Democrats toasted the New Year's fiscal cliff deal with the belief that they had set a crucial new precedent: Tax hikes would be part of any future deficit reduction package.
Two months later, the champagne buzz is wearing off.
With about $85 billion in spending cuts -- and no new revenue -- kicking into gear on Friday, it appears that the exuberance expressed by many Democrats at the beginning of the year was misplaced. Efforts to avert the sequester never achieved liftoff, and Democrats are realizing that new tax revenues are off the table for the immediate future.
"We lost the bet on just how intransigent the Republican majority can be," Rep. Gerry Connolly (D-Va.) told POLITICO. "We made a mistake betting on reasonable compromise ultimately prevailing. We bet on that and we lost."
The sequester was initially set to take effect on Jan. 1, but the fiscal cliff deal bought two months for Congress