US politics: cliffhanger

The first thing to say about America's fiscal cliff is that it is no such thing. It is a scare story, in which the stroke of midnight at new year instantly ushers in sufficient taxes and spending cuts to provoke a deep recession. Chuck in panic on Wall Street and sclerosis in Washington and you get to the "fiscal disaster", predicted by one TV network, or the "imminent armageddon" foreseen by another.

If the name of the game is two-word epithets, the phrase for such claims is: hyperbolic nonsense. True, the tax cuts made in 2001 by George Bush expire with 2012, and higher social security rates would hit the typical worker for about $50 a month. True, too, "discretionary" spending on everything bar Medicare, Medicaid and social security will be up for the axe, and the immediate ending of unemployment benefits for 2 million people would be a particular blow for the vulnerable. If politicians do nothing about this for all of 2013, the economic damage will be severe:the congressional budget office estimates that GDP would shrink by 0.5%, while the jobless rate could rocket from 7.7% to over 9%.

But this is no cliff-edge into the abyss. The CBO's forecasts only apply if all the fiscal pain runs through the year, a scenario no one envisages. The metaphor is wrong. Rather, there is a slope, which begins gently. Many effects will be cumulative, so that if Washington reaches an agreement a couple of weeks after the start of the new year, the typical American family will barely notice – especially if tax rates are returned to 2012 levels, and they are refunded the difference. Nor does Barack Obama have to wield the spending axe on 1 January.

None of this is to deny that the US faces long-term budgetary challenges. Any country's social contract inevitably grows tangled over time, and the labyrinthine US social security could do with reform. But bundling them all up with a hard-and-fast deadline helps only those Republicans eager to shrink the state.

How Mr Obama plays this fight will set the tone for his next term. So far, the signs have been encouraging: he's held fast to his stance that only tax cuts for the top 2% of earners should expire. Since Republicans don't like being forced into the opposite corner, this promises to be a win for the Democrats. But following the debt-ceiling debacle, the fiscal-cliff debate is Washington's second epic game of budget brinkmanship within a year.

Divisions in America's politics, as in its unequal society, have been widening, leaving governance more prone to breakdown. This week, however, both sides have received new proposals from one another, raising a glimmer of hope that Tea Party extremism may be waning. Churchill believed Americans would do the right thing – after they'd tried everything else. Let us hope that this remains so.