As the presidential elections draw near, the nation's debt woes are coming into clearer focus—and Bank of America-Merrill Lynch Global Research warns that the "fiscal cliff" is bigger than most market observers imagine.

The fiscal cliff, off which U.S. taxpayers may have to leap on Jan. 1, 2013, if the Bush tax cuts expire, is seen as being the inevitable consequence of Washington lawmakers' infighting unless President Obama and Congress honestly confront this deadline in an election year.

Further, according to BofA-Merrill's analyst team at a midyear press conference on Wednesday in New York, any positive budgetary effect of the tax increases would be overshadowed by the growing burden of the U.S. debt ceiling as spending and hiring decisions are put on hold and the election heightens partisanship.