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 (tax policies) and postpones dealing with the others (cuts in governmental spending) 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 biggest loser, it is difficult to identify a clear winner. Obama’s spin doctors are striving to present the agreement as a triumph of the presidential 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. Under the presidential proposal new tax would have been paid by about 3 million Americans, now it affects the richest 1.5 million. The White House hoped the tax increase would raise $1.5 trillion over the next decade but according to the current arrangements the state will receive a modest 600 billion. Given the scale of the U.S. debt this is 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 with the rest of society, they may also use this 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 a 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 increasing 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 their country, their incomes might do exactly that. One of the reasons Mitt Romney paid relatively little in his taxes is that part of his fortune has been transferred to Cayman Islands.
Does the above mean the Republicans won? Hardly. During the next two months they will have to persuade the American public 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 on one day in a few weeks, after 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 – the very next morning they will reappear in front of the cameras in wait for appraisals. Some journalists might again express their admiration, yet as it was aptly remarked 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 these problems, which it has itself created”. Given the current US situation, another joke comes to mind: “In 1945 [the year communists took over 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 Liberalna’ (www.kulturaliberalna.pl) and a PhD candidate at the Institute of Sociology, University of Warsaw. During the Michaelmas Term 2012, he was an academic visitor at the Department of Politics and International Relations, University of Oxford.