The fiscal cliff refers to the combination of tax increases and spending cuts scheduled to take effect in January 2013 as a result of previous legislation. If Congress does not act, the fiscal cliff could cut GDP by 4% and cause a recession with higher unemployment. However, Congress still has opportunities to compromise and pass replacement legislation to avoid the full impact. The term "fiscal cliff" is somewhat misleading because Congress can still retroactively change the scheduled policies after January 2013.