Categories: General Tax Terms
Fiscal Cliff refers to a situation where a series of tax increases and spending cuts are set to automatically go into effect at a specific time, potentially leading to a significant reduction in government spending and an increase in taxes.
This could result in a sharp contraction of the economy, as the combined effect of higher taxes and lower government spending may reduce consumer demand and business investment. An example of a fiscal cliff scenario occurred at the end of 2012 in the United States, where the expiration of tax cuts and the onset of budget sequestration threatened to push the economy into recession if no agreement was reached by lawmakers.
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