How the script for the fiscal cliff melodrama was written.
The fiscal-cliff melodrama has become one of those bad cable reality shows, a sort of “Real Housewives of New Jersey” without the sincerity though not without the plastic surgery. In the latest episode on Friday, the actors met at the White House in a last-ditch attempt to avert the cliff they had created, and that they all claim would be a catastrophe to jump off, but that they hope they can blame on each other if they do.
On second thought, this script would be laughed right off cable.
It’s impossible to assess any last-minute deal before it is struck. But at this point we know there will be a big tax increase of some kind, which will finance more spending but which won’t come close to helping the economy grow faster or reduce America’s debt. The only question is the extent of the policy damage.
So for today we thought we’d explain again how we got to this sorry pass. The mistakes are political and bipartisan. But they are also intellectual, which means there is some hope to avoid them in the future if we learn the right lessons.
The first mistake goes back to the original compromises to pass the Bush tax cuts of 2001 and 2003. Those lower tax rates are expiring now because they weren’t made permanent then. The 2001 tax cut was for 10 years and the 2003 tax cuts were for five years, and later they were extended a year or two at a time, in order to satisfy arcane budget rules that didn’t require 60 Senate votes.
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