Austerity American-style

US braces for ‘slow-motion train wreck’ as sequestration hits

As austerity mania makes its way across the Atlantic, a stalemate between rival factions of the US political class will have far-reaching consequences. Defense, disease control, schools and other vital government concerns are on the line in the sequester

RT,

28 February, 2013

The sequester is bringing fears of a so-called 'second fiscal cliff.' The first fiscal cliff was averted in January 2013, after Democrats - who are pushing a slightly less harsh version of austerity than Republicans - gave in and agreed to extend tax cuts for wealthy Americans.

But really, US lawmakers only agreed to put off finding a solution to the country's economic woes for another few dozen days.

Workers can be seen on the moving line and forward fuselage assembly areas for the F-35 Joint Strike Fighter at Lockheed Martin Corp's factory located in Fort Worth, Texas in this October 13, 2011 handout photo provided by Lockheed Martin. (Reuters/Lockheed Martin/Randy A. Crites)

When they hit, dealing with the sweeping cuts will not be easy: the Department of Defense is undertaking numerous expensive initiatives, including the $383-billion procurement of 2,443 F-35 fighter jets. As America's military budget is slated to be cut by nearly $500 billion in the next decade, such initiatives could become costlier than ever and may prompt the Pentagon to reconsider them. 

“This is not a government shutdown, but it will start the erosion of our military readiness, and we will soon see impacts to bases and installations around the world,” Pentagon Press Secretary George Little said in a news release.

“I have never seen anything like this. It will have to affect our core, critical mission areas,” said Janet Napolitano, Secretary of Homeland Security, in comments at Washington's Brookings Institution.

‘Bullying the kids’

While the automatic spending cuts will hit defense the hardest, the Department of Education will also suffer a crippling blow to its budget. Education Secretary Arne Duncan on Wednesday noted that the sequester could cost 40,000 jobs in education nationwide.

70,000 kids who rely on the Head Start pre-school program will have to go without, while another 30,000 children will no longer be able to receive child care assistance.

A school bus used for transporting New York City public school students is seen parked in front of a school in the Queens borough of New York January 15, 2013. (Reuters/Shannon Stapleton)

About 10,000 teachers could be laid off, and “2,100 fewer food inspections could occur,” Duncan said during a White House press briefing.

With the high number of teachers estimated to lose their jobs, the quality of education could quickly deteriorate – especially in America's biggest population centers, as California, Texas, Illinois, New York and Florida face the largest cuts to their education budgets.

Funding for the Individuals with Disabilities Education Act is slated to drop by $591 million over 10 years, causing special-education students in particular to take the hardest hit if their school districts no longer provide the extra help that they need.

If the cuts continue through the fall, grants designed to improve the quality of education for more than 20 million of the country's poorest students - and some 6.5 million with special needs - will be canceled, according to information given to Congress by the Department of Education.

The prospect has angered parents who are worried that their special-needs children will no longer be able to get through school.

“I feel like we just don’t matter,” Heather Herakovic, an Ohio-based mother of two, told the Huffington Post. “Some people in Congress, they’re bullies – if you don’t do exactly what they want, they’re going to screw your kids.”

A mighty blow to public health

In a country that's never warranted much international recognition for its public health initiatives, cuts to the Centers for Disease Control and Prevention's (CDC) budget will mean some 424,000 fewer HIV tests and 540,000 vaccines for potentially dangerous diseases like the flu, hepatitis and the measles. More than 500,000 people will lose mental health and drug treatments as cuts to other public health grants kick in.

Thousands of Americans will no longer have access to the medication they require to keep HIV/AIDS under control, thanks to rollbacks to the AIDS Drugs Assistance Program, which gives uninsured HIV-positive Americans help paying for the expensive treatments that have helped keep the epidemic at bay for fifteen years, the CDC told Congress

Homeless people protect their possessions from the rain across the street from where the Skid Row Housing Trust's 102 pre-fabricated 350 square foot modular apartments are put in place downtown, becoming the first housing complex of its type for the homeless in the nation, in Los Angeles, California, December 18, 2012. (Reuters/Lucy Nicholson)

Government employees and contractors and members of the military will all take significant hits. Protections for clean air and clean water will lose funding. The government won’t have the money to clean up 1,000 gallons of radioactive nuclear waste. The Army and Air Force will face massive cuts.

