In the United States, the fiscal cliff is a neologism referring to the effect of a number of laws which if unchanged, could result in tax increases, spending cuts, and a corresponding reduction in the budget deficit which could significantly reduce economic growth beginning in 2013. These laws include tax increases due to the expiration of the so-called Bush tax cuts and across-the-board spending cuts under the Budget Control Act of 2011.
The year-over-year changes for fiscal years 2012–2013 include a 19.63% increase in tax revenue and 0.25% reduction in spending.
Some major domestic programs, like Social Security, federal pensions and veterans' benefits, are exempted from the spending cuts. Spending for federal agencies and cabinet departments, including defense, would be reduced through across-the-board cuts (referred to as budget sequestration).
The Congressional Budget Office reported an increased risk of recession during 2013 if the deficit is reduced suddenly, while indicating that lower deficits and debt over time improve long-term economic growth prospects. The deficit for 2013 is projected to be reduced by roughly half, with the cumulative deficit over the next ten years to be lowered by as much as $7.1 trillion or about 70%.