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Beyond the 'cliff': Why spending cuts are next on the agenda (+video)

The just-concluded fiscal cliff deal answered most questions about taxes, for now, but until Obama and Congress address spending cuts, the federal deficit problem has not been solved.

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The debt-ceiling debate is a big one. If it isn't raised, the risk is that the US would begin to default on financial obligations, resulting in a credit-rating downgrade. Just the political foot-dragging around the last debate on raising the limit, in the summer of 2011, resulted in such a downgrade.

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In late March, there's yet another hurdle: A "continuing resolution" in Congress expires, meaning lawmakers must agree to approve new legislation to fund government activiities like air-traffic control and federal courts.

All this puts pressure on both parties, Republicans as well as Democrats. If headlines about "default" start piling up, neither side looks good.

Obama has some leverage in the fiscal fight. He won the presidential election, and has higher approval ratings than Congress. He knows that, in the past, Republicans have taken a hit in public opinion when it looked as if they were holding up a debt-limit hike for political reasons.

But Republicans have their own leverage. Opinion polls suggest that the public embraces the idea of spending cuts, as well as tax hikes for the rich, to deal with deficits. They can argue, as Senator McConnell is doing, that Obama has got the tax hikes that he campaigned for, and it's time to address the growth of discretionary and entitlement spending.

In addition to spending cuts, the two sides could tangle over wider tax reform. They might embrace the idea of simplifying the tax code to promote economic growth, but with Democrats seeking to raise additional tax revenue and Republicans seeking to hold the line against any increases.

But with tax rates set to revert to Clinton-era levels for the wealthiest taxpayers, changes on the spending side of the federal ledger appear likely to have the bigger dollar signs attached when the next fiscal deal is agreed.

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