KANSAS CITY, Mo. - In less than two months, the Bush-era tax cuts and last year’s temporary payroll tax cuts will end.
At the same time, $2 trillion in spending cuts are set to kick in.
If there is no solution, financial advisers worry the fiscal cliff could be detrimental in the short term.
“If Congress fails to come to an agreement on an overall deficit reduction package by the end of the year, everybody's taxes will automatically go up on January 1,” President Barack Obama said.
Failing to come to an agreement could send the U.S. into another recession.
Tom Dexter, financial analyst at Oppenheimer and Co., advises that would be mostly based on the spending habits of the middle class.
“If they're afraid the economy's going to slow down, they may not spend as much, so that snowballs with the economy falling back,” Dexter said.
For those with stocks, a possible fiscal cliff could mean more.
“It affects their taxes if they have dividend income on stocks. If their alternative minimum tax gets a certain rate, it affects them,” Dexter said.
While analysts hope the effects would only be short term, members of congress are hoping the fiscal cliff gives them a chance to finally fix the nation’s tax increases and spending for the long term.
“We need long-term certainty that gives small business owners and employers in our district the liability they need, in order to decide how to plan, and grow, and create jobs,” Congressman Kevin Yoder said. “That means we're going to have to have republican and democratic ideas to get to a solution.”
The worst-case scenario could force the average household to pay an extra $3,500 in taxes a year.
Even if lawmakers do come up with a solution, some analysts predict taxes will go up no matter what.
Copyright 2012 Scripps Media, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
A California vacation takes a bizarre turn for one passenger after he found himself trapped on board his plane after a quick nap.