Once again, fights on spending, taxes and debt dominate the debate

President Obama, Hill Republicans 
to resume tax, spending skirmishes

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After Republicans won control of the House in the 2010 elections, they triumphed in the first showdown with the White House on spending. Six months later, they and President Obama dueled to a draw on the debt. And Mr. Obama has emerged the victor in last week’s tax fight.

Now, all sides are gearing up for even bigger battles over entitlement spending and broad tax reform.

“Now that we have permanently settled how much revenue the government is going to take out of the economy, we can move on to next steps,” said Rep. Dave Camp, Congress‘ chief tax writer as chairman of the House Ways and Means Committee. “We can and will pursue comprehensive tax reform [in 2013]. We need to address the fundamental driver of our deficits and debt, and that is out-of-control spending.”

But Mr. Obama countered that, saying that the deal he got the congressional Republicans to agree to last week sets a new precedent that tax increases will be part of every negotiation from now on.

“We’re going to have to continue to move forward in deficit-reduction, but we have to do it in a balanced way,” he said.

At stake is the size and shape of the federal government, and everything that follows from that: how much Washington will take in taxes, where it will spend that money, and what sort of debt will be left for future generations to pay off.

The key players remain the same as they have been for years.

In the Senate, Majority Leader Harry Reid has led Democrats for eight years, while his House counterpart, Minority Leader Nancy Pelosi, has been atop her caucus for a decade. Sen. Mitch McConnell of Kentucky has led the upper chamber’s GOP leader for six years, and Rep. John A. Boehner has helmed House Republicans for seven years, the past two as speaker.

In fact, Mr. Obama, in the White House for four years, is the newcomer to the group.

Voters returned all of the key players relatively intact — expanding Democrats’ majority in the Senate and shrinking the GOP’s majority in the House, while giving Mr. Obama a renewed lease on the Oval Office, albeit with a lesser vote than in 2008.

The president has not let that decline dent his claim to a postelection mandate, and pushed hard to force the GOP to accede to raising tax rates on the wealthiest. While Mr. Obama gave in on the income level at which rates will rise, Republicans conceded on a core principle of opposing tax-rate hikes.

Until last week’s deal, the long-term budget outlook was sketchy, but there was hope. If lawmakers had let the laws as written take effect, the deficit would have almost instantly stabilized, owing to tax increases and automatic spending cuts that would have harmed the economy in the near term, but left it — and the federal fiscal picture — in better shape in the long run.

Instead, Congress and Mr. Obama added $4 trillion in projected deficits to the books over the next decade, and made most tax cuts permanent, meaning there’s no longer an automatic solution written into the law.

The deal also increased the political jeopardy for Mr. Boehner, who overcame a mini-rebellion to retain his speakership last week in the wake of the cliff vote.

He is already taking a tough line in the upcoming negotiations on the federal debt limit, saying he will insist on making Mr. Obama come to the table.

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