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Government finance analysts are taking on the challenge of how to avoid the approaching “fiscal cliff,” which is defined as the end of certain tax breaks and tax cuts at the same time $1 trillion in government spending cuts kicks in. Many experts believe the perfect storm could cause another U.S. recession, but some believe that the improving U.S. housing market may offer an area of common ground for policy negotiation. It seems that politicians on both sides of the aisle can agree that helping homeowners rebuild equity and making sure that home values grow so as to act as a store of investment for up-and-coming small businesses. For more on this continue reading the following article from TheStreet.

As Republicans and Democrats brace for a budget standoff based on ideological differences on tax hikes and their impact on small business, lawmakers may find common ground by including housing market relief into discussions on how to grow Main Street America.

It's clear after Republican House majority leader John Boehner took to airwaves for a second time since President Barack Obama's re-election that a partisan budget divide may push the United States over a so-called 'fiscal cliff' of tax increases and government spending cuts scheduled for early 2013.

But in scoring the points made by Boehner about resisting tax increases that could harm small businesses versus a Democratic platform to end Bush-era tax cuts on top earners - including a recovering housing market to the debate could create room for negotiation.

Notably, Boehner's refusal to restore pre-Bush tax rates on those earning $250,000 and over hinges on the negative impact the hike would have on small businesses, which often declare earnings as personal income.

Small business hiring is one of the weak parts of recent monthly employment reports, notes the National Federation of Independent Business, and a bump up in high income tax rates could impact roughly one million small businesses, according to calculations from the Joint Committee on Taxation.

If small business is the focus of whether a budget deal - a so-called 'grand bargain' - can be reached, then it's time for lawmakers in both parties to widen the scope of their discussion on how to bolster that segment of the U.S. economy, which Bureau of Labor Statistics data suggests is a key missing ingredient to employment.

Tax rates, whether they remain at current levels for small business or if they increase to pre-Bush levels, aren't the only factor holding back growth and hiring in the sector.

Other key issues include still shaky consumer confidence, weakness in large European and emerging market export economies - and most crucially - fragile small business access to capital by way of bank credit or home equity borrowing.

The widespread consensus among economists, including Lawrence Yun of the National Association of Realtors, is that home equity - the positive difference between a home's value and an owner's mortgage liability - is a key source of capital for small businesses, in contrast to thawing equity and debt options that are available to mid-and-large-sized businesses.

Unfortunately, as a result of the housing bust the 20-City S&P Case-Schiller Home Price Index remains far below pre-crisis levels , and homeowner equity is roughly half what it was at the housing market peak in 2006.

Depressed home values remain a key constraint for small business creation and widespread negative home equity in many hard hit regions precludes real estate assets from being used a source of capital for hiring or expansion.

But that's not to say trends aren't improving, as the nation's overall home equity surplus shows an increasing rate of recovery. In second quarter results released by the Federal Reserve in late September, home equity rose to its highest post-crisis level, even eclipsing 2008 levels.

A housing supply shortage in many regions is also causing National Association of Realtors data to show a strong uptrend in home prices.

Earlier in November, NAR reported that 120 of 149 metropolitan areas saw home prices increase during the third quarter, indicating building housing market momentum. Also in November, CoreLogic showed the strongest 12-month home price increase in the U.S. since July 2006.

To boot, low interest rate policies by the Federal Reserve and a third round of monetary easing targeted at the mortgage market implemented in September continues to fuel a mortgage refinancing boom seen in the quarterly earnings of America's largest banks JPMorgan (JPM), Wells Fargo (WFC), Bank of America (BAC) and Citigroup (C).

Outside of Fed policy, the Obama administration's Home Affordable Refinance Program is spurring on refinancing that lowers mortgage interest costs, and in some instances, gives homeowners capital to pump back into the economy.

Were home prices to continue to trend higher across the country and refinancing to continue running at 30% growth rates - as JPMorgan and Wells Fargo have shown in recent earnings - housing could become a driver of small business financing once more.

Given that a small business tax hit appears to be the biggest point of contention on what's likely to be a messy negotiation of a deal to forestall the 'fiscal cliff,' lawmakers need to look for as many ways as possible to find common ground.

Homeowner support -- a less partisan issue than tax policy -- also supports small business and may be an underestimated way for Republicans and Democrats to help propel a budget deal forward.

Although banks face a muddled earnings picture from cheap mortgage refinancing, industry leaders like JPMorgan CEO Jamie Dimon have made it a priority to stress their role in a housing rebound, in recent quarters. Add in a recovering housing market and a boom in bank mortgage refinancing to discussions on small business growth, which appear to be at the center of Washington gridlock, and you only widen the scope of who might participate in a 'grand bargain.'

This article was republished with permission from TheStreet.