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What to watch for in DC in 2014

The latest economic data showing growth of 4.1 percent in the third quarter is sending 2013 out with a bang. What was otherwise a pretty dismal year both for the economy and Washington politics now seems not so bad. Both consumer and business spending looked stronger than expected, a hopeful sign for 2014.

And the fresh data come after some other positive developments. Washington managed to agree on a budget deal to wipe out the threat of a government shutdown next year, and the Federal Reserve gave the economy a big vote of confidence by saying it would start cutting back on emergency stimulus through asset purchases.

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And instead of freaking out, markets embraced the good news from the Fed and decided the taper was mild enough not to drive rates higher and choke off growth. Investors also embraced the many caveats from outgoing Fed Chairman Ben Bernanke that the central bank would keep rates at effectively zero well into the future and could resume other stimulus if needed.

It sure seemed like the Fed scored a perfect bull's-eye in beginning the long-awaited and much feared taper.

So some of the political and economic risks we thought we would face in 2014 are now coming off the table early. But there's much more ahead.

So what role will Washington play in the economy and markets next year? Here is a brief look at a few pressing issues.

The debt ceiling: Treasury says it must be raised by late February or early March. The Congressional Budget Office says we could bumble along till June. Either way, Congress must raise the borrowing limit and Republicans will demand something in return.

(Read more: Govt warns debt ceiling could hit by Feb)

The consensus among Beltway insiders and Wall Street executives I talk to is that with the focus shifting to the midterm elections and everyone fearful of fallout from a big fight, a deal will get made that offers Republicans something on spending while not pushing the nation to the brink of default.

It's still not clear what this deal will look like but let's leave the debt ceiling as a medium-level risk as we close out the year. No reason to panic about this yet.

Tax reform: On this front, Washington could boost the economy by lowering the top marginal corporate rate and still generate revenue through loophole closing and raising the rate on carried interest, among other things.

But with Senate Finance Committee Chairman Max Baucus now likely headed to China as the next U.S. ambassador, it looks like these efforts may have to start from scratch.

Baucus and House Ways and Means Chair Dave Camp, R-Mich., put together a number of solid tax reform proposals. But incoming chairs of both committees will likely want to take their own approach. And in an election year, the hope for fundamental tax reform seems pretty low.

Senate Finance will likely go to Sen. Ron Wyden, D-Ore., unless he gets leapfrogged by Sen. Chuck Schumer, D-N.Y., who may be growing tired of waiting to succeed Sen. Harry Reid, D-Nev., as majority leader. Schumer has said publicly the Senate will probably stick to tradition and Finance will go to Wyden, disappointing some on Wall Street who hoped for a favorite son to grab the gavel.

House Ways and Means is likely to go to Rep. Paul Ryan, R-Wis. The former vice presidential nominee has now shown his ability to cut bipartisan deals, which would tend to suggest tax reform remains possible. But it's a big lift to get it done during election season and Ryan would be under heavy pressure not to allow any new revenue to be used for Democratic spending priorities.

(Read more: 'Can't shoot for the moon every time': Paul Ryan)

So put the odds of tax reform in 2014 at less than 25 percent unless some kind of deal can be shoe-horned into the debt ceiling hike, which seems impossible from a timing perspective.

Mid-term Elections: The Baucus-to-China move upends conventional wisdom that Republicans have a good shot at taking control of the Senate. The GOP needs six seats and now both Montana and Louisiana seem like less likely pick-ups. Montana Lt. Gov. John Walsh will now likely to be able to run for Baucus' seat as the appointed incumbent. This doesn't guarantee him a win but it certainly helps.

And in Louisiana, Sen. Mary Landrieu will now likely take the gavel of the powerful Energy Committee if Wyden moves to Finance. That would give her significant ability to boost Louisiana offshore drilling interests and make her defeat in November somewhat less likely.

None of this means Democrats are a lock to keep the Senate—there other vulnerable seats—but it makes the GOP's job tougher.

On the House side, the Democrats have pretty close to zero chance of regaining control. They would need to gain 17 seats, a near impossibility given the number of competitive districts and the historic tendency of the incumbent president's party to lose seats in the sixth year of the president's term.

An improving economy might boost Democrats' chances a bit given that voters will give some credit to the president's party. But that would probably just serve to limit GOP gains rather than propel any kind of Democratic wave. And the president at this point remains highly unpopular, with the latest Washington Post survey putting him at just 41 percent approval.

That could go up if Obamacare implementation improves but it could also keep sinking if more health care reform problems arise.

The safest bet right now is that Washington at the end of 2014 will look much as it does now but perhaps slightly less dysfunctional.

—By Ben White. White is POLITICO's chief economic correspondent and a CNBC contributor. He also authors the daily tip sheet POLITICO Morning Money [politico.com/morningmoney]. Follow him on Twitter @morningmoneyben.

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