“These impacts will not be all felt on day one but rest assured the uncertainty is already having an effect,” US President Barack Obama said in a White House speech on Monday. “Companies are preparing lay-off notices, families are preparing to cut back on expenses and the longer these cuts are in place, the bigger the impact will become.”

Some 600,000 women and their children will no longer have access to food aid, due to cuts to the Women, Infants and Children program. With food inspectors facing slashed budgets, meat and poultry factories will be forced to close their doors - resulting in higher prices in grocery stores and an estimated $400 million in lost wages.

‘Slow-motion train wreck’

While the budget cuts won’t automatically bring the country to a halt, the effects will gradually kick into gear if Congress does not take any initiatives to counter the sequestration.

“It’s a lot like a slow-motion train wreck,” Loren Adler, senior policy analyst at the Bipartisan Policy Center, told The Hill. “The key takeaway is on March 1 or March 5: no doors will be closed, no lights will be turned off. It will take a little while for these cuts to take effect.”

Most unpaid furloughs will begin in April, giving Congress just a few weeks to get moving on a budget plan before Americans start losing their jobs and federal agencies start to panic about their budgets.

Planning for the cuts

Foreseeing the sequester, some states have used budget surpluses to develop an emergency fund to dip into once the spending cuts go into effect. Washington, DC ended up with a $417 million surplus in fiscal year 2012. Saving the money for the predicted sequestration, the District has generated an emergency savings fund totaling almost $1.5 billion. And the city will need it: austerity measures will slash funding for more than 200 Head Start students, take away 500 federal college scholarships and 510 federal work-study jobs for DC residents, reduce environmental funding by $1 million, and cut school nutrition programs and childhood vaccines.

But not every state is as prepared as the District. For example, Michigan’s $365 million emergency fund is meager in comparison.

Austerity, American style

As the sequester looms, some say the US is set to repeat Europe’s austerity mistakes. Plagued with widespread unemployment, particularly in Spain and Greece, Europe has struggled to get back on its feet in the midst of round after round of cuts to social programs and interest-free loans to the financial industry.

“We were just beginning to feel that Americans were pulling Europe out of austerity and now they’re going to plunge us all back in it,” Ann Pettifor, director of PRIME Economics, told the Huffington Post. “The fact is that further [American] contraction is going to crash the global economy.”

President Obama plans to meet with congressional leaders at the White House on March 1 as the $85 billion automatic spending cuts are set to begin.

U.S. President Barack Obama delivers remarks at the Business Council in Washington February 27, 2013. (Reuters/Yuri Gripas)

More on the Fiscal Cliff

The Fiscal Cliff Deal Could Destroy Medicare

Business Insider ,

5 January, 2013

Sorry to post one of those headlines that belong in "Questions to which the answer is no", but it's not me who's raising the issue; it's James Kwak and Ross Douthat.

The argument goes as follows: the fiscal cliff provided the most favourable possible circumstances for Democrats to push for a tax increase.

Nevertheless, Democrats set their initial sights rather low, by pushing for tax increases only on income above $250,000 per year.

And even so, they had to compromise, and were only able to get tax hikes on income above $400,000 for individuals ($450,000 for couples).

The once-temporary Bush tax cuts were made permanent for income below that level. This will not provide enough revenue over the long term to support America's welfare state (Medicare, Social Security, Medicaid) at anything like current levels.

Yet if Democrats couldn't get more revenue now, under the best circumstances possible, they'll never get it in the future with the pressure off. Hence, the welfare state is doomed.

Here's Mr Douthat:

[T]hese negotiations amounted to a test of liberalism’s ability to raise revenue, and it isn’t clear that this outcome constitutes a passing grade: If a newly re-elected Democratic president can’t muster the political will and capital required to do something as straightforward and relatively popular as raising taxes on the tiny fraction Americans making over $250,000when those same taxes are scheduled to go up already, then how can Democrats ever expect to push taxes upward to levels that would make our existing public programs sustainable for the long run?

