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Five reasons America won't fall off the 'fiscal cliff'

The political and economic ramifications are too big for Washington to let the large tax increases and spending cuts take effect. But this doesn't necessarily mean lawmakers will craft a decisive solution to the nation's fiscal woes.

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"It seems to me that the pressure is perfectly balanced" between Democrats and Republicans, says J.D. Foster, a senior fellow at the conservative Heritage Foundation.

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  • Collision points
  • 4 possible outcomes

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With the political pressure mounting on all sides, several scenarios exist for how Washington might avoid the fiscal cliff. Many Democrats, led by majority leader Mr. Reid, want to use the fiscal cliff to reach a broader accord on entitlement and tax reform as well as reducing the nation's deficit.

Boehner, however, has offered a more modest hope: a "down payment" of deficit reduction to prove Washington's seriousness to wary credit-rating agencies, which would be attached to guidelines for achieving tax and entitlement reform in 2013.

Veteran Washington-watchers think the speaker's path is more likely because of its limited aspirations for what is already a chaotic session of Congress between now and Christmas. Such a deal would include perhaps $50 billion in deficit reduction, targets for revenue and spending as percentages of GDP, and goals for entitlement reform for congressional committees to work toward in the coming year.

This is the most viable scenario because it gives Congress "an opportunity to fight another day," says Bruce Josten, the US Chamber of Commerce's executive vice president for government affairs. "The real battle between the two parties is tax and entitlement reform."

And it's this fight that will truly test the current mood in Washington. It will not be about avoiding economic catastrophe, but about the most sacred issues for each party: taxes for Republicans and entitlements for Democrats.

"Everyone's in favor of tax reform before they get into specifics," says Rep. Chris Van Hollen (D) of Maryland, the ranking member of the House Budget Committee. "I think there are ways that we can reform the tax code, and we should reform the tax code, but it is not a panacea" for America's economic problems.

While a grand bargain may be difficult to achieve, what worries many analysts is that Washington will do virtually nothing – just enough to resolve the fiscal cliff but not address the nation's debt and deficit problems in a meaningful way.

"Our concern about the cliff is not that we're going to go off it," says Jim Kessler, a co-founder of the center-left group the Third Way. "But that our fear of going off it will convince leaders to do something very modest on the deficit instead of something bold and that we'll miss this opportunity."

If Congress and the White House do come to some substantial accord, however, it could spur progress on other issues, from immigration to education to energy.

"The tone will be set completely over the next 10 weeks," says Mr. Kessler. "If there's a major deal here, the stoppage in the drain has been cleared and a whole series of things can happen."

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