Democracy

The Fiscal Cliff: American Follies Seen from Abroad

The American president has signed the bill drafted by Democratic and Republican leaders, which allows the United States to avoid “fiscal cliff.” The solution adopted by the Congress does not, however, solve the problem, but only touches some of its elements and postpones dealing with the others for a few weeks. So who won in this dramatic battle, fought late into the first night of the New Year? Choosing the winner depends on one’s point of view, but no matter the viewpoint we take, one thing seems to be certain – the national interest has lost.

Regardless of who we consider to be the main wrongdoer, it is difficult to identify a clear winner. Obama’s spin doctors are striving to present the agreement as a triumph of the administration, since it succeeded in making many Republicans vote in favor of tax increase for the first time in 20 years. For the richest Americans, with annual revenues of more than $ 400,000, the tax rate will rise from 35 percent to 39.6 percent, i.e. to the rates existing under Bill Clinton before George Bush’s cuts. The problem is that President Obama wanted to set up a new tax threshold at $ 250,000 of annual income. That’s a significant difference. The White House hoped the tax increase would bring $ 1.5 trillion over the next decade, but according to the current arrangements the federal government will receive a modest 600 billion. Given the scale of the U.S. debt, it’s not much, and what’s more, this money will only contribute to the U.S. budget, if all the citizens who should pay more actually do. But will they?

The main problem with taxing the rich is that while these are the people who have the most money to share, they also have the most money to find ways to avoid sharing. When a few months ago Mitt Romney (remember him?) revealed his 2011 tax return, it turned out he paid tax rate of 14 percent instead of 35 percent or, to put it in dollars, 1.9 million instead of 4.8 million. If every American taxed at a new rate follows Romney’s example, the increase in state revenue will have virtually no effect on American finances. President Obama used to say that even closing all the loopholes in the U.S. tax system – which ironically enough was something Romney argued for – would not suffice to fix the budget. He is certainly right, but just rising the taxes for the rich, without ensuring they actually pay them, will not do the job either.

When the French president François Hollande announced his will to introduce the 75% tax rate for the richest, it was supposed to affect only a tiny fraction of the French society and only for a “trial period” of two years. Yet the government’s intentions sparked a vehement national debate. Many rich Frenchmen announced they would leave the country, the others – like singers Johnny Hallyday and Charles Aznavour, or actors like Daniel Auteil and Alain Delon – have already left. And even if the American rich do not follow suit in terms of leaving the country, their incomes might do exactly that.

Does the above mean the Republicans won? Hardly. In two months, they will have to persuade the American public that it is necessary cut social benefits for the poor and elderly. Our society is aging, they insist, and soon the government will be unable to meet its obligations. There is some truth in this argument, although it remains a mystery why it is better to cut social benefits rather than military spending at a time when the United States spend more money on defense than the next 10 military powers – such as China, Russia, France, England, Germany and Japan – combined.

So probably in a few weeks, when the night falls over Washington D.C., American legislators will once again sit down to their own version of the game of chicken. When they reach an agreement – because probably some agreement will be reached – in the very morning they will reappear in front of the cameras in wait for appraisals. Some journalist might again express their admiration, yet as was aptly noted by Andy Borowitz in “The New Yorker,” praising Congressmen in this case is like praising an arsonist for putting out his own fire.

In pre-1989 Poland there was a similar joke about the communists in power which said: “The Party solves only those problems, which it has itself created.” There was also another one that comes to mind after congressional negotiations: “In 1945 [the year communists took over the power], Poland was standing on the edge of a precipice. And what happened next? We’ve made a great leap forward”…

*Łukasz Pawłowski is a contributing editor for ‘Kultura Liberalnaand a PhD candidate at the Institute of Sociology, University of Warsaw.