Since the U.S. reached the debt ceiling in late 2012 and the country’s credit rating was downgraded for the first time in history, talks of reaching a fiscal cliff have loomed.

The fiscal cliff is a term used to describe what will happen after the start of the new year if there is no budget reform. If Congress does not reach a deal extending tax cuts by the time the Budget Control Act of 2011 goes into effect, taxes will be raised for anyone in the workforce. The result may be another recession.

How can it affect you?

If congress does not reach a deal, $661 billion in new tax hikes will start affecting your first paycheck (a two percent increase) after January 1st. On January 2nd, $78 billion in sequester hikes will begin cutting on some government and private sector workforces, likely causing layoffs and budget cuts.

How can this problem be solved?

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