Unresolved fiscal cliff could raise taxes for 90 percent of U.S. families

Senators in secret meetings about

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(CBS News) Monday marks the first day of the federal government's new fiscal year, but there is not much to celebrate because we are headed toward what's being called a fiscal cliff.

There were dire new warnings Monday about what will happen to American families unless Congress and the president reach a budget deal by December 31. That is the day that several tax cuts will expire, and big cuts in federal spending will take hold.

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Tax experts said 90 percent of American families are facing what they will call "unprecedented tax increases."

According to the non-partisan Tax Policy Center, the U.S. is on the threshold of one of the largest tax increases in history, a tax hike that could average $3,500 for every American household.

Without actions from Congress, the report says taxes will go up next year by 20 percent, or $536 billion overall. It will hit Americans at every income level including those living below the poverty line. For a middle income family making $40,000 per year, the tax increase is $2,000.

The increases are so large because the nation's biggest tax cuts all expire three months from now on New Year's Day. They include the Bush-era federal income tax cuts, the payroll tax cut that lowered Social Security and Medicare taxes, and several remaining stimulus tax cuts. They all go away January 1 unless Congress and the president reach a deal on the budget.

Many economists are concerned that a tax increase of that size will shock the economy and trigger a recession by reducing the cash taxpayers have to spend. But now, Congress and the president have a firm price tag on what it costs if they don't reach a budget deal after the election.

  • Wyatt Andrews
    Wyatt Andrews

    Wyatt Andrews is a CBS News National Correspondent based in Washington D.C. He is responsible for tracking trends in politics, health care, energy, the environment and foreign affairs.