The U.S. Congress was frantically trying to find a way out of what was termed the “fiscal cliff” on New Year’s Eve. The compromise deal, finally reached at around 2 a.m. on Jan. 1, 2013, foresaw measures to increase tax revenues amounting to $600 billion over ten years - about one fifth of the revenue that would have been raised had no legislation been passed - and to delay automatic cuts in federal spending for two months. It included the first income-tax rate increase in 20 years, and raised the threshold to $450,000, higher than Obama had promised. The bill came after days of negotiations between Congress and the Obama administration. While Democrats criticized the bill for not raising taxes on the wealthy more, Republicans criticized it for raising tax rates at all and not providing clear spending cuts.
The deal momentarily eased market concerns. From the beginning of his presidency, Obama has focused on economic recovery while stressing equality among tax-payers. Like much else, the problem dates back to the Bush era, when the then-president initiated tax cuts in 2001 and 2003. Although the legislation was presented as tax reform, it was not made permanent; each round of cuts was designed to expire at the end of 2010 in order to conform to budget rules. In late 2010, Congress extended the tax cuts for two years.
On the other side, as part of last summer’s deal to raise the debt ceiling, the Congress agreed to form a committee to start cutting $1.2 trillion in federal spending over a decade. If the committee had failed, $1.2 trillion in automatic spending sequestration would have taken effect in nine years. Since the sequestration slashes indiscriminately across government programs, many outcries were raised from Medicare to Homeland Security and Defense. The estimates are that the sequestration would create $55 billion cuts each year on defense related discretionary spending. Although the deal on Tuesday allowed Obama to protect the middle classes from tax rises, he only gained two months to come up with a new plan for federal cuts.
The economic and social dimensions of the deal are certainly important. But, if the deep cuts in federal spending are implemented across the board, it would also put constraints on the U.S.’s ability to project force internationally. The most significant outcome would be a reluctance to pursue an active foreign policy where U.S. interests are not directly threatened. In other words, “responsibility to protect” actions and moves to uphold international law would be affected. This would not lead to isolationism, as some expect, but U.S. foreign policy would have to take a more reactive stance around the world and would be much more selective in offering solutions to international disputes.
Given Obama’s preference to focus on South Asia in his second term, this would mean less U.S. action in the Middle East in the forthcoming years. As a solution would necessitate an infusion of further funds, the Palestinian-Israeli dispute will be kept as it is without much attempt for solution. Much of the aftereffects of the Arab Spring
will also be dealt with haphazardly. As the U.S. wishes to avoid the burden of another war on its economy, the Obama administration will continue to look for a diplomatic solution on Iran, rather than an end-game that includes the use of force. The civil war in Syria and a potential one in Iraq will most likely be left simmering for another year.
While the U.S. might still prefer to be active in international affairs with a sharing of the burden of responsibilities with other (Western) countries, no volunteers would be forthcoming. However, the result of less U.S. interventionism might end up being more international crises, rather than less, and we may not like what we find at the end.