The "fiscal cliff" is a term which has been coined to describe a combination of tax increases and spending cuts due to come into effect at midnight on December 31, when the terms of the Budget Control Act of 2011 are due to go into effect.
In 2001, under President George Bush, a raft of "temporary" tax cuts were enacted and are now set to expire on December 31. At the same time a raft of spending cuts are due to take effect.
President Barack Obama, his fellow Democrats and Republicans in Congress agreed at the end of 2010 to extend these rates for two years, but the deadline is now looming.
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.
The lower-paid will lose some child and income credits, while the long-term unemployed will lose their right to continue drawing benefits.
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.