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Congress and the White House plan to resume talks on the so-called “fiscal cliff” after the Thanksgiving holiday. The talks began last week and are intended to address $600 billion of budget cuts and tax increases that will automatically take effect after December 31st.

Analysts have named the trigger cuts and taxes a “fiscal cliff,” implying that if they go into effect, they will drive the US economy over the edge into a second recession. However, the cuts and taxes were put into place by lawmakers themselves as part of the Budget Control Act of 2011 which emerged from last summer’s debt ceiling showdown between Republicans and Democrats.

The main point of contention now lies over taxing super-wealthy Americans. In the days following President Obama’s re-election Republican House Majority leader John Boehner took what many considered a conciliatory tone, offering to accept some tax revenue increases. However, he has made it clear since that such revenue increases would have to come through closing loopholes rather than increasing taxes on the rich. Democrats, including House Minority leader Nancy Pelosi and President Obama himself, have said they will not consider an agreement that does not include increasing taxes on the wealthy.

If no agreement is reached, the so-called Bush era tax cuts will automatically expire. Wealthy Americans now pay significantly less in taxes since President George W Bush put in place a series of controversial temporary tax cuts. However, payroll taxes on middle class Americans will also increase, and the Pentagon will face a leveling of its budget.

GUEST: Dean Baker, co-director of the Center for Economic and Policy Research in Washington, DC; he has written a number of books including Plunder and Blunder: The Rise and Fall of the Bubble Economy and False Profits: Recovering from the Bubble Economy.

Visit www.cepr.net for more information.