Washington Claims it Can Reach Fiscal Cliff Deal By Dec. 31

Washington's tax talks began in earnest on Friday, as U.S. President Barack Obama and his team met with the GOP in a closed-door session in efforts to hammer out a fiscal cliff deal.

"We have the cornerstones of being able to work something out. This is not something we're going to wait until the last day of December to get done. We have a plan. We're going to move forward on it," Senate Majority Leader Harry Reid of Nevada told reporters as both parties emerged from the White House.

House Speaker Rep. John Boehner, R-OH, delivered an equally positive tone.

"To show our seriousness, we've put revenue on the table, as long as it's accompanied by significant spending cuts," said Boehner. "It's going to be incumbent on my colleagues to show the American people we're serious."

Finding Common Ground in a Fiscal Cliff Deal

The quickly approaching deadline has sparked urgency on both sides.

In a little more than a month's time, most Americans will see an average $2,000 tax increase. In addition, a slew of government spending cuts scheduled for Jan. 2 will slash funding for defense spending and other industries relying on government money to thrive.

A number of proposals have been presented over the years to resolve tax hikes and spending cuts. All were either shunned by the GOP stressing the president cannot claw his way out of mammoth fiscal deficit by taxing the wealthy, and attacked by Democrats citing an unfair bonanza for the rich.

A Congressional Research Service (CRS) report on the effects of the Bush tax cuts on the deficit found that raising taxes on the rich will actually hurt the struggling economy by killing jobs and slowing growth - a main Republican argument.

According to the Congressional Budget Office, allowing tax rates to revert to Clinton-era levels for families earning more than $250,000 a year would only raise $824 billion over ten years, barley making a dent in the swollen U.S. debt, which is over $16 trillion.

Nor is it nearly enough to undo the sequester (the mandatory spending cuts to defense and domestic spending) President Obama pledged "will not happen" during his third and final debate with this year's GOP presidential hopeful Mitt Romney.

While neither side will budge on taxes, there is a way the opposing parties can meet somewhere in the middle. A major concession could be targeting deductions that mainly benefit the rich.

According to Business Insider, the think tank The Tax Policy Center estimates a deduction cap of $50,000 would raise $749 billion over ten years, similar to the $800 billion that Boehner suggested during botched negotiations with President Obama in 2011.

Furthermore, the Center explains, it would make the tax system much more progressive. Eighty percent of the additional money would in fact come from the wealthiest 1%. This is one scenario that has generated Democrat interest.

Fiscal Cliff Differences of Opinion

While Washington has outlined a beginning to the fiscal cliff deal, major hurdles remain.

House Democratic Leader Nancy Pelosi chimed in Sunday on ABC's "This Week" that she would not consent to a deal on the fiscal cliff that does not contain a clause for a higher tax rate on America's wealthy.

"Just to close loopholes is far too little money... If it's going to bring in revenue, the president has been very clear that the higher income people have to pay their fair share," said Pelosi.

She did, however, add that the country shouldn't be allowed to go over the fiscal cliff.

With both sides committed to avoiding a "fall off," a fiscal cliff deal before the New Year seems possible - but stay tuned.

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