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Forget Mayans: Be Afraid of US Budget Armageddon

Mayan end times prophesies aside, it's Washington's effort to balance its books that might bring about Armageddon.

Don Carstens | Brand X Pictures | Getty Images

Business leaders and politicians worry about the potential for the U.S. economy to absorb a surge of spending cuts and tax increases early next year. Yet the scope of those tax hikes are far reaching.

Additionally, the fiscal cliff is hardly the only blow that an already battered economy could be forced to absorb.

Diving over the so-called cliff means, among other things, an end to the Bush-era tax cuts, which are set to expire on January 1. Virtually every working citizen would see an immediate cut in take home pay — even those not impacted by the Bush-era cuts — as a temporary payroll tax holiday expires, costing $95 billion in 2013 alone.

In the wake of President Barack Obama's reelection last week, political jockeying is already taking place over which tax brackets will see relief (the middle and lower ones), and which will likely face a higher tax bill come next year (those making over $250,000, which includes the much-vilified "one percent"). (Read More: Tax the Rich to Fix 'Fiscal Cliff': Larry Summers.)

In October, a joint analysis by the Urban Institute and the Urban-Brookings Tax Policy center estimated that fiscal cliff tax hikes could be as high as $536 billion. Meanwhile, about $100 billion worth of spending could be knocked off the federal budget next year, which is projected to hit soldiers, defense contractors, senior citizens and low-income earners particularly hard.

The investor class certainly won't emerge unscathed. Part of the fiscal cliff means tax hikes on dividends and capital gains. That could lead some stock investors to cash out of the market in anticipation of higher tax bills, heaping more pressure on a stock market that tumbled about 3% in the wake of last week's election. (Read more: Wealthy Dump Assets in Advance of Cliff.)

Against this backdrop, the Treasury Department is already warning the country is poised to hit its $16.4 trillion debt ceiling, the statutory limit the government is allowed to borrow.

It raises the prospect of yet another messy debt ceiling fight with Congress along the lines of the 2011 battle that led to Standard & Poor's stripping the U.S. of its prized AAA credit rating.

Meanwhile, with Obama having won a Supreme Court legal battle to keep his centerpiece health care law, businesses and consumers are barely a year away from the imposition of a new set of taxes. (Read more: Obamacare Is Here to Stay. Now What?)

As currently written, the law will hit anyone who doesn't have "qualifying" health insurance – a number the Congressional Budget Office estimates around six million. Meanwhile, employers who do not offer health coverage must pay a non-deductible tax of $2,000 for all full-time employees.

The ink on Obama's election certification papers was barely dry last week when a raft of companies announced they would lay off a mass of employees in order to avoid having to pay the health care tax.

Taken together, the U.S. government's effort to drain the federal budget of red ink suggests some of the more superstitious wags may be onto something when they warn about the end of the world this year. If an apocryphal Mayan prediction doesn't do it, a surge in taxes and spending cuts just might.

Contact Fiscal Cliff