US: No New Start for Obama

Obama failed to delver improvements for working people

President Barack Obama’s second-term inauguration (20-21 January) did not inspire the mass enthusiasm aroused by his first inauguration in 2009. There is widespread disillusionment with Obama, who helped save big business after the 2007 slump but has failed to deliver improvements for working people.

Around 600,000 turned out for the ceremony on 21 January, less than half the 2009 turnout. The first time round, Obama rejected business finance for the inauguration, but this time he appealed to big business to cover the $30-50 million cost of the celebrations. His appeal “attracted some industry giants with multi-million dollar federal contracts and other business opportunities tied to the US government”. (USA Today, 10 January) Six corporations, including Microsoft and the telecoms giant, AT&T, contributed.

This article was first published in Socialism Today, magazin of the Socialist Party (CWI England & Wales)

Obama gained a second term mainly on a wave of fear of the attacks that would be launched under a Mitt Romney presidency and complete Republican control of Congress. Romney and his allies, drawn from the right wing of the Republican Party, could hardly have been more blatant in their support for reactionary social policies (especially regarding abortion) and economic measures favouring the super-rich.

Since August 2011, Republicans had been using obstructive tactics to block fiscal measures proposed by Obama. Had a deal not been put through Congress by the time the Bush tax cuts expired on 31 December, US capitalism would have been pushed over the edge of the so-called ‘fiscal cliff’. Failure to agree would have meant tax increases for the majority of the population, and automatically triggered massive, across-the-board spending cuts of around $110 billion. This would probably have tipped the US into a new downswing, with dire repercussions for the global economy.

In the event, the Republicans, after many rounds of bitter wrangling, agreed a deal. These shenanigans are symptomatic of the dysfunctional character of the US government from a capitalist point of view. Economic policy consists of a series of short-term fixes, the postponement of key issues, and general uncertainty of future measures.

Obama and his supporters claimed the pact was a victory, mainly because it included tax increases for the super-rich, when right-wing Republicans and the Tea-Party caucus had previously said they would reject any tax increases whatsoever. Moreover, the pact did not include major spending cuts (which will undoubtedly come later). To conclude the deal, however, Obama had to make major concessions to the Republicans (and their big-business backers).

George W Bush’s tax cuts will continue for individuals with an annual income of less than $400,000 and households with $450,000. But Obama’s threshold, which he had hammered in the last stages of his election campaign, was $200,000 and $250,000. Through these increases, Obama will only get about $600 billion of revenue increases compared to the $1.6 trillion he initially proposed. He also made concessions on tax breaks for super-rich individuals and corporations, and on the inheritance tax.

Obama has extended some provisions which particularly benefit workers. The earned income tax credit, child tax credit and extended unemployment insurance have all been extended for a year (though, in contrast, most of the tax measures are permanent).

At the same time, however, Obama adopted a payroll tax measure that will hit all workers. (The payroll tax finances Social Security, the US federal state pension system.) The deal will allow Bush’s 2% cut in payroll tax to expire. “That will reduce the purchasing power of workers by $115 billion, or roughly $1,000 per working household”. (The Economist, 5 January) The Tax Policy Centre estimates that, as a result of this measure, 77% of Americans are likely to pay more to the federal government this year.

The package will act as a drag on the economy. “Combined with higher taxes on the rich and previously agreed federal spending cuts, federal fiscal tightening will… amount to 1-1.5% of GDP in 2013, with most of that contraction felt in the first half of the year”. (The Economist) “The market likes the fiscal-cliff tax deal”, reported Business Week (2 January). Yet, in the House of Representatives, a majority of Republicans voted against the pact (151 to 85).

On the other side, Obama came “under withering criticism from some in his liberal base who accused him of caving in to Republicans by not taxing the rich more”. (New York Times, 1 January) A New York Times editorial (31 December 2012) noted that, “as this deal shows, [Obama] often compromises at the last minute”. Bill Clinton’s former labour secretary, Robert Reich, commented that Obama is “still the same president Obama who wants a deal above all else and seems willing to compromise on even the most basic principles”. (New York Times, 1 January)

The fiscal pact is yet another stopgap measure. The ‘sequester’ (automatic spending cuts if no budget deal is concluded) and the US debt limit are still outstanding. Republicans have recently indicated that, contrary to their previous threats, they will not automatically oppose raising the debt limit in the next couple of months. But they will undoubtedly be demanding massive spending cuts as the basis for any agreement.

The majority of Republicans have a simple agenda (shared by some Democratic leaders). They want to roll back federal spending, providing scope for massive tax cuts for corporations and the super-rich. They also want the privatisation of Social Security (the pensions system) and Medicare (the health system for pensioners).

The forces behind the drive to slash social spending and cut taxes are shown by Fix the Debt, a group of business executives and former legislators (both Republican and Democrat) “who have become Washington’s most visible and best finance advocates for reining in the federal deficit”. (Nicholas Confessore, Public Goals Private Interests, New York Times, 9 January) Fix the Debt has launched another national advertising campaign and set up grassroots groups around the country. Yet the organisation is financed by big-business interests, and most of the Fix the Debt leaders are also highly paid “lobbyists, board members or executives for corporations”. For instance, Jim McCrery, a former Louisiana congressman (Republican), is also a lobbyist for General Electric. Sam Nunn, a former Democratic senator, is paid over $300,000 as a General Electric board member.

Commenting on the way Fix the Debt operates, Kevin Connor (Public Accountability Initiative), says: “It’s easier to get face time in Washington as a deficit hawk than as a corporate hack. They are spending millions, but they are protecting billions in defence contracts and tax giveaways that would otherwise be on the chopping block”.

The fiscal pact agreed at the start of the year will not resolve the conflict over spending and taxation. Despite his mandate, his clear win in the elections, Obama will face intransigent opposition from Republicans in Congress. Workers, however, cannot rely on the Democrats, a second, if marginally more liberal party of big business, to protect their vital interests. Obama claims his second term will be “a new start”. But disillusionment will spread and deepen, and more and more people will be drawn to the idea of a new party of the left, independent of big business, which will fight for working people.

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January 2013