The cliff is the punishment for previous failures of a bitterly divided Congress and White House to deal with the government's spiraling debt or overhaul its unwieldy tax code. The Congressional Budget Office estimates that the austerity program would reduce the deficit by $503 billion through the end of next September—or approaching $700 billion for the entire calendar year. CBO says millions of jobs could be lost.
The fiscal cliff includes:
—The expiration of Bush-era tax cuts on income, investments, married couples and families with children and inheritances. In addition, some 26 million additional face the alternative minimum tax next filing season, which would raise their taxes by an average of $3,700. Cost through September: $330 billion.
—A $55 billion, 9 percent cut in the defense budget next year and another $55 billion in cuts to domestic programs, including a 2 percent cut to Medicare providers.
—The expiration of unemployment benefits for the long-term jobless. Cost: $26 billion.
—A sharp cut in reimbursements for doctors participating in Medicare. Cost: $11 billion.
—The expiration of Obama's temporary 2 percentage point cut in payroll taxes. Cost: $95 billion.
—A variety of smaller tax cuts for both businesses and individuals collectively known as tax "extenders." They include a tax credit for research and development and a deduction for sales taxes in states that don't have an income tax. Cost: about $65 billion.
—A need to increase the government's borrowing cap (the so-called debt limit) of $16.4 trillion. The government is expected to hit the cap late this year but the Treasury Department has the authority to juggle certain accounts to buy several more weeks of time so that Congress won't have to act until early next year.