Mr Kwak thinks the failure to get more revenue "sealed the fate of Medicare—as well as Medicaid, food stamps, and perhaps even Social Security." Without more revenue, we're guaranteed an eventual debt crisis, and at that point government will slash safety-net programs:

For decades, conservatives have been trying to "starve the beast"—choke off the federal government's revenue stream so that rising deficits would force Congress to cut spending. They just got a big help.

The invocation of the "starve the beast" theory here is on the money. But I don't think it means what Mr Kwak thinks it does. It's been clear for a decade or so that starving the beast doesn't work: the absence of revenues does not lead government to cut spending, particularly not on its big-ticket functions of defence, Medicare/Medicaid and Social Security, which account for over 60% of the budget.

And one thing we learned during the fiscal cliff negotiations is while Democrats are reluctant to talk about raising taxes, Republicans are so terrified of cutting entitlements that they literally will not name any entitlement cuts they might want to make.

The one gesture towards entitlement cuts in the fiscal cliff negotiations was obscured from voter ire as a technical "adjustment"—moving Social Security cost-of-living increases to a chained-CPI standard—and yet at the first whiff of Democratic opposition, Republicans turned and ran like they'd cut the wrong wire on an IED.

"What we learned," as Matthew Yglesias puts it, "is that even with a Democratic President in the White House who's eager to cut spending on retirement programs they still don't get cut. That's how robust the welfare state is." Jonathan Chait has a similar take: "At some point, we will likely face a choice of cutting benefits or raising taxes, and in the face of a simple, zero-sum choice like that, voters would overwhelmingly favor tax hikes."

But Mr Chait goes on to make a different point: while it looks as though entitlement programmes are nearly impossible to cut, just about everything else the government does is much more vulnerable. Everything from food inspections to foreign aid to environmental regulation to legal defence for the indigent to scientific research to the national parks to education to road, rail and air infrastructure to...pretty much everything.

These programmes are diverse and often have small constituencies. There is, basically, a lot of stuff that the government does. And when you ask the public, you find that they want the government to do these things. But public attention is a very limited commodity; it's impossible to actually marshal public attention to each of the individual programmes that get cut when "government" gets cut.

What's happened over the past 30 years, and in an accelerated tempo over the past two years, is that everything the government does apart from wars and transferring money to old and poor people has gotten creamed. The savings are trivial in comparison with the overall long-term debt picture, which is almost entirely a function of Medicare and Medicaid spending.

But the cuts have effectively curtailed the vision of liberals who want government to do things like invest in basic scientific research, improve infrastructure, kick-start green technology and support education. In that sense, it's true, the ability of Republicans to block Democrats from expanding the tax base has been a conservative victory.

Schiff on the Fiscal Cliff

Congress Avoided The Cliff By Selling America Down The River

Peter Schiff

Business Insider,

3 January, 2013

With the possible exception of the New York Times’ editorial board (and the cast of The Jersey Shore), everyone on the planet understood that the United States Government needs to cut spending, increase taxes, or both. Instead, after months of political posturing and hand wringing, the Federal Government has just delivered the exact opposite, a deal that increases spending and decreases taxes. The move lays bare the emptiness of budget legislation, which can be dismantled far easier than it can be constructed.

One question that should be now asked is whether Moody’s Research will finally join S&P in downgrading the Treasury debt of the United States. After the Budget Control Act of 2011 (which resulted from the Debt Ceiling drama) Moody’s extended its Aaa rating, saying in an August 8 statement:

“…last week’s Budget Control Act was positive for the credit of the United States…. We expect the economic recovery will continue and additional budget deficit reduction initiatives will be put in place by 2013. The political parties now appear to share similar deficit reduction objectives.”

