WASHINGTON — Efforts to save the nation from going over a year-end "fiscal cliff" were in disarray as lawmakers fled the Capitol for their Christmas break. "God only knows" how a deal can be reached now, House Speaker John Boehner declared.

President Barack Obama, on his way out of town himself, insisted a bargain could still be struck before Dec. 31. "Call me a hopeless optimist," he said.

A look at why it's so hard for Republicans and Democrats to compromise on urgent matters of taxes and spending, and what happens if they fail to meet their deadline:

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NEW YEAR'S HEADACHE

Partly by fate, partly by design, some scary fiscal forces come together at the start of 2013 unless Congress and Obama act to stop them. They include:

_ Some $536 billion in tax increases, touching nearly all Americans, because various federal tax cuts and breaks expire at year's end.

_ About $110 billion in spending cuts divided equally between the military and most other federal departments. That's about 8 percent of their annual budgets, 9 percent for the Pentagon.

Hitting the national economy with that double whammy of tax increases and spending cuts is what's called going over the "fiscal cliff." If allowed to unfold over 2013, it would lead to recession, a big jump in unemployment and financial market turmoil, economists predict.

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WHAT IF THEY MISS THE DEADLINE?

If New Year's Day arrives without a deal, the nation shouldn't plunge onto the shoals of recession immediately. There still might be time to engineer a soft landing.

So long as lawmakers and the president appear to be working toward agreement, the tax hikes and spending cuts could mostly be held at bay for a few weeks. Then they could be repealed retroactively once a deal was reached.

The big wild card is the stock market and the nation's financial confidence: Would traders start to panic if Washington appeared unable to reach accord? Would worried consumers and businesses sharply reduce their spending? In what could be a preview, stock prices around the world dropped Friday after House Republican leaders' plan for addressing the fiscal cliff collapsed.

Federal Reserve Chairman Ben Bernanke has warned lawmakers that the economy is already suffering from the uncertainty and they shouldn't risk making it worse by blowing past their deadline.

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WHAT IF THEY NEVER AGREE?

If negotiations between Obama and Congress collapse completely, 2013 looks like a rocky year.

Taxes would jump $2,400 on average for families with incomes of $50,000 to $75,000, 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 feel cuts in government services; some federal workers would be furloughed or laid off, and companies would lose government business. The nation would lose up to 3.4 million jobs, the Congressional Budget Office predicts.

"The consequences of that would be felt by everybody," Bernanke says.

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THE TAXES

Much of the disagreement surrounds the George W. Bush-era income tax cuts, and whether those rates should be allowed to rise for the nation's wealthiest taxpayers. Both political parties say they want to protect the middle-class from tax increases.

Several tax breaks begun in 2009 to stimulate the economy by aiding low- and middle-income families are also set to expire Jan. 1. The alternative minimum tax would expand to catch 28 million more taxpayers, with an average increase of $3,700 a year. Taxes on investments would rise, too. More deaths would be covered by the federal estate tax, and the rate climbs from 35 percent to 55 percent. Some corporate tax breaks would end.

The temporary Social Security payroll tax cut also is due to expire. That tax break for most Americans seems likely to end even if a fiscal cliff deal is reached, now that Obama has backed down from his call to prolong it as an economic stimulus.

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THE SPENDING

If the nation goes over the fiscal cliff, budget cuts of 8 percent or 9 percent would hit most of the federal government, touching all sorts of things from agriculture to law enforcement and the military to weather forecasting. A few areas, such as Social Security benefits, Veterans Affairs and some programs for the poor, are exempt.

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THERE'S MORE AT STAKE

All sorts of stuff could get wrapped up in the fiscal cliff deal-making. A sampling:

_ Some 2 million jobless Americans may lose their federal unemployment aid. Obama wants to continue the benefits extension as part of the deal; Republicans say it's too costly.

_ Social Security recipients might see their checks grow more slowly. As part of a possible deal, Obama and Republican leaders want to change the way cost-of-living adjustments are calculated, which would mean smaller checks over the years for retirees who get Social Security, veterans' benefits or government pensions.

