What is the fiscal cliff? Some $607bn (£376.5bn) of cuts and tax rises will occur, including reductions in the defence budget, the end of an employee tax holiday - which would result in a 2pc increase for workers, changes to Medicare allowances and higher personal taxes. If these jolts to the economy are allowed to occur, a recession could follow, economists have forecast. If Congress and Obama do nothing by the deadline of December 31, taxes will rise for most Americans. Rates will go up to 15, 28, 31, 36 and 39.6pc from the present 10, 15, 25, 28, 33 and 35pc. Mr Obama and the Democrats want to prevent this by extending the Bush tax rates again, but only for income below $200,000 per individual, or $250,000 per family. For income above that level, they seek a return to the higher, pre-Bush tax rates.