For all its failure to date, Congress faces sufficient fiscal pressure to prompt another reconsideration before year-end. The main issue is the “fiscal cliff,” to use the phrase coined by Federal Reserve Board Chairman Ben Bernanke, that the country faces. Unless Congress acts, a raft of spending cuts and tax hikes will be imposed in January on an already weak economy. On the spending side, the sequestration required by 2011's Budget Control Act threatens to impose across-the-board cuts on much of the budget. On the tax side, certain levies associated with Obamacare will go into effect, but the burden will emerge mostly because the Bush tax cuts for all taxpayers will expire.

Congress could easily postpone the spending pain with continuing resolutions. Tax matters, however, are more complex. Democrats want to continue tax relief for lower-income people—individuals making less than $200,000 a year and couples making less than $250,000. Republicans want to continue tax relief for all. Since all tax relief would otherwise disappear automatically, Republicans will threaten, as they did in 2010, to vote down anything but complete renewal. If the parties reach an impasse, tax hikes on all would occur automatically.

In such a difficult political situation, tax reform may again appeal to both parties. It would get Republicans out of the bind of possibly being the cause of across-the-board tax increases. It would also fit with the kind of growth-oriented tax efficiencies that the party has embraced previously, most recently in the Ryan plan. Republicans would, of course, fight a net tax increase, such as that recommended by Bowles-Simpson, but even if they had to compromise on this front, they could still offer their constituents the comfort, or perhaps the word is distraction, of a drop in the statutory rate. Tax reforms would allow Democrats to sidestep accusations of class warfare and avoid the label of tax increasers as well as the risk that an impasse would force tax hikes on their constituencies at the lower end of the income distribution. Democrats also would embrace the broadening since, rhetoric aside, they know that tax hikes on the wealthy alone cannot close the budget gap.

By making the tax code simpler and more equitable, such reforms would have a generally positive effect on the economy and markets. At the very least, the elimination of the current code's complex of tax breaks and benefits would allow market signals to direct business and investment decisions instead of arbitrary favors to politically connected players. Obviously some firms and industries would lose their formerly generous tax advantages, but the lack of distortion in such a reformed code would more than offset the impact on the overall economy and capital markets generally. Such favorable effects would likely be powerful enough to offset even the ill effects of a net tax increase. In this desperately partisan Congress, likelihoods still point away from such positive actions, but there remains a stronger chance of progress than is widely believed.