5 Things That Could Happen if We Go Over the Cliff

PHOTO: Speaker of the House John Boehner, R-Ohio, arrives at the Capitol as Congress faces pressure to find a legislative path to head off the automatic tax hikes and spending cuts set to take effect Jan. 1, in Washington, Monday, Dec. 31, 2012.

As the clock ticks down to midnight, time is running out for Republicans and Democrats in Congress to reach a deal to prevent the United States from going over the "fiscal cliff." The effects will be widespread and felt by nearly everyone in the country if no deal is reached. Here are five ways you could be impacted if the nation's top lawmakers fail to reach an agreement.

1. Possible recession: Economists have warned that the tax hikes and spending cuts set to take effect if the nation goes over the cliff could trigger a recession. The Congressional Budget Office has estimated unemployment could rise above nine percent, and economic output could shrink.

2. Delay in state tax refunds: It will be difficult for many people to file a state tax return, and no one will receive a refund until they've filed their return. While most states have their tax policy set, many states have tax policy that is so intertwined with federal tax policy it is nearly impossible to file state returns until Congress sorts out federal policy. And more than half of all state income tax filers get a refund, so the impact on businesses and individuals alike would be widespread.

3. Tax cuts: A series of Bush-era tax cuts will expire, as well as provisions designed to encourage charitable giving. The cuts will impact nearly everyone in the country. Taxes will go up by nearly $3,500 dollars for the average American family, according to the Tax Policy Center at the Brookings Institution. On top of that, a series of tax increases will go into effect to pay for provisions of the 2010 healthcare law. The increases will affect individuals making more than $200,000 and couples making more than $250,000 unless Congress decides to change that threshold.

4. Spending cuts: More than $100 billion in spending cuts will go into effect at the beginning of January if no deal is reached. The cuts impact federal programs across the board, but about half come from national defense programs. The fiscal year starts Oct.1, meaning we're a quarter of the way through fiscal year 2013. The cuts will have to come from the remaining nine months of fiscal year 2013.

5. Debt ceiling: The current debt limit is more than $16 trillion, but that will likely need to be raised if no action is taken. Raising the limit requires a vote in Congress, which could mean another showdown between Republicans and Democrats and volatility in markets across the globe.

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