GOP has more at stake. The vast majority of Americans tell pollsters that they want politicians to compromise in the stalled negotiations to avert the fiscal cliff. Starbucks USA is even encouraging its customers to scrawl 'come together' on its red cups as a small encouragement to bipartisanship. Key findings from the latest Gallup poll are...

• 22% want the key players to stick to their principled positions but 68% want them to compromise;
• 50% think a deal is likely and 48% think it unlikely;
• 54% think President Obama is handling negotiations well and 45% think the same of Democratic leaders in Congress - only 26% think John Boehner and Republican leaders are handling things well.

Who needs to make the next move? Unable to agree a deal amongst themselves GOP leaders of the House are calling on the Democrat-controlled Senate to pass something first. Most Congressmen are in their home districts for the Christmas holiday season and need about 48 hours' notice to come together in emergency session. Is there enough time to make a deal? “I don’t know time-wise how it can happen now,” says Harry Reid, Democratic leader of the Senate.

Does Obama have an adequate deficit reduction plan? No. Republicans believe that President Obama is still refusing to propose a sensible plan to deal with the deficit. A contributor to Forbes.com summarises the Obama plan as a plan "to raise taxes on the top two percent, keep the Bush tax cuts for everyone else, offer only vague promises of future spending cuts, and gain the unprecedented authority to raise the debt limit without Congressional approval."* Forbes' Paul Roderick Gregory continues by noting that four of five specific measures proposed by Obama would actually increase the deficit: "Only one – the vaunted tax on the rich on which he based his campaign – lowers the deficit, but only by a miniscule $300 billion ($60 billion per year). If Obama gets the tax and spending changes he wants, his 2017 successor will inherit a national debt in excess of $20 trillion."

Do Republicans have an adequate deficit reduction plan? No. It is important for British Conservatives to note that the US situation is different from our own. During the Brown and Blair years taxes and spending rose but during the Bush/Obama years federal taxes stayed down while spending grew. The situation in America is more like Britain in 1992 when Norman Lamont was able to balance the books with some significant tax rises. One lone Republican, Scott Rigell of Virginia, acknowledges this. He notes that the George W Bush tax regime has raised federal revenues of an average of 16.9% of GDP for the last twelve years while even Congressional Republicans aren't proposing spending less than 17% of GDP. "In sum, he says," - quoted by the Wall Street Journal - "Republicans have a position that locks in a permanent deficit by sticking with tax rates that will always produce less revenue than required for the government programs they are voting to support."

What's ahead? F H Buckley at the American Spectator may be on the money:

"For a month I’ve been telling people not to expect a deal over the Fiscal Cliff. A grandiose president like Obama can’t tolerate oppositon, but it’s more than that. If he cuts a deal he takes part ownership of the economy. If he doesn’t he gets to blame the Republicans. And the blame will stick. Of course the economy will go south, but it’ll go south in any event, and the important thing for him is the blame game, for which the press will be willing allies."

Lauren Ashburn at the Daily Beast agrees:

"[Obama] can blame GOP intransigence for the negative consequences: deep spending cuts, including in defense, while income tax rates go up, capital gains taxes go up, estate taxes go up. In January, Obama will again propose cutting taxes for 98 percent of Americans, and the pressure on Republicans to capitulate will be enormous. The longer the impasse goes on, the more pain the country will feel."

Henry Blodget at Business Insider previews the key attack that Democrats will make on Republicans: "By refusing to extend the tax cuts for all Americans but the richest 2%, the Republicans have tacitly once again agreed to raise taxes on all Americans.

* The outline plans contain few specifics on spending cuts.