What is the Fiscal Cliff?

By Haley Burton

December 5, 2012 Updated Dec 6, 2012 at 11:22 AM EDT

(WBNG Binghamton) While New York works to expand business, innovation and jobs, those efforts could stall if the United States falls off what's called the Fiscal Cliff.

"The fiscal cliff is a combination of tax increases and federal spending cuts that is scheduled to take place at the beginning of January. The average taxpayer’s tax bill would go up by about $3,500 and spending decreases would take place in nearly all areas of the federal government... This would be very, very bad" said Chris Haynes, Director of Undergraduate Studies and Professor of Economics at Binghamton University.

The Fiscal Cliff is a cliff Congress and the President created to pay down the nation’s debt.

If no agreement in Washington D.C. is reached by December 31, decreases would take place in nearly all areas of the federal government from the Food and Drug Administration to National Parks.

"It will affect all Americans. It will certainly affect everyone in the Southern Tier. A particular worry for us will be a cut in defense spending since a lot of the remaining local employers rely on the defense budget," said Haynes.

He explains that generally when spending falls and taxes go up, employment goes down.

"The result of this (Fiscal Cliff) has been estimated to be something like increase the unemployment rate back to where it was at the worst part of the recession, above 9 percent," Haynes said, “Public revenues at the state and local level had been picking up a little bit from where they were in the worst part of the recession and of course this would reverse that. It would mean in addition to people losing their jobs; it would mean further cuts to school districts budgets and local spending."

The Bush-era tax breaks are one area of disagreement when it comes to avoiding the Fiscal Cliff. President Obama wants to let the cuts expire for households making $250,000 or more. However, Republican leaders continue to argue no ones income taxes should increase as part of a deal.

Senator Kirsten Gillibrand says she's hopeful a compromise can be reached between now and the end of the year.

"I'm hopeful they can actually come together and offer something to the American people that will put our fiscal ship in order,” said Gillibrand (D), New York, "What that means is preserving lower tax rates for middle class families, really prioritizing them because these are tough times... We want to make sure Medicare and Medicaid are there for this generation and the next. We have to address it in a reasonable and balanced way which is possible."

Matthew Ryan, the Mayor of Binghamton says he thinks President Obama is drawing a realistic line in his plan. He says the impacts of the Fiscal Cliff will trickle down to local governments.

"People have sometimes criticized me bringing up national issues, budget issues, military spending and those kind of things. They directly impact what's happening. Our CDBG (Community Development Block Grant) budget has down dramatically over the time I've been Mayor. We can't do as many things in infrastructure or making neighborhoods better. All of those things that are important to a city because that funding has gone way down," said Ryan (D).