As the Thanksgiving holiday approaches, the majority of us are focusing on spending time with our families and finding the best shopping deals for Black Friday. While lawmakers are in their home districts this week, their staff is working in Washington laying out the parameters for a deal on the Fiscal Cliff.

Will they be able to offer us a holiday recipe to avoid higher taxes and major spending cuts?   

Below are the major components of the Fiscal Cliff and what it could mean for the economy. 

TAX INCREASES: A $494 Billion Tax Increase is Possible: The majority of this tax income is derived from three major tax policies set to expire on January 1, 2013: the Bush Tax Cuts, the Payroll Tax Cut and the Alternative Minimum Tax (AMT) patch. The following chart outlines the major tax increases and their corresponding percentage of the new tax revenue to be generated according to The Heritage Foundation’s research. 

Spending Cuts: Spending cuts represent a reduction of approximately $1.2 trillion (evenly divided over nine years: 2013 through 2021) to defense and domestic discretionary spending as directed by the Budget Control Act of 2011. Each political party would face cuts to spending categories that it generally tries to protect – the hope being that both parties will have sufficient incentive to move towards the middle and strike a deal. If not, these spending cuts will become effective January 2, 2013. Cuts for 2013 alone will be $109 billion. Neither party favors sequestration. The pain is meant to pressure legislators into making a budget deal to avoid the cuts.

Exempt Programs: Social Security, veterans’ benefits, Medicaid, Children’s Health Insurance Program (CHIP), unemployment insurance, food stamps and a host of other programs mostly benefitting lower income individuals.

Another factor cited for its potential importance is the impending expiration of Federal Emergency Unemployment Benefits. Federal emergency unemployment benefits for long-term unemployed workers who have exhausted their state benefits (typically 26 weeks) are set to expire at the end of December. These benefits have played a critical role in economic recovery, helping families avoid falling into poverty and spurring continued job growth by keeping dollars flowing into the economy. Allowing benefits to expire while unemployment remains very high would, according to the Economic Policy Institute (EPI), contribute to “the single largest projected economic drag posed by federal fiscal policy.”

Many agree that the combination of tax increases and major cuts in government spending would be extremely harmful to the economy. Though it will not mean immediate disaster, the Fiscal Cliff would probably result in a recession and the return of 9% unemployment according to a broad consensus of economic forecasts.  

During this Thanksgiving weekend, let’s hope that our lawmakers and their staff cook up a resolution to avoid an economic slowdown.