_ The price of milk could double. If Congress doesn't provide a fix for expiring dairy price supports before Jan. 1, milk-drinking families could feel the pinch. One scenario is to attach a farm bill extension to the fiscal cliff legislation – if a compromise is reached in time.

_ Millions of taxpayers who want to file their 2012 returns before mid-March will be held up while they wait to see if Congress comes through with a deal to stop the alternative minimum tax from hitting more people.

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CALL THE WHOLE THING OFF?

In theory, Congress and Obama could just say no to the fiscal cliff, by extending all the tax cuts and overturning the automatic spending reductions in current law. But both Republicans and Democrats agree it's time to take steps to put the nation on a path away from a future of crippling debt.

Indeed, the automatic spending cuts set for January were created as a last-ditch effort to force Congress to deal with the debt problem.

If Washington bypassed the fiscal cliff, the next crisis would be just around the corner, in late February or early March, when the government reaches a $16.4 trillion ceiling on the amount of money it can borrow.

Boehner says Republicans won't go along with raising the limit on government borrowing unless the increase is matched by spending cuts to help attack the long-term debt problem. Failing to raise the debt ceiling could lead to a first-ever U.S. default that would roil the financial markets and shake worldwide confidence in the United States.

To avoid that scenario, Obama and Boehner are trying to wrap a debt limit agreement into the fiscal cliff negotiations.

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SO WHAT'S THE HOLDUP?

They're at loggerheads over some big questions.

Obama says any deal must include higher taxes for the wealthiest Americans. Many House Republicans oppose raising anyone's tax rates. Boehner tried to get the House to vote for higher taxes only on incomes above $1 million but dropped the effort when it became clear he didn't have the votes.

Republicans also insist on deeper spending cuts than Democrats want to make. And they want to bring the nation's long-term debt under control by significantly curtailing the growth of Medicare, Medicaid and Social Security – changes that many Democrats oppose.

Obama, meanwhile, wants more temporary economic "stimulus" spending to help speed up a sluggish recovery. Republicans say the nation can't afford it.

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IT'S NOT JUST WASHINGTON

Seems like they could just make nice, shake hands and split their differences, right?

But there's a reason neither side wants to give ground. The two parties represent a divided and inconsistent America. True, Obama just won re-election. But voters also chose a Republican majority in the House.

Republican and Democrats alike say they are doing what the voters back home want.

Neither side has a clear advantage in public opinion. In an Associated Press-GfK poll, 43 percent said they trust the Democrats more to manage the federal budget deficit and 40 percent preferred the Republicans. There's a similar split on who's more trusted with taxes.

About half of Americans support higher taxes for the wealthy, the poll says, and about 10 percent want tax increases all around. Still, almost half say cutting government services, not raising taxes, should be the main focus of lawmakers as they try to balance the budget.

When asked about specific budget cuts being discussed in Washington, few Americans express support for them.

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THE COUNTDOWN

Time for deal-making is short, thanks to the holiday and congressional calendars. Some key dates for averting the fiscal cliff:

_ Lawmakers aren't expected to return to the Capitol until after Christmas, leaving less than a week to vote on a compromise before year's end.

_ Obama and his family also left town for a Christmas vacation in Hawaii. The president said because the fiscal cliff was still unresolved, he would return to Washington this week.

_ If lawmakers reach Dec. 31 without a deal, some economists worry that the financial markets might swoon.

_ The current Congress is in session only through noon Eastern time on Jan. 3. After that, a newly elected Congress with 13 new senators and 82 new House members would inherit the problem.

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Associated Press writers Jim Kuhnhenn, Alan Fram and Andrew Taylor and Director of Polling Jennifer Agiesta contributed to this report.

