It’s the phrase that will be dominating the airwaves in the days and months to come as the pundits and prognosticators leave the 2012 election behind and turn their attention to dire predictions of economic collapse should the government allow us to tumble over “the fiscal cliff.”

So, exactly what is the fiscal cliff and why is everyone so worried about it?

At its core, this economic event destined to dominate our lives for the foreseeable future is an accident of timing resulting in a one-two punch.

Think of it as the economic version of Hurricane Sandy that ripped through the northeast in the past few weeks. On its own, the hurricane could cause a lot of damage. However, when two additional weather fronts—that just happened to be in the wrong place and the wrong time—combined with the hurricane, Sandy became an exponentially devastating storm, causing loss of life and billions upon billions in property losses.

One hopes that nobody will die as a result of the fiscal cliff. However, it is very serious, indeed.

If economists are correct, the failure to resolve this problem could send the U.S. economy into a severe contraction as money is sucked out of our pockets due to a rise in the tax payments that will be required of the average American family at the very same time less money will be flowing into our pockets due to dramatic cuts in government spending.

It begins with the December 31, 2012 expiration of the Bush tax cuts. These were originally scheduled to expire at the end of 2010 but were extended two years ago in a horse trade between President Obama and the GOP controlled Congress. You may recall the December deal, following on the heels of the Republican wave election victory of 2010, wherein President Obama agreed to continue the tax cuts for all Americans in exchange for Congress agreeing to extend long-term unemployment benefits for the many Americans who were out of work.

Should the Bush tax cuts now be permitted to expire, taxes will go up for most Americans—an increase that would extend to the taxes we pay on our earnings, investments and inheritance along with the removal of a number of tax incentives that have been made available to businesses for things such as research and development.

But the expiration of the Bush tax cuts is just the beginning.

The temporary, two percent reduction in payroll taxes that the Obama administration pushed through so that consumers could have a few more dollars to spend is also scheduled to end on December 31 of this year along with the long term unemployment benefit extension mentioned above.

Adding to the misery is the reality that, beginning on January 1, some 26 million households will again become subject to the alternative minimum tax which is estimated to raise taxes for many Americans by as much as $3,700.

When it is all said and done, the expectation is that the average American household will be paying $2,000 to $3,000 more in taxes each year—leaving them with $2,000 to $3,000 less to spend in our consumer driven economy.

Not a good thing as we struggle to get the economy on a more solid footing.

But we’ve only just gotten started.

While the expiration of all these laws that have provided Americans a measure of tax relief dating back to 2001 will deliver the ‘set up’ punch, the ‘closer’ comes from the sudden and immediate reduction in government spending that hits on January 1—courtesy of the failure of the White House and the Congressional GOP to reach a more reasonable agreement in 2011 to resolve the debt ceiling crisis.

This is the ‘sequester’ you’ve heard so much about.

The cuts hit all areas of the federal budget, including a $55 billion reduction to the Pentagon’s budget in 2013, a reduction of payments to physicians participating in Medicare, substantial cuts to FEMA and the Dept. of Education budget along with a host of serious reductions across the wide ranging operations of the federal government.

What’s more, few players on either side of the political aisle actually like these large budget cuts.

While many welcome spending cuts that will begin to deal with our dangerously high national deficit, the speed and immediacy of these cuts—coming at a time when the economy remains in a precarious position made all the more complicated by the scheduled rise in the tax obligations discussed above—could have a very negative impact on the economy.

Bear in mind that Congress passed the sequester never really intending it to go into effect. The idea had been to create legislation that would produce spending cuts  so distasteful to both sides of the aisle that its mere existence would force everyone involved to come up with a more acceptable deal in order to allow the debt ceiling to rise.

As you will remember, that deal was never achievable, leaving us to face these draconian reductions that hit in January.

When you add up the increased payment of taxes and the cuts in government spending, we are looking at taking somewhere around $800 billion out of the U.S. economy next year—producing the potential for devastating consequences.

So, are we all just toast or is there something that can be done?

Certainly, the fiscal cliff can be avoided.

