There is a new kind of economic disorder in the United States taking roots in their fiscal policy. It has emerged in the system foreshadowing an economic apocalypse of the US economy, and is known as the Fiscal Cliff.

The implication of the Fiscal Cliff, if left unchecked, will be devastating in nature and highly toxic for the US and global economic stability. The term ‘Fiscal Cliff’ refers to a package of tax increases and spending cuts that may take place due to the expiration of certain laws dealing with tax code and state spending.

In other words, it refers to a stage where economic fortunes may slip down under a deep no-growth trajectory because of laws which will get activated automatically in January.

According to the BBC, on 31 December, a raft of temporary tax cuts is due to expire just as huge automatic spending cuts are introduced. Individuals and companies will be hit simultaneously with tax rises and reductions in government contracts, benefits and support.

BBC further says that some $607 billion of cuts and tax rises are planned, including reductions in the defense budget, the end of an employee tax holiday, changes to Medicare allowances and higher personal taxes.

The ideology of both Republicans and Democrats is asymmetrical when it comes to resolution of the fiscal mess: President Obama proposes a tax increase for the households that earn more than $250,000 per year, but Republicans tend to repeatedly torpedo that proposal. Republicans seem to favor a “no tax rate increase policy,” with some adjustments and corrections in spending programs.

According to Boston.com, Republican Senator Lindsay Graham of South Carolina said “No republican will vote for higher tax rates… We will generate revenue from eliminating deductions and loopholes, but we will insist our Democratic friends reform entitlements – something we’ve never done, and that’s where the big money is at.”

According to CBS News, about $1.2 trillion in federal spending cuts are scheduled to take place next year, and some state-run health care programs for the elderly, such as Medicare, will be affected by a 2 percent reduction in payments.

There come questions about how to jump-start job creation and fuel economic growth while still slashing away at federal deficits. Tax hikes to annihilate deficits may plunder the economy itself; tax increase arrests spending and investment but can positively correlate with a deficit reduction scheme.

Ironically, it all depends on how much importance we attach to ballooning deficits and interest service and how we see growth. If spending is slashed through different programs, like Medicare, it will adversely affect savings among the elderly as it will wipe-out state help, leaving them to rely on whatever means they have.

On the other hand, even if Bush-Era Tax Cuts were to be extended for the next two years, will they be helpful in opening the door for faster economic growth? For the last few years Bush-era tax cuts were in place in the economy along with the low interest rate policy adopted by the US Federal Reserve, but the economy is still coughing. What is needed is to increase taxes if deficit reduction is primary for the economy.

The argument is that it might drag the economy back into a recession, but again a question arises. Are these tax-cuts helpful in getting the economy back on a stable surface?

There is no magic wand that can drain out the federal deficits and growth rate with the same pattern of spending and bush-era tax cuts in place.

Ultimately what can be done to avert the crisis, to shield the US economy falling over the cliff? The resolution is in striking a deal that limits spending (to some extent) and increasing tax rates on households earning more than $398,350. Spending on defense should be lowered dramatically; further laws with sunset provisions must be avoided.

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As the fiscal cliff approaches, the clock starts to tick louder. For those who have yet to understand: the fiscal cliff is a soup of expiring tax cuts scheduled for the end of the year.

The core of the fiscal cliff consists mainly of the cuts passed from 2001 to 2003 under then President George W. Bush. There are also across-the-board cuts: the expiration of measures delaying the Medicare Sustainable Growth Rate, and the expiration of the 2 percent Social Security payroll tax cut, among others.

If the federal government allows this to happen, the effect on a still-weak economy may be drastic, perhaps even sending it back into a recession. On the other hand the fiscal cliff can significantly decrease the federal budget deficit. This brings us to the question of possible positive effects for the economy in the long run.

According to some surveys, about two-thirds of Americans do support reduction of the federal budget deficit, even if it means cutting Medicare and Social Security. Aside from this data, it is quite hard to believe that the majority will eagerly give away their money for seemingly no good reason. It is better to not take into consideration some quavering long-term improvement projections for the common citizen who is not keen on economic analysis.

Unfortunately according to the experts, if Obama and Congress do not avert these legislative changes, America may “fall over the cliff.” It will also mean that taxes will rise the most in the last 60 years or so. The Tax Policy Center reports that middle-income families will pay $2,000 or more in taxes in 2013.

In addition to this, the Congressional Budget Office predicts that about 3.4 million people will lose their jobs. The Unemployment rate of 7.9 percent in October 2012 represents a significant improvement over the October 2009 rate of 10 percent. According to research millions of jobs would be lost after the fiscal cliff. This could result in an unemployment rate of up to 9.1 percent or more.

Some say there is a bright side. The cliff would be a long-term positive, they say. Everybody understands that at some point the U.S. government should deal with the deficit. But in what way and when are the questions. The policy of kicking the can down the road may no longer be effective or will at least become so in the near future. So will the short-term disaster be worth the possible benefits? The truth is, it’s hard to tell.

The Congressional Budget Office estimates that by 2022, the budget deficit would fall to $200 billion from $1.1 trillion now, in the fiscal cliff case scenario. But that is a pretty long shot and in order to get there, the economy would have to face certain financial difficulties.

The bottom line is the cliff will certainly result in the tax rate increases. But the problem is that increasing taxes won’t necessarily increase total tax revenue. The only right way to increase tax revenue is for the economy to recover.

So the bottom line may be that the fiscal cliff doesn’t matter that much any more. The U.S. may have passed the point of no return long ago.  For everyone with average income there is only one thing that can be suggested. Use everybody’s old favorite: cash, not credit. Congress will eventually have to learn this lesson also and finally cut back on a wasteful spending.

If you want to see what your tax life will look after the cliff you can try the links for experienced tax payers or those who want to get a simple answer.

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