Now that Moody’s has been proven wrong, and the straight jacket that Congress designed for itself has been shown to be illusory (as I always claimed it was), will the rating agency revisit its decision and downgrade the United States? Given the political backlash that greeted S&P’s downgrade in 2011, I doubt that such a move is forthcoming.

For now, the real budget negotiations have been supposedly pushed later into 2013, when the debt ceiling will be confronted anew. But who can really expect anything of substance? The latest deal emerged from a Congress that is nearly two years removed from the next election. As a result, Congressmen were as insulated from political pressures as they could ever expect to be. Nevertheless, they still chose political expediency over sound policy. If Congressional leadership (an oxymoron that should join the ranks of “jumbo shrimp” and “definite maybe”) could not put the national interest in front of political interests now, why would anyone expect them to do so later? They will continue to ignore our fiscal problems until a currency crisis forces their hand. I expect deficits to approach $2 trillion annually before Obama leaves office. Unfortunately, at that point the solutions would be far more draconian than anything economists and politicians are currently considering.

In light of the extensions of the popular middle class tax rates, the loudly trumpeted tax increases on those individuals making more than $400,000 (and couples making more than $450,000) will not be enough to translate into higher tax revenues. Instead they will result in perhaps $60 billion per year in new revenue to the Federal government that will be more than offset by the new spending announced in the agreement. In fact, with the likely passage of the $60 billion Hurricane Sandy aid package, it will have taken Congress less than one week to spend all of the projected revenue.

But the tax increases will push many individuals in high tax states like California and New York into paying more than 50% of their income in taxes. While many economists are cautioning that higher taxes on the wealthy will take a bite out of spending, in my opinion it is more likely to result in lower business investment, which is far more detrimental to the economy. When faced with diminishing discretionary income, most rich people would sooner cut back on savings and investment than they would on health care, education, home improvements and vacations.

But it should be clear that the rate increases are just the opening crescendo in a symphony of tax hikes on the nation’s entrepreneurial class. President Obama has recently stated that he will consider needed cuts in spending and entitlement programs only if they are coupled with additional tax increases on the wealthy. In other words, as far as the President is concerned, the hikes included in the budget agreement that was just passed didn’t count for anything.

It cannot, or should not, be denied that Washington’s latest fig leaf will have a major impact on the markets. The New Year’s “relief rally” is understandable given the clear implications that the government will simply print its way out of trouble for as long as it can. In the past, fiscal profligacy was held in check by investors who would sell bonds and push interest rates higher whenever it appeared that the government was not serious about national solvency. But with the Federal Reserve now buying the vast majority of U.S. government debt, no such roadblock exists. With monetary and fiscal stimulus pushing up stock and bond prices, and no immediate fear of a rally-killing spike in interest rates, there is no reason to stay on the sidelines. Markets are now driven by stimulus, not fundamentals, and the stimulus is firmly at the wheel. (For more on this – see the article in the January edition of Euro Pacific’s Global Investment Newsletter). But it is important to look at the nature of the rally. Most significantly we would bring investors’ attention to the increase in gold and oil and other assets that are expected to outperform in an inflationary economy. Our new Newsletter edition also includes an analysis of some of the more promising overseas markets.

But by taking the nominal risk out of investing, the government is insuring that the risks to the U.S. economy will grow exponentially. We are now – and will remain – a debt-fueled economy for as long as the rest of the world permits this to continue. But this is no way to create real, sustainable economic growth. On the contrary, it will simply permit the growth of government, the depletion of economic vitality, and ultimately the collapse of the U.S. dollar.

In the meantime, President Obama and Congressional leaders will take credit for a tax cut that is in reality a huge tax increase in disguise. Government spending is the real source of taxpayers’ pain and it is only a matter of time before the bill comes due in the form of inflation. See our Newsletter for fresh analysis as to why inflation may already be higher than you think. Because the deficits will grow even larger, more purchasing power will be lost in this manner than would have been lost had all the Bush tax cuts been allowed to expire. In addition, though entitlement cuts were taken off the table, the real value of benefits could be slashed, as cost of living adjustments fail to keep up with skyrocketing consumer prices. That’s a Fiscal Cliff that will not be so easy to avoid.