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Follow Connie Cass on Twitter: http://www.twitter.com/ConnieCass

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  • Military Health Care - $16 Billion

    In his last offer to House Speaker John Boehner (R-Ohio), President Barack Obama lobbied for $16 billion in cuts from the military's health care program, TRICARE. In 2012, the president also proposed hiking fees for military personnel and veterans who receive benefits under the program in an effort to help cut the defense budget. His proposal drew significant fire from Republican lawmakers and veterans' groups.

  • Military Retirement Program - $11 Billion

    Both sides agreed to cuts from the military retirement program. Rep. Eric Cantor (R-Va.) claimed during July 2011 talks that lawmakers had reached a tentative deal to slash <a href="http://www.huffingtonpost.com/2012/11/11/fiscal-cliff-talks-medicare-social-security_n_2113259.html" target="_hplink">$11 billion</a>. Under the current system, military personnel receive immediate retirement benefits after serving for 20 years. According to a recent report from the Congressional Budget Office, the appropriation cost per active military service member has <a href="http://www.cbo.gov/publication/43574" target="_hplink">increased at a higher rate</a> than either inflation or the total pay package of private-sector employees. Given the budget constraints looming before the Defense Department, the CBO floated the idea of transitioning the military retirement program to a matching-payment model.

  • Federal Employee Retirement Program - $33 -$36 Billion

    Cantor claimed that Republicans and Democrats had agreed to <a href="http://www.huffingtonpost.com/2012/11/11/fiscal-cliff-talks-medicare-social-security_n_2113259.html" target="_hplink">$36 billion in savings</a> over 10 years from civilian retirement programs. The president proposed a marginally more modest figure of <a href="http://presspass.nbcnews.com/_news/2012/11/11/15089281-white-house-grand-bargain-offer-to-speaker-boehner-obtained-by-bob-woodward#.UKCJftkTtS8.twitter" target="_hplink">$33 billion</a> in his final offer to House Speaker John Boehner. Just this year, Republicans in the House Committee on Oversight and Government Reform also looked to find savings from the Federal Employee Retirement System by <a href="http://www.washingtonpost.com/blogs/federal-eye/post/house-committee-approves-measure-upping-federal-employee-contributions-to-retirement-plan/2012/04/26/gIQAuoW6iT_blog.html" target="_hplink">requiring employees to pay more of their salary</a> into their pensions, which Democrats opposed as a pay cut that would make civil service less attractive for top talent. In September 2011, the federal government employed <a href="http://www.fedscope.opm.gov/cognos/cgi-bin/ppdscgi.exe?DC=Q&E=/FSe%20-%20Status/Employment%20-%20September%202012&LA=en&LO=en-us&BACK=/cognos/cgi-bin/ppdscgi.exe?toc=%2FFSe%20-%20Status&LA=en&LO=en-us" target="_hplink">over two million individuals</a>, either through the cabinets or independent agencies. Many Republicans have complained that the federal workforce has ballooned during the Obama administration, and while the raw number of employees has risen by <a href="http://www.thefactfile.com/2012/01/23/the-size-of-the-federal-workforce-rapid-growth-for-some-stagnation-for-others/" target="_hplink">14.4 percent</a> between Sept. 2007 and Sept. 2011, the percentage of public employees out of the total civilian workforce has <a href="http://www.thefactfile.com/2012/01/23/the-size-of-the-federal-workforce-rapid-growth-for-some-stagnation-for-others/" target="_hplink">remained fairly constant</a> around 1.2 percent since 2001. Much of the raw growth has been concentrated in the Department of Defense, Veteran's Affairs and Homeland Security.

  • Agricultural Subsidies - $30 - $33 Billion

    Democrats and Republicans agreed to cut as much as <a href="http://www.huffingtonpost.com/2012/11/12/fiscal-cliff-barack-obama-_n_2118739.html" target="_hplink">$30 billion</a> from agricultural subsidies; the main opposition fell along geographical lines rather than partisan ones. Hailing from an agriculture-heavy state, Sen. Max Baucus (D-Mont.) threatened to pull out of talks entirely if a deal included that much in subsidy reduction. The president ended up pushing for <a href="http://www.huffingtonpost.com/2012/11/11/fiscal-cliff-talks-medicare-social-security_n_2113259.html" target="_hplink">$33 billion in cuts</a>, but that figure also included reductions in conservation programs. Baucus now tells HuffPost any cuts should be made through the farm bill, not fiscal cliff talks.

