Congress will steer the country away from a dreaded “fiscal cliff” — a combination of tax hikes and spending cuts that will strike at the end of the year — while stocks and the U.S. economy will outpace expectations, said Tobias Levkovich, Citigroup’s chief U.S. equity strategist.

A recent Citi survey of investors shows the economy is gaining steam despite the fast approaching fiscal cliff.

At the end of this year, Bush-era tax cuts and other tax breaks expire at the same time pre-programmed cuts to government spending kick in. The so-called fiscal cliff could siphon over $500 billion out of the economy next year alone and send the country back into recession if Congress fails to address the issue.

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Lawmakers have largely sidestepped the cliff up to now, appearing unwilling to address tax and spending reforms in an election year, though some have said they can convene after elections or even early next year and address the cliff on a retroactive basis.

Either way, investors have faith that lawmakers will do the right thing and put politics aside to steer the country away from the fiscal cliff.

“Eighty percent of them told us — these are institutional investors — there will be some sort of extension, and then they’ll address fiscal reform next year. Corporates are doing the same. We looked at nearly 700 nonfinancial companies in the U.S.,” Levkovich told CNBC, adding many companies plan to ramp up investments.

“They are looking at a 13 percent increase in capital spending. In May, they were telling us 11 percent.”

Not all capital spending will take place in the United States, however, though overall, corporate moods seem to be improving.

“Some of the spending may be going on overseas, but they don’t seem to be saying, ‘Hey, we’re really worried about Europe; we’re really worried about Asia; we’re really worried about the U.S.,’” Levkovich said.

“They’ve actually accelerated some capital spending intentions — not hugely, but encouraging data. We’d love to see it get better. It’s not there yet.”

Some experts have said that uncertainty surrounding the fiscal cliff is prompting businesses to hold off on investing in new projects and hiring, which is hurting growth today.

Fears of a fiscal cliff in the United States coupled with fears the European debt crisis might rattle markets will shave about half a percentage point off growth in the second half of this year, said Vincent Reinhart, chief United States economist at Morgan Stanley.

More than 40 percent of companies surveyed by Morgan Stanley in July cited the fiscal cliff as a major reason reining in spending, a figure Reinhart says could rise.

“Economists generally overstate the effects of uncertainty on spending, but in this case it does seem to be significant,” Reinhart said, according to the New York Times.

“It’s at the macro- and microeconomic levels.”

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