Don’t worry. Be happy. The latest American fiscal cliff – one that Congress this time will almost certainly plunge over – won’t cost you your job.
It will make it harder for you to find a job, if you’re looking for one. And a pay raise? Forget it. Times are tough, and on March 1 they’re going to get tougher. But the United States will survive its self-inflicted trauma, and so will Canada.
If you remember, the United States almost took itself and the rest of the developed world back into recession, last December, when it came within hours of allowing a series of previously mandated tax hikes and spending cuts to go into effect – the so-called fiscal cliff.
After an intense staring match between President Barack Obama and Republicans in Congress, the tax hikes were cancelled for all but the wealthiest Americans, and the spending cuts – called sequestration – were deferred to March 1. March 1 is next week.
Unless Congress and the President can reach a deal to punt the sequester further down the road, a series of sharp budget cuts will kick in across the board, including a 10-per-cent cut for defence spending, 8 per cent for non-defence spending, and 2 per cent for Medicare.
Democrats are demanding a new round of tax hikes for the wealthy to partially replace the cuts. Republicans, already humiliated by the December tax hikes they were forced to permit, adamantly refuse.
Even Republican House Speaker John Boehner acknowledges that the sequester is “an ugly and dangerous way” to tackle the deficit, as he said Wednesday in a Wall Street Journal essay.
But he will not sanction more tax hikes, period. Which is why most observers believe that all or most of the sequester will kick in a week Friday. Meat inspectors, air traffic controllers and border guards will be fewer in number. Military deployments will be postponed and pay cut by 20 per cent. Offices will close and some public servants will be laid off.
But there won’t be a recession. Craig Alexander, chief economist for TD Bank Financial Group, estimates that the $85-billion in spending cutbacks this year – with another $1.1-trillion to come over the next decade – will cost the U.S. economy a percentage point or more of growth, but there will still be growth of around 2 per cent.
The Americans have little choice but to tackle their $1-trillion deficits. “You have to have some kind of fiscal rebalancing,” Mr. Alexander said in an interview. “And when it happens, it will act as a headwind on growth.”
The headwinds of government cutbacks in the United States will blow against the Canadian economy, which is also growing more slowly than it should. Instead of 3-per-cent growth and 6-per-cent unemployment, Canada is experiencing 2-per-cent growth and 7-per-cent unemployment.
So bad times have been followed by not-so-good times. And we will live in those times for several more years.
There are other political storms ahead in Washington: over the budget and, yes, over the debt ceiling once again. Still, as Mr. Alexander observes, the American political system, despite its deep dysfunction, is actually performing reasonably well.
Think about it: When the greatest financial crisis since the Crash of 1929 arrived, Washington responded with a massive stimulus package, known as TARP. Now that growth has finally returned, Congress is turning off the spending tap and bringing the deficit down.
American politicians make a lot of noise doing the job, but they get the job done.
Still, sluggish times are ahead, for the Americans and for us. It’s just that kind of decade: lousy.