  • Food Stamps - $2 to $20 Billion

    Cantor pushed hard for significant cuts to food stamps, formally known as the Supplemental Nutrition Assistance Program. He charged that the federal government could save as much as <a href="http://www.huffingtonpost.com/2012/11/11/fiscal-cliff-talks-medicare-social-security_n_2113259.html" target="_hplink">$20 billion over ten years</a> by eliminating waste and fraud, but the White House countered that the real number was closer to $2 billion. Instead, those cuts would force the program to scale back on the number of enrollees and the level of benefits it could offer.

  • Flood Assistance - $4 Billion

    Obama proposed cutting <a href="http://www.huffingtonpost.com/2012/11/12/fiscal-cliff-barack-obama-_n_2118739.html" target="_hplink">$4 billion from flood assistance</a> funding in his final offer to Boehner in July 2011. But Hurricane Sandy straining the National Flood Insurance Program; The New York Times <a href="http://www.nytimes.com/2012/11/13/nyregion/federal-flood-insurance-program-faces-new-stress.html?pagewanted=all&_r=0" target="_hplink">reports</a> that thousands of claims are being submitted daily, which could send the overall cost upwards of $7 billion for a program that suffers from a ballooning debt problem. And with climate change promising <a href="http://www.washingtonpost.com/blogs/capital-weather-gang/post/climate-change-predictions-foresaw-hurricane-sandy-scenario-for-new-york-city/2012/10/31/b78de428-2374-11e2-ac85-e669876c6a24_blog.html" target="_hplink">future flooding disasters</a> along the eastern seaboard, cutting the program looks unwise.

  • Home Health Care - $50 Billion

    The president offered to cut <a href="http://presspass.nbcnews.com/_news/2012/11/11/15089281-white-house-grand-bargain-offer-to-speaker-boehner-obtained-by-bob-woodward#.UKCJftkTtS8.twitter" target="_hplink">$110 billion over the next decade</a> from the government's health care spending, excluding Medicare. Among the programs that could lose crucial funding is home health care, where Democrats and Republicans agreed to <a href="http://www.huffingtonpost.com/2012/11/11/fiscal-cliff-talks-medicare-social-security_n_2113259.html" target="_hplink">$50 billion in reductions</a> over ten years. Cantor pushed for closer to $300 billion in spending cuts to health care, but Democrats appeared to stand firm.

  • Higher Education - $10 Billion

    The president proposed cutting <a href="http://www.huffingtonpost.com/2012/11/12/fiscal-cliff-barack-obama-_n_2118739.html" target="_hplink">$10 billion from higher education</a> over the next decade, mostly from Pell grants. <a href="http://www.huffingtonpost.com/2012/08/27/pell-grants-college-costs_n_1835081.html" target="_hplink">Over nine million students</a> relied on federal subsidized loans to afford college during the 2010-2011 school year, and the skyrocketing costs have continued to diminish the purchasing power of the Pell grant program. Obama has actively worked to make college more affordable for lower-income students. Key Republican lawmakers have attempted to cut funding for student loans; most notably, Rep. Paul Ryan (R-Wis.) slashed the maximum award from $5,550 per student per year down to <a href="http://colorlines.com/archives/2011/07/dems_students_fight_to_save_pell_grants_amidst_debt_ceiling_talks.html" target="_hplink">just $3,040</a>.

