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Coming Soon: The Mother of All Policy Battles?

Remember the agreement to extend the Bush tax cuts, which President Obama and congressional leaders enacted in December? The deal seemed like a complete capitulation with no upside, until we learned that the agreement extended unemployment insurance and reduced payroll taxes, providing a much-needed boost to the economy. Later, in April, an agreement to avert a government shutdown and cut government spending seemed just as dreadful. But then we learned the spending cuts were not quite as bad as we'd thought. In both cases, the deals were still terrible -- but maybe quite as terrible as we initially thought.*

I feel like a lot of us are going through the same thought process right now, as we digest and think through the implications of the new agreement to raise the debt ceiling. The headlines on Sunday and Monday, including in this space, focused on the imbalance between spending cuts (up to $2.4 trillion of them) and new revenue (none specified). And that's how it should be. This deal will do serious damage to programs that liberals champion -- and the people who depend upon them.

But it's becoming clear that administration got some key concessions in the end. I remain particularly pleased to see that the “trigger” – the threat of automatic spending cuts, in case Congress can’t follow through on a second round of deficit reduction – exempts programs for the poor, like Medicaid and food stamps, as well as the benefit structure of Medicare. And this agreement doesn’t entirely settle the big questions over taxes, spending, and the future fiscal priorities of government. Rather, it sets the stage for future debates, including what might become the Mother of all Policy Battles at the end of 2012.

At least, that’s the lesson I take from the latest statement by Robert Greenstein, president of the Center on Budget and Policy Priorities. Greenstein should be familiar to most of you by now: As I've said once or twice before, there's nobody I trust more on these issues. And his primary, overriding message remains dour. He documents the myriad ways this plan could lead to steep cuts that will hurt lower- and middle-income Americans: "The deal places the nation on a disturbing policy course." And he warns that this agreement creates two dangerous precedents: That increases in the debt ceiling are acceptable vehicles for debating fiscal policy and that increases should be matched, dollar for dollar, with reduced spending.

Says Greenstein:

Anticipating the policy battles to come, we should not lose sight of an alarming development. Those who have engaged in hostage-taking — threatening the economy and the full faith and credit of the U.S. Treasury to get their way — will conclude that their strategy worked. They will feel emboldened to pursue it again every time that we have to raise the debt limit in the future.

But Greenstein also highlights something that hadn’t occurred to me: The second round of deficit reduction is set to take effect in January of 2013. It’s entirely possible that some in Congress will want to undo whatever spending reductions are in store then, whether they come from Congress or the automatic cuts in the new law. And those cuts won’t be the only changes taking place in January 2013. That also happens to be when the Bush tax cuts are set to expire and when the debt ceiling will again require an increase. The way Greenstein sees it, the stage will be set for one, massive battle bringing all of these elements together – whether to follow through on the spending cuts and whether to let the Bush tax cuts lapse, all with another debt ceiling crisis looming.

Should progressives welcome such a fight? Should they fear it? I really have no idea. The permutations are too many, the variables too unknown. But if things really do play out that way, I imagine these questions will dominate the presidential election, presenting Americans with two stark choices for the size and priorities of government. And maybe that’s the way it should be.

*How overtired am I right now? I wrote that the Bush tax cuts were extended in april. Of course, that happened in December. Thanks to reader "blackton" for catching this egregious error.