Definition of Fiscal Cliff

What is the "fiscal cliff"? What is the definition of the term "fiscal cliff"?

The term "fiscal cliff" refers to the simultaneous spending cuts and tax increases that are slated to take place at the end of 2012.

For instance, the Bush tax cuts are currently scheduled to expire at the end of 2012. In addition, provisions that limit the reach of the AMT and cut payroll taxes are also scheduled to expire at the end of the year.

On top of that, automatic spending cuts, as per the language laid out in the Budget Control Act of 2011, are also currently planned for the 2013 fiscal year.

While the tax increases and spending cuts would reduce the size of the national deficit, most economists feel as though the sudden changes would plunge the country into another recession, especially given the fact that the country has been so dependent on fiscal stimulus over the past number of years.

For that reason, many politicians want to avoid the "fiscal cliff" that is currently looming in the distance.

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