US: Next round, debt ceiling

The stock market is ecstatic this morning – the situation is saved - they've managed to kick the can a few feet down the road

Congress's messy fiscal cliff vote sets stage for showdown over debt ceiling

With Boehner unable to control House's Tea Party Republicans, Obama warns next debate will have 'catastrophic' consequences

the Guardian,

2 January, 2013

The White House and congressional Republicans were gearing up for even bigger economic showdowns after a messy compromise on the fiscal cliff crisis was finally agreed by the House of Representatives

The fiscal cliff deal, passed after days of disarray that highlighted the extent of the partisan divide in Washington, raised taxes on the wealthiest but postponed for two months a decision about $110bn in spending cuts to the federal budget.

The fudge is almost certain to put the White House and Congress at loggerheads again next month or in early March. As well as the looming battle over spending cuts, the two sides also face a stand-off over raising the federal debt ceiling.

President Barack Obama, who arrived back in Hawaii on Wednesday to resume his interrupted holiday, hailed the fiscal cliff deal as the fulfillment of an election promise to raise taxes on the rich.

But he spent little time savouring the moment, instead devoting much of his statement on the congressional vote to the battles ahead.

Expressing his frustration with Republicans in Congress, he warned that failure to raise the debt ceiling would be dire. "The consequences for the entire global economy would be catastrophic, far worse than the impact of a fiscal cliff," he said.

The new 113rd Congress is scheduled to begin work on Thursday, but the November election left its make-up virtually unchanged from its predecessor. The Republicans retain a majority in the House and the Democrats a majority in the Senate.

Larry Sabato, director of the University of Virginia's Center for Politics, is pessimistic, viewing the fiscal cliff showdown as unnecessary and anticipating future collisions. "This whole thing is trumped up," Sabato said. "We've known about the fiscal cliff for 17 months. There's no excuse for what's happened. It's pitiful, and it's going to happen again."

He said the two sides remained polarised. "The parties don't speak the same language. It's very clear that the Republican caucus does not like President Obama personally. There's no deference to an election victory. We always used to have that. You got a bit of a honeymoon and a bit of a mandate when you won an election. And now there's nothing."

Tuesday proved to be an especially bad day for the Republicans. The vote in the House exposed the depth of divisions not only between Democrats and Republicans but within the Republican party. In the House, the bill was passed by 257 to 167, but the breakdown on party lines showed 151 Republicans voting against the measure, with only 85 Republicans in favour of it.

The divide cut through even the party leadership in the House, with speaker John Boehner voting for it, and the majority leader Eric Cantor and the whip Kevin McCarthy, both more conservative figures than Boehner, voting against.

Republicans expressed anger with Cantor and McCarthy for earlier calling on colleagues to rally behind Boehner in voting for the bill and then doing the opposite themselves.

Many Republicans, especially those backed by the Tea party, want to remain ideologically pure, able to go back to their districts saying they had not voted for tax increases.

Boehner's inability to control his own caucus, in particular the Tea party bloc, is one of the reasons politics in Washington has become so divisive. He is up for re-election for speaker soon after the new Congress convenes at noon Thursday, but so far, there is no suggestion that Cantor or any other Republican plans to mount a challenge.

Illustrating the extent to which personal relations have broken down, the Politico website reported a confrontation in the midst of the fiscal cliff negotiations last Friday in which Boehner told the Democratic leader in the Senate, Harry Reid: "Go fuck yourself."

Boehner is reported to have made the comment in the lobby after Reid had publicly said he was more interested in securing re-election as speaker than reaching a deal.

The House passed the bill only after a day of rancorous deliberations, despite the Senate having voted overwhelmingly in favour of it, by 89 votes to eight, in the early hours of the morning.

The bill restricts tax rises to individuals earning $400,000 or more a year and households earning $450,000 or more. Estate tax also rises, to 40% from 35%, but inheritances below $5m are exempted from the increase. Benefits for the unemployed are extended for another year.

