Fiscal cliff intro: In the United States, the fiscal cliff is a term used to refer to the economic effects that could result from tax increases, spending cuts and a corresponding reduction in the US budget deficit, beginning in 2013 if existing laws are not changed by the end of 2012.

The deficit—the difference between what the government takes in and what it spends—is expected to be reduced by roughly half beginning in the first days of 2013.

This sharp decrease in the deficit in such a short period of time is known as the fiscal cliff.

However, the CBO estimates this sudden reduction will probably lead to a mild recession in early 2013.