But the politicians who helped Bush win this "tax relief act" didn't have enough support to make these cuts permanent... the tax relief act "sunsets" in January 2013. This means it goes back to the old tax plan, where taxes were higher. So if it's not extended or amended, taxes will go up in January.
And, in their infinite wisdom, congress also has it set up that "sequestration" will hit at the same time. Sequestration means that if no compromise or real decisions are made to reduce government spending, then deep cuts are made to everything all at once across the board.
So, you have the fiscal cliff, a big increase in taxes and a big cut in spending, both at the same time. Each alone would be a negative on the economy, causing slowing economic growth. Taken together, they'd completely through the economy into decline.
The designers of these threat-laden approaches to budgeting apparently felt they needed such drama in order to get their point across. Nice collegial environment for change and progress, huh?
Damn politicians. Sound like they're behaving like children? You bet! Should we expect more from them? You bet!
Will we actually all go over this fiscal cliff? Everyone hopes we won't. Everyone assumes we won't. It would be disastrous if we did. So the lame duck congress has some real work to do.
My guess is that they'll find some way to avoid the fiscal cliff. But they won't come up with a long term solution. They'll come up with some juvenile and spiteful approach that gives their adversaries as little as possible. But it will be a stumbling step forward.
And then they'll be on to the next squabble.