AP calculates that for those earning between $500,000 to $1 million a year it will mean an average tax increase of $14,812 and for those earning more than $1 million, $170,341.

Obama, in his statement from the White House, recalled that in the last showdown over the debt ceiling in 2011, the federal government almost shut down. He said that he did not want to repeat that situation and would leave the latest debt ceiling debate to Congress rather than becoming directly involved.

In the end, it is difficult to see how the White House can remain aloof, given the consequences of the US being unable to meet its debt obligations.

The president expressed concern that repeated battles with Congress over the economy will eat into time that he hoped to use to push through his second-term agenda.

"We can settle this debate, or at the very least, not allow it to be so all-consuming all the time that it stops us from meeting a host of other challenges that we face: creating jobs, boosting incomes, fixing our infrastructure, fixing our immigration system, protecting our planet from the harmful effects of climate change, boosting domestic energy production, protecting our kids from the horrors of gun violence," the president said.

US taxes to go up in 2013 regardless of 'fiscal cliff' deal

President Barack Obama wasn’t lying when he said he’d raise taxes on the wealthiest Americans if reelected — but it won’t be just the top wage-earners who will be handing over more to Uncle Sam in 2013

.

Reuters / Stephen Lam

RT,

2 January, 2013

Under a last minute Capitol Hill agreement expected to avert the much-feared ‘fiscal cliff’ disaster that has dominated politics in recent weeks, working Americans across the board will see a little extra of their income collected in the form of a federal tax starting immediately. No matter what your annual salary may be, US workers will have to part with an additional 2 percent of their paycheck in order to cover the cost of Social Security.

While Congress did act in a matter that will keep income taxes from rising on middle-America, in doing so they allowed a temporary reduction in the Social Security payroll tax that was enacted under President George W. Bush to expire. Extensions on that tax break have allowed Americans to hold onto more of their income during the last several years in lieu of sending it to cover the cost of the Social Security welfare program, financed by a 12.4 percent tax on wages up to $113,700. During 2011 and 2012, Bush-era tax cuts kept the share of US workers’ at only 4.2 percent, with employers responsible for the rest. That reduction expired on Wednesday, however, and with no action taken by Congress it will increase to its old standard.

Starting immediately, US workers will lose 6.2 percent of their paychecks in order to fund Social Security. The Associated Press says this will cost a typical American family earning $50,000 annually around $1,000 in 2013.

The Tax Police Center, a nonpartisan think-tank based in DC, expects that the return to the 6.2 percent standard will see an extra $100 billion added to the economy in the new year. According to the AP, that won’t mean too much to lower- and middle-class America, but will impact the paychecks of top wage earners but quite a bit: households earning over $1 million annually will see their taxes increase by around $170,000 because of the expiration.

"If you're rich, you're almost certain to get a big tax increase," Roberton Williams of the Tax Policy Center explains to the AP.

Meanwhile, the majority of Americans will be spared by tax hikes elsewhere. The last minute deal agreed on by the House and Senate will see income taxes go up for individuals making over $400,000 a year and families earning over $450,000. Those wage earners will see their income taxes go up from 35 percent in 2012 to 39.6 percent in 2013.

Even when all is said and done, though, it won’t be an ending that Washington will be able to call a certain success. The Congressional Budget Office says the fiscal cliff deal hammered out this week will add around $4 trillion to the national deficit during the next decade.


From "Mish" Shedlock - 

Republicans Prepare to Wave White Flag Again, This Time On Debt Ceiling; "Temporary, Partial, Non-Threats"

Global Economic Analysis,

2 January, 2013

Having totally collapsed on deficit reductions in fiscal cliff non-negotiations (agreeing to a mere $12 billion in cuts down from an Obama offer of $600 billion), Republicans are already offering signs they will once again wave the white flag when it comes to the alleged battle over the debt ceiling.

Reuters reports Bigger fights loom after "fiscal cliff" deal. 

 President Barack Obama and congressional Republicans looked ahead on Wednesday toward the next round of even bigger budget fights after reaching a hard-fought "fiscal cliff" deal that narrowly averted potentially devastating tax hikes and spending cuts.