  • Medicaid And Other Health- $110 Billion

    The original funding levels proposed by Cantor and the GOP leadership would turn the entitlement program for America's poor into little more than a block grant program, Democrats claimed during the 2011 debt ceiling talks. Under such a program, they argued that states would then <a href="http://www.bloomberg.com/news/2012-09-11/medicaid-to-lose-1-26-trillion-under-romney-block-grant.html" target="_hplink">drop more people from enrollment</a> and scale back on health benefits. In fiscal year 2009, <a href="http://www.census.gov/compendia/statab/2012/tables/12s0151.pdf" target="_hplink">over 62 million Americans</a> -- many of them children -- depended on Medicaid for their health care. But the president did agree to <a href="http://presspass.nbcnews.com/_news/2012/11/11/15089281-white-house-grand-bargain-offer-to-speaker-boehner-obtained-by-bob-woodward#.UKCJftkTtS8.twitter" target="_hplink">$110 billion</a> in cuts from Medicaid and other health programs.

  • Medicare - $250 Billion +

    Republicans pushed for a drastic overhaul to the entitlement program for America's seniors. Ryan infamously proposed turning Medicare into little more than a voucher system in which seniors would receive checks to purchase their own health care on the open market -- a plan that would ultimately <a href="http://www.huffingtonpost.com/kennethdavis/medicare-vouchers_b_1947804.html" target="_hplink">force individuals to shoulder more of the burden</a> for their health care costs. Democrats refused to accept changes similar to those in Ryan's plan. The president, however, was <a href="http://www.huffingtonpost.com/2012/11/11/fiscal-cliff-talks-medicare-social-security_n_2113259.html" target="_hplink">more open to other GOP suggestions</a> on Medicare. In his final offer to Boehner, he agreed cut $250 billion over the next ten years -- in part by increasing premiums for higher-income seniors and by raising the eligibility age from 65 to 67 (although over a longer time frame).

  • Tax Reform - $800 Billion - $1.6 Trillion

    Republicans have again and again <a href="http://www.politico.com/blogs/politicolive/0511/Boehner_Medicare_Medicaid__everything_should_be_on_the_table_except_raising_taxes.html" target="_hplink">decried any attempt</a> to raise taxes, either on the highest earners or on corporations. (A Democracy Corps/Campaign for America's Future survey shows that <a href="http://www.ourfuture.org/report/2012114508/cafdemocracy-corps-election-poll-2012" target="_hplink">70 percent of voters</a> support raising taxes on the wealthiest two percent of Americans.) Instead, Boehner has pushed for a <a href="http://www.huffingtonpost.com/2012/11/11/fiscal-cliff-talks-medicare-social-security_n_2113259.html" target="_hplink">comprehensive tax reform bill</a> that would lower the marginal tax rates while closing loopholes and eliminating deductions in order to raise around $800 billion in additional revenues. For many Democrats, <a href="http://online.wsj.com/article/SB10001424127887323551004578117152861144968.html" target="_hplink">that figure simply isn't enough</a>. White House Press Secretary Jay Carney announced Tuesday that the president was aiming for as much as <a href="http://takingnote.blogs.nytimes.com/2012/11/13/showing-backbone-on-the-debt/" target="_hplink">$1.6 trillion in new revenues</a>, and the president told reporters on Wednesday that it would be <a href="http://www.huffingtonpost.com/2012/11/14/obama-tax-cuts_n_2131256.html" target="_hplink">practically impossible</a> to raise the amount of revenue he wanted simply from closing loopholes and lowering rates.

