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'Fiscal cliff' meets debt ceiling: Should Washington tackle both now?

Some analysts say moves to avoid the 'fiscal cliff,' looming as of Jan. 1, should be resolved alongside the need to again address the national debt ceiling, which could hit its limit as soon as February. Others say that's a bridge too far.

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That means the negotiations over avoiding the fiscal cliff should loop in planning for raising the debt ceiling, many in Washington argue.

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“The smart thing to do would be to, yes, embed the debt ceiling in whatever deal they do, because they are related,” says Bruce Josten, executive vice president for government affairs at the US Chamber of Commerce.

Democrats have a simple answer to this conundrum: Raise the debt ceiling with minimum political wrangling.

“I would think the debt ceiling has to be part of any short-term discussion,” says Rep. Chris Van Hollen of Maryland, top Democrat on the House Budget Committee. “The best way to resolve it in the most responsible way ... is not to play politics with the debt ceiling. We saw what kind of disruption, chaos, that caused last summer.”

That’s going to be tricky for congressional Republicans, who see the debt limit as a point of leverage in their crusade to curtail government spending.

“I don’t believe that the House is going to go along with a big increase in the debt limit if they haven’t made very significant progress on deficit reduction prior to that,” says Mr. Foster of the Heritage Foundation.

Not everyone agrees that Congress should deal with the debt ceiling and the fiscal cliff together. Former CBO Director Douglas Holtz-Eakin says he hopes negotiators keep them separate, fearing that aiming for an accord on both issues “is a recipe for attempting to get too much done” and potentially achieving neither.

The stakes are high, whichever route the negotiations take. Honeywell CEO Dave Cote likened the situation of the debt ceiling and the fiscal cliff to Washington “playing with nitroglycerin.”

“It’s important to recognize that the stakes have gone up across the board when you combine the debt ceiling with the fiscal cliff,” says Mr. Cote, a leading proponent of a “grand bargain” to address America’s long-term debt and deficit problem, including entitlement and tax reform.

If Congress and Mr. Obama make only limited progress on the fiscal cliff, the forthcoming debt-ceiling fight could be even grislier.

“This is going to come up real fast,” Foster warns. “If we hit that debt limit with just having kicked the can down the road [on the fiscal cliff] in some fashion, that debt-limit fight is going to make the last one look like a cakewalk.”

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