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Fiscal Cliff Forces Republicans and Democrats to Work Together

Time will show whether lawmakers can compromise

Obama congress new challenges 2013

President Barack Obama and a new Congress face challenges in 2013. — Pete Souza/White House/Handout/CNP/Corbis

"We have to be honest with the American people," Hoagland says. "We've overpromised. There's no way to do this without possible pain."

AARP and other groups that advocate for retirees have opposed major changes.

"Older Americans care deeply about reducing the deficit and about strengthening our economy, and we're hopeful a deal can be reached to protect taxpayers and reduce unnecessary government spending," says AARP Executive Vice President Nancy LeaMond. "But raiding Medicare and Social Security to pay for other government programs is shortsighted and harmful to seniors and their kids and grandkids."

Tinkering With the Tax Code

Eventually, the discussion will focus on simplifying the tax code: reforming it to raise revenue by getting rid of several loopholes. But some of the most expensive loopholes are also the most popular — like deductions for home mortgage interest and charitable contributions, and tax breaks businesses get for providing health insurance. "When you use the word 'simplification,' it doesn't capture the fact there is a lot of pain involved," says Sawhill of the Brookings Institution. "None of this is easy."

Hoagland says that the time is right for a budget deal that rewrites the tax code. He sees parallels to the bipartisan budget deal of 1997 that led directly to balanced budgets from 1998 to 2001. A second-term president is leading the way without worrying about running for reelection, the nation is fed up after the impasse of a year ago, and the two parties have outside pressures to make a deal.

"They're all thinking we have to do something," Hoagland says.

The Health of the Health Care Law

The coming year also will be key for health care. Given the results of the election, the Affordable Care Act — dubbed Obamacare — won't be repealed. But with major provisions beginning in 2014, key decisions will be made this year about implementation.

Governors will have two big decisions to make: Do they expand Medicaid to include more uninsured people, and do they set up insurance exchanges that help individuals buy coverage?

The ACA has been supremely unpopular in some areas of the country, and several governors have wanted no part of it. "Now that the election is behind us, we will see most if not all states move forward," says Drew Altman, president and CEO of the Kaiser Family Foundation.

But as the nation moves toward requiring individuals to have insurance or pay a penalty and starts up a new board designed to rein in Medicare spending, Congress likely will play a role.

"A law this complicated and controversial is bound to have major and minor hiccups galore," says Larry J. Sabato, director of the University of Virginia Center for Politics.

Tamara Lytle is a Washington-based reporter who has covered Congress and the White House. She writes about politics for the AARP Blog.

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