It simply involves Congress and the White House coming to terms on a deal that will extend the Bush tax cuts for some or for all—along with the possibility of also extending some additional items of tax relief such as the 2 percent payroll tax cuts—for an additional period of time so as to avoid an economic catastrophe resulting from Americans having less money to spend. At the same time, the parties would need to work out an agreement on how to lower our deficit without throwing the economy into a tailspin by abruptly removing too much of the large amounts of money the government spends in our economy each and every year, money that comprises a significant contribution to our GDP.

Of course, it is not really so simple at all given that our political parties disagree on how this should all be done.

President Obama has drawn what appears to be a strong line in the sand, insisting that the Bush tax cuts be extended for everyone except those who earn more than $250,000 a year.

The President believes that the additional money that would flow into the government from the highest earners via slightly higher taxes would allow government to proceed with its plans to cut the deficit without having to go forward with all of the intense and immediate cuts to government services and programs scheduled to take place in 2013. There would still be cuts to the government budget, however, with the increased revenue coming in from the nation’s highest earners, the cuts would not be quite so severe as they would be spread out over a longer period of time, thereby having less of an impact on the total economy.

When you couple a less painful reduction in government spending with Obama’s plan to leave the overwhelming majority of Americans untouched by any tax increases, he believes we can accomplish the goal of starting the process of reducing our deficit without throwing the nation into an economic tailspin.

The Congressional Republicans are insistent that the tax cuts be extended to all Americans, including the highest earners. At the same time, they argue that some new taxes set to go into effect, most particularly some taxes created by the Affordable Care Act, should be repealed in the belief that that these new taxes will put a further strain on business and, therefore, the economy.

The Congressional GOP would also like to see the cuts to the government budget remain significant—however they do not like where some of the cuts being made, most particularly, the cuts to the defense budget. Were the GOP to have its way, the cuts would extend far more into government entitlement programs rather than being placed on the defense side of the spending equation.

Republicans additionally argue that forcing our highest earners —the people Republicans like to call ‘job creators’—to pay more in taxes will have a detrimental impact on business—particularly small business—and that will result in fewer jobs at a time when job creation is priority number one.

These issues are where the battle lines have been drawn.

Clearly, compromise is required if we are to avoid tumbling over the edge of this fiscal cliff. The problem is that the word compromise, once a ten-letter word, has become a four-letter word among many of the more extreme Republicans who have entered the House of Representatives and the Senate over the past few elections. And, to be fair, Democrats are rarely in a compromising mood when it comes to cuts to entitlement programs.

The end result is that our dysfunctional government is about to face one of its most significant tests.

Failure to work towards a compromise will leave every American exposed to the dangers of a reversal in the economy at a time when it appears to finally be getting its legs underneath itself.

But compromise will only come if Americans insist on intelligent, reasonable behavior on the part of our elected officials—behavior that has been sadly missing largely because so much of the American public has given up on the time honored benefits of meeting in the middle.

In recent years, too many Americans have been unwilling to acknowledge that well-intentioned people of different political ideologies have the right to contribute to the discussion, instead believing that a  “my way or the highway” approach is the way to go. Well, we are now coming to the end of that highway and Americans have a choice.

If we open our ears and minds to what our political opponents have to say and recognize that this is their country too, we can create an environment where the politicians will have no choice but to do the same. Remember, if the politicians go down in a blaze of political posturing and spiteful recrimination, they are taking us down with them.

The good news is that you have more to say about this than you think. You and I send these people to Washington and you and I can bring them right back home again if they don’t pay attention.

So let your elected representatives know you are watching. Send them emails encouraging them to be open to compromise. Let them know that you are paying attention and that you do not intend to be forgiving if these boneheads blow up our economy because they cannot behave like grown-ups.

Remember that, despite your own strongly held beliefs and principles, when government properly performs its role, nobody gets everything they want and nobody loses everything they want. And if you find that idea troublesome, try to keep in mind that this is precisely how America became great.

Do that, and this will all have a much happier ending for all Americans.

contact Rick at thepolicypage@gmail.com and follow me on Twitter @rickungar