Retreat, Retreat, Then Surrender

Let's stop right there for a second. What "hard fight" was there?

It certainly took a lot of time to reach a deal, but there never was much of a fight. Every day Republicans offered more and more concessions until deficit reductions were whittled down to a mere $12 billion or so from a starting point of $600 billion. 

Senate Republicans immediately waved the white flag of surrender as only 5 Republicans voted against the deal. Please see Obama Deal Adds $3.97 Trillion to Deficit Over 10 Years; Only 5 Republicans Voted Against; White-Flag Surrender for details.

This was a pathetic case of retreat, retreat, then surrender, with every retreat making the president more confident he would get his way.

Reuters continues ... 

 [The fiscal cliff agreement] set up political showdowns over the next two months on spending cuts and on raising the nation's limit on borrowing. Republicans, angry the deal did little to curb the federal deficit, promised to use the debt ceiling debate to win deep spending cuts next time.

"Our opportunity here is on the debt ceiling," Republican Senator Pat Toomey of Pennsylvania said on MSNBC, adding Republicans would have the political leverage against Obama in that debate. "We Republicans need to be willing to tolerate a temporary, partial government shutdown, which is what that could mean."

Opportunity to Surrender Again

There is no opportunity here. Read the paragraph carefully to see if you can spot the crucial words. 

In case you missed it, the crucial word is "temporary". More specifically the crucial phrase is "willing to tolerate a temporary, partial government shutdown, which is what that could mean".

The word "temporary" is pathetic enough. But Toomey goes even further, adding the word "partial". 

Temporary, Partial, Non-Threats

Who is supposed to fear a "partial, temporary" shutdown? Anyone?

Sadly, Republicans are already signaling they are prepared for more temporary threats coupled with more permanent can-kicking exercises.

The wimpy language bantered about by Republicans before debt ceiling debate even begins suggests the safe thing to do is prepare for more retreats and more white flags.

Fiscal Cliff deal

Fiscal cliff deal under threat from hardline conservative Republicans

Senate compromise to avert crisis meets hostile reception from Republican majority in House of Representatives

House majority leader Eric Cantor, left, said he does not support the bill while John Boehner, right, is coming up for re-election as speaker and will not want to alienate conservative Republicans. Photograph: Jacquelyn Martin/AP

the Guardian,

1 January, 2013

Congress was thrown into fresh disarray over the fiscal cliff crisis on Tuesday night after House Republicans expressed hostility towards a bill passed overwhelmingly only hours earlier by the Senate.

President Barack Obama had hailed the Senate vote and called on the House of Representatives to act "without delay".

But House Republicans, after two meetings behind closed doors at Congress, were almost unanimous in opposition to the bill, which would raise taxes on the wealthiest. Republicans oppose the rise but their anger is mainly over the failure of the bill to include cuts in federal spending.

On Tuesday night, the Republican House Speaker John Boehner proposed to put two options in front of the House – a straight vote on the Senate bill, or a vote to amend the bill to include spending cuts. The second option would effectively kill the deal as Senate Democrats said they would not consider any amendments.

If the House votes for the Senate bill, the likeliest outcome, the legislation would be place before the markets open on Wednesday.

Obama has been hoping for a deal to be in place to calm Wall Street before it re-opens.

A Democratic Congressman, Steve Cohen, in a speech from the floor of the House, expressed the risk if there is no agreement before the markets open. "My district cannot afford to wait a few days and have the stock market go down 300 points tomorrow if we don't get together and do something," Cohen said.

Hopes that the crisis had been averted rose when the Senate voted 88-9 in favour of the bill in the early hours of New Year's Day.

The Senate bill was intended to bring an end to the fiscal cliff crisis that confronts all American taxpayers with tax rises from 1 January. As well as the tax rises, deep cuts kick in to federal programmes from defence to welfare.

Without legislation, the tax rises and spending cuts stand. The White House has warned this could send the country's fragile recovery into reverse.

