The U.S. is spending too much time worried about the European debt crisis and not enough about tax and spending issues, says Ethan S. Harris, North American economist for Bank of America Merrill Lynch.

At the end of the year, tax cuts are set to expire while automatic spending cuts are set to kick at the same time, a one-two punch widely known as a fiscal cliff.

Many Wall Street estimates see the “fiscal cliff” siphoning $500 billion out of the economy next year and dragging gross domestic product by 3.8 percent.

Editor's Note: Sept. 18 Cover-Up Is a Final Turning for America

That's too conservative, Harris says, adding market fallout will be rough.

"It is unlikely that the cliff is fully priced into the markets," says Harris, according to CNBC.

"The economic consensus and markets have recognized the fiscal cliff for some time, but are only beginning to understand the size and timing of the shock to the economy."

According to Harris, the fiscal cliff will drain the economy of $720 billion, or 4.6 percent of gross domestic product.

"The cliff is likely to hurt growth this year as much as next year," Harris says.

"By risking a recession-sized fiscal contraction and then offering no guidance to how it will be resolved, politicians are creating a major uncertainty shock."

Others are flying warning flags over the fiscal cliff.

The nonpartisan Congressional Budget Office has the economy will officially fall into recession if the White House and Congress don't act now.

Specifically, the CBO warns that gross domestic product will contract by a net 1.3 percent during the first six months of next year if Congress and the White House fail to change the dates to when tax cuts expire and spending cuts take effect.

"Such a contraction in output in the first half of 2013 would probably be judged to be a recession," the CBO reports, according to the Associated Press.

The economy grew 1.9 percent in the first quarter of this year, down from an initial estimate of 2.2 percent.

Editor's Note: Sept. 18 Cover-Up Is a Final Turning for America