All that happening at one time is what's called going over the "fiscal cliff."
HOW BAD WOULD IT BE?
Taxes would jump about $2,000 for a middle income family, according to a study by the non-partisan Tax Policy Center. Because consumers would get less of their paychecks to spend, businesses and jobs would suffer.
At the same time, Americans would see notable cuts in some government services; federal workers could be laid off, and companies would lose government business.
The double whammy would push the nation back into recession and cost up to 3.4 million jobs, the Congressional Budget Office predicts.
If the U.S. goes over the cliff, Federal Reserve Chairman Ben Bernanke said Wednesday, "The consequences of that would be felt by everybody."
It wouldn't happen all at once on Jan. 1. The troubles would deepen over the course of the year.
If the year-end deadline passes, the new Congress might still reach a compromise in the early weeks of 2013 to end the crisis and reverse some of the tax increases and spending cuts.
But Bernanke says the economy is already feeling drag from uncertainty about what lawmakers will do, and that they need to act quickly.
CAN'T THEY JUST SAY NO?
Congress and Obama could call the whole thing off, by extending the tax cuts and overturning the automatic spending reductions.
But that would leave the United States heading toward an even bigger precipice: a national debt crisis.
Obama and congressional leaders â¿¿ especially the Republicans â¿¿ say it's time to get serious about fixing budget deficits that have been hitting more than $1 trillion per year. If nothing is done, the U.S. eventually will be overwhelmed by its debt.
Indeed, the automatic spending cuts set for January were created as a last-ditch effort to force Congress to deal with the deficit problem.