House Republicans, in particular hardline conservatives backed by the Tea Party movement, were taking a gamble in opposing the Senate: if the bill fails, they are in danger of being blamed by voters for the resulting tax rises.

Even senior Republicans in the House, in particular the Houe majority leader Eric Cantor, expressed dissatisfaction with the Senate bill, though he stopped short of pledging to vote against it.

The bill passed by the Senate, with 89 senators in favour and eight against, is a messy, short-term deal that raises taxes on the wealthiest but postpones for two months any consideration of spending cuts. The vote came at 2am on Tuesday, too late to prevent the country breaching the midnight fiscal cliff deadline.

The bill confines tax rises to individuals earning $400,000 or more a year and households earning $450,000 or more. It postpones spending cuts for two months, to allow further negotiations. Estate tax also rises, to 40% from 35%, but inheritances below $5m are exempted from the increase. Benefits for the unemployed are extended for another year.

The House presents a much bigger hurdle than the Senate, not only because the Republicans have a majority but because of the presence of a bloc of Tea Party-backed Republicans. The Republicans have 241 members to the Democrats' 191.

Boehner's instinct is towards compromise but he has had trouble keeping the Tea Party bloc under control. Theoretically, he has enough votes to push a bill through, but he is coming up for re-election as speaker and will not want to alienate conservative Republicans. Complicating the situation further, his main rival is Cantor.

The Senate deal was thrashed out in the past few days between vice-president Joe Biden and the Republican leader in the Senate, Mitch McConnell. It partly fulfils one of Obama's election campaign promises: to raise taxes on the wealthiest. But Obama was forced to compromise: he wanted higher taxes to kick in at $250,000 a year.

Democrats too are unhappy with the bill, regarding Obama as having given too much ground and seeing the $400,000 threshold as too high.

The White House dispatched Biden to Congress to persuade liberal Democrats in the House to back the bill. Democrats in the House emerged from the briefing with Biden pledging support, and urging Republican colleagues to accept the bill unamended.

Nancy Pelosi, the Democratic minority House leader, said the legislation sent from the Senate represented a "historic" bipartisan compromise. She also put added pressure on Boehner to allow the measures to go to a vote in the House, noting that he had previously suggested any bill from the Senate would be put in front of Representatives.

"That is what he said, that is what we expect. That is what the American people deserve," Pelosi said.

Hardening the resolve of House Democrats, the congressional budget office on Tuesday said the tax cuts and other measures in the Senate-passed bill would add nearly $4tn to federal deficits over a decade.

UPDATE

House approves Senate's fiscal cliff deal

CNN,

2 January, 2013

Washington (CNN) -- The House of Representatives voted Tuesday night to approve a Senate bill to avert a feared fiscal cliff.

The measure that sought to maintain tax cuts for most Americans but increase rates on the wealthy passed the Democratic-led Senate overwhelmingly early in the day.

There was discussion about amending the Senate bill by adding spending cuts, but in the end, House lawmakers voted on the bill as written -- a so-called up or down vote.

Cole: House will pass Senate fiscal bill Can deal be reached before congress ends? GOP House members blast cliff bill Pelosi: 'Gigantic' progress on talks

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The legislation would raise roughly $600 billion in new revenues over 10 years, according to various estimates.

"I'd say let's take the Senate deal, fight another day," Rep. Tom Cole, R-Oklahoma, told CNN before the House vote. He predicted the House would pass the bill with a "pretty strong bipartisan majority."

"I'm a very reluctant yes," said Rep. Nan Hayworth, an outgoing Republican representative from New York.

"This is the best we can do given the Senate and the White House sentiment at this point in time, and it is at least a partial victory for the American people," she said. "I'll take that at this point."

The timing of the vote was crucial, as a new Congress is set to be sworn in Thursday.

The legislation averted much of the fiscal cliff's negative near-term economic impact by extending the Bush-era tax cuts for the majority of Americans. It also extends long-term unemployment benefits that were set to expire.

Had the House not acted, and the tax cuts enacted last decade expired fully, broad tax increases would have kicked in, as would $110 billion in automatic cuts to domestic and military spending.