The Americans, bless them, never miss an opportunity to hype a product or an issue. And the so-called "fiscal cliff" is another example of the type of drama that characterizes its noisy policy scape.
The description, coined by the normally circumspect Federal Reserve Chairman Ben Bernanke, has been spun for a year by partisans into a catastrophe. But it's not a cliff and, in fact, it's the beginning of a solution.
The airwaves and pundits are having a field day and the cool, aloof President just strolls past the fray. This is because he "belled the cat" in August 2011 with his eleventh hour deal and its deadline of Dec. 31, 2012, now dubbed the "cliff."
This is how it works: The deadline of Dec. 31, 2012 is when Bush tax cuts end and when $500 billion in automatic tax hikes and spending cuts begin annually -- $100 million a year in Medicare cuts and $100 million in Pentagon cuts. This was agreed to by Congress and Obama in August 2011 to try and force an end to the logjam.
It didn't work and Republicans became intractable in the year leading up to the election.
So the "fiscal cliff" looms, forcing both parties back to the table. The President proposes a mix of spending cuts and higher taxes on the privileged, a principle of "shared responsibility" toward deficit fighting. Republican leader John Boehner is leader of the other, no tax cuts side where the infighting is fierce between its factions.
"Boehner has the toughest job in Washington," Canada's Ambassador to the United States, Gary Doer, told the Economic Club of Canada last week. "One-third of the Republicans are Tea Partiers, one-third are worried about the Tea Party and one-third are traditional dealmakers."
Fortunately, cool hand Luke in the White House had the foresight to impose a deadline on these legislators who have demonstrated that they are as decisive and responsible as Greece's parliament when it comes to collecting taxes. If he hadn't done that and won the country would truly march toward a cliff as its warring factions failed to decide anything.
So what happens if the cliff is breached?
Taxes will revert to the levels collected under the Clinton regime and will yield $500 billion more taxes next year. And defense and Medicare will each have $100 billion sliced off their allotments. That $700 billion represents an economic contraction of roughly 4.7 per cent over the year, enough to put the economy into a recession.
Obviously, that's too much of a cold shower and the likeliest deal will be a more gradual series of cuts and hikes. But a process has been launched and begins a solution to a deficit situation that has dogged the U.S. economic recovery, demoralized the public and paralyzed businesses. The money's been on the sidelines, trillions, in large measure because of the combination of fiscal deficit and governance deficit alike.
Arguably, markets will react favorably to this after the initial Tea Party hysteria subsides. Nobody likes tax increases but these would return to tax levels that still remain among the lowest in the developed world and were in place when the greatest economic expansion in history took place.
It's also possible that the Republicans and Democrats will be irresponsible in which case the economy will contract, as will Canada's too. This would be a short-term problem to fix the finances in the long run, the type of cold shower the British have imposed on themselves.
But it won't be the end of the world. As a Bloomberg headline said this week: "Bernanke Cliff Analogy Overstates Immediate Economic Harm."
Besides that, it's long overdue.
What's missed in the media discussions is an appreciation of the magnitude of these tax breaks -- $500 billion a year, or the size of Switzerland's economy. This means that the richest half of Americans have been spared trillions of dollars in taxes since George Bush handed them these gifts.
And all the yelling and rending of garments is even less justifiable given the fact that this half a trillion in taxes per year returns their tax rates to levels that are still considerably lower than that paid by Canadians or Europeans.
This $500-billion giveaway means that Bush's tax cuts represent the biggest entitlement anywhere by any nation in history to the very people who need it the least. That why it's ironic that Mitt Romney accused 47 per cent of Americans of always voting for Democrats because they give out the most entitlements. Turns out he was correct in one sense: He got 47 per cent of votes from Americans who wanted to keep their half a billion a year tax entitlements.
Frankly, the sooner the cliff is reached the better. The debate is silly, as usual, and tiresome. Everyone knows that the cliff compromise will likely be hikes and cuts but more gradually than is proposed. But if the U.S. goes on a crash diet it may cause other temporary problems, but the patient will eventually survive and thrive.
But the United States is a noisy polity that has always, and will always, stumble and bumble along. It's a wonderful country, but a messy one, and Canadians have much at stake too.
The outcome is predictable, as Winston Churchill, half American himself, once proffered: "You can always count on the Americans to do the right thing -- after they've tried everything else."
