Debt-ceiling drama just a preview of December?

In the final moments before the Senate was to vote on the debt-ceiling deal that would rescue the US from its first-ever default, Senate minority leader Mitch McConnell (R) of Kentucky appeared buoyant. In a speech, he handed out plaudits like bouquets – to the eventual spirit of compromise, to the tea party, and to the deal itself.

Then his Democratic opposite took the floor, his face grim. While this deal did not include any new taxes on the rich, there was no chance that the wealthy would get off so easily in the next round of deficit cuts later this year, said Senate majority leader Harry Reid (D) of Nevada. "That's not going to happen."

With those words, Senator McConnell's head dropped, and Congress's next great battle was enjoined before the first was even finished.

On Tuesday, the Senate did deliver a big, bipartisan vote to raise the national debt limit, cut more than $2.4 trillion in spending, and avoid default.

But Tuesday’s vote doesn’t end the debate over the size and scope of government. If anything, the stakes for politicians, American families, and Washington’s vast lobby community are even higher for the next stage of deficit reduction launched by this new law.

“In many ways the debt ceiling is just a prelude to what’s coming for the next 18 months,” says Stan Collender, a longtime federal budget analyst and partner with Qorvis Communications in Washington.

The shape of the compromises

Resolving the current debt crisis required that the White House give up its call for a “clean” debt-limit increase without conditions, the norm for every other US president. It required Democrats to give up demands for a “balanced” approach to debt reduction that included tax increases for corporations and the wealthiest Americans. And Republicans had to yield on their pledge that Congress first pass a balanced budget amendment to the Constitution before voting to raise the debt limit.

But Republicans won decisively on the new principle that was first proposed by House Speaker John Boehner (R) of Ohio: spending cuts must be greater than the requested debt hike and tax hikes remain off the table.

“Never again will any president from either party be allowed to raise the debt ceiling without being held accountable for it by the American people,” said McConnell just before Tuesday’s floor vote.

The vote for a debt-limit measure once deemed unlikely to pass either the House or Senate was not even close. In the end, 28 Republicans joined 45 Democrats and one Independent to pass a hard-won compromise plan, 74 to 26.

Ready for Round 2

The new law raises the nation’s $14.3 trillion debt limit by some $900 billion in the short term, along with $917 billion in spending cuts over the next 10 years. But it also sets up a bicameral joint committee tasked with identifying at least $1.2 trillion to $1.5 trillion in additional deficit reduction.

The 12-member Joint Select Committee on Debt Reduction, a.k.a. “supercommittee,” is to be appointed by top congressional leaders within the next two weeks. The panel is to report its recommendations by Thanksgiving, and must vote the package up or down – no filibusters, no amendments – by the end of December 2011.

Should the 12-member panel fail to agree on recommendations or the Congress fail to pass them, the law provides for $1.2 trillion in automatic and deliberately draconian across-the-board spending cuts – half to come from defense spending, the other from domestic spending. Social Security, Medicaid, veterans programs, and military pay are explicitly exempt from these cuts.

That is the setting for the battle to come.

Looking ahead to December

Adding to this high-stakes moment at the end of December, the Bush tax cuts are all set to expire at midnight Dec. 31. Republicans say that failure to extend those tax cuts would cost jobs and jeopardize the recovery. Democrats say it’s an opportunity to insist that the wealthiest Americans pay their fair share by not extending at least tax cuts for the highest income taxpayers.

Permanently extending those cuts is expected to cost at least $5 trillion, according to the Congressional Research Service.

Senator Reid made it plain Tuesday that he expects the wealthiest Americans to contribute to deficit reduction in the next round of talks. “There must be a sharing of sacrifice,” he said. “It’s really unfair for billionaires and multimillionaires not to be contributing to the arrangement that we’ve just made, but they are not.”

The new joint committee will correct that, he added. “The only way we can arrive at a fair arrangement for the American people with this joint committee is to have equal sharing…. There has to be equal spending cuts, there has to be some revenue that matches that.”

It’s not clear whether the calculations that drove the compromises on Tuesday’s vote will extend into the next stage of debt reduction.

“So far, Democrats haven’t shown the willingness to play the kind of hardball that Republicans have,” says budget analyst Mr. Collender. “The Democrats just provided the votes in both houses for this bill to pass.”