What is the "fiscal cliff"? - WAOW - Newsline 9, Wausau News, Weather, Sports

The fiscal cliff is a problem our government is currently facing. It's essentially a set of drastic tax increases and spending cuts, and it's something that could become a reality on Jan. 1.

That is, unless Congress and the president can compromise.

"I think that they set this up so that it would be so drastic that it would almost force them to come to some sort of agreement," Randy Cray, UWSP Chief Economist said.

The fiscal cliff scenario was created last year to get the federal deficit under control. It's made up of extreme tax increases and spending cuts.

As the AP reports, a middle-income household would see taxes go up by an average of $2,000.

Washington politicians can avoid it by coming up with another plan. But that hasn't happened yet.

"If a compromise could be reached, to do some reasonable changes and come to some agreement, more graduated and measured way to bring down the deficit," Cray said.

But economic experts say the fiscal cliff isn't as dramatic as it sounds.

"It's not like we're just going to drop off the edge, this will be something that slowly affects the economy," Cray said.

But it would affect the economy and experts say that would likely sending it back into a recession.

"Cuts in things like Medicare, defense spending, that's a huge amount of money," Cray said.

Unemployment would also probably rise above nine percent. But experts say all this can be avoided if democrats and republicans will simply work together.

President Obama is expected to sit down with leaders of congress on Friday, to try again to find a compromise.