  • Social Security - $112 Billion

    Social Security <a href="http://www.huffingtonpost.com/2012/11/14/fiscal-cliff-social-security_n_2130762.html?utm_hp_ref=mostpopular" target="_hplink">isn't driving the deficit</a>, yet Republicans have <a href="http://www.huffingtonpost.com/2012/11/11/fiscal-cliff-talks-medicare-social-security_n_2113259.html" target="_hplink">pursued drastic changes</a> to the program. Sen. Harry Reid (D-Nev.) has promised that Social Security would be <a href="http://livewire.talkingpointsmemo.com/entry/reid-no-messing-with-social-security" target="_hplink">off the table</a> in the on-going negotiations to avoid the fiscal cliff, but Obama did concede to tying the benefits to a <a href="http://presspass.nbcnews.com/_news/2012/11/11/15089281-white-house-grand-bargain-offer-to-speaker-boehner-obtained-by-bob-woodward#.UKCJftkTtS8.twitter" target="_hplink">recalculated Consumer Price Index</a> that would ultimately provide less money to retirees. Sen. Bernie Sanders claims that, under such a measure, seniors who are currently 65 years-old would see their benefits drop by <a href="http://thehill.com/homenews/senate/267079-reid-assures-sanders-he-wont-agree-to-social-security-cuts-in-debt-deal" target="_hplink">$560 a month in 10 years</a> and by as much as <a href="http://thehill.com/homenews/senate/267079-reid-assures-sanders-he-wont-agree-to-social-security-cuts-in-debt-deal" target="_hplink">$1,000 in 20 years</a>. The Moment of Truth project (led by the two former co-chairs of the president's deficit reduction commission, former Sen. Alan Simpson (R-Wyo.) and former White House Chief of Staff Erskine Bowles) claims that the recalculated CPI could save as much as <a href="http://www.inthesetimes.com/article/11767/the_social_security_cut_washington_does_not_want_you_to_understand/" target="_hplink">$112 billion</a> from Social Security over the next ten years.

  • Tax Loopholes And Deductions - Up To $180 Billion

    Although Cantor and other GOP House members demanded that any deficit-reduction deal brokered in 2011 be classified as <a href="http://www.huffingtonpost.com/2012/11/11/fiscal-cliff-talks-medicare-social-security_n_2113259.html" target="_hplink">revenue-neutral</a>, they were open to closing particular loopholes in the corporate tax code and limiting itemized deductions for individuals -- given that they were offset by other tax cuts. Out of the $50 billion in savings to be found over the next decade from closing loopholes, Cantor proposed getting $3 billion from eliminating the break for corporate-jet owners and another $20 billion from voiding the subsidies for the oil and gas industries. On the individual earner side, he proposed eliminating the second-home mortgage deduction for $20 billion, as well as limiting the mortgage deduction for higher-income households to rake in another $20 billion. He also offered to tighten the tax treatment of retirement accounts. But Democrats wanted to see even greater action taken on itemized deductions. In June 2011, Rep. Chris Van Hollen (D-Md.) proposed raising $130 billion in new revenues by capping itemized deductions at 35 percent for the highest income brackets. The GOP response to his proposal at the time was a resounding "no."

  • Bush Tax Cuts For The Wealthy - $950 Billion

    Set to expire on Dec. 31, 2012, the Bush tax cuts represent one of the most controversial elements of the so-called fiscal cliff. They added over <a href="http://graphics8.nytimes.com/images/2011/07/24/opinion/sunday/24editorial_graph2/24editorial_graph2-popup.gif" target="_hplink">$1.8 trillion to the deficit</a> between 2002 and 2009. Yet Republicans argue that an extension is necessary to create jobs and spur economic growth. But a <a href="http://tpmdc.talkingpointsmemo.com/PDF/0915taxesandeconomy.pdf" target="_hplink">study</a> from the Congressional Research Service found that tax cuts for the wealthiest earners had little economic effect. The White House is pushing for a renewal only of those tax breaks for the lower- and middle-class Americans in order to save the average middle-class family <a href="http://money.cnn.com/2012/10/01/pf/taxes/fiscal-cliff-tax/index.html" target="_hplink">between $2,000 and $3,500</a> next year. Letting the cuts expire for those earning over $250,000 a year -- or the wealthiest two percent of Americans -- would haul in <a href="http://www.offthechartsblog.org/cbo-ending-high-income-tax-cuts-would-save-almost-1-trillion/" target="_hplink">$950 billion</a> in savings over the next decade, according to the CBO. Obama stressed how much the country stood to gain from such an approach Wednesday during a press conference. "If we right away say 98 percent of Americans are not going to see their taxes go up — 97 percent of small businesses are not going to see their taxes go up," he said. "If we get that in place, we're actually <a href="http://www.cnbc.com/id/49821777" target="_hplink">removing half of the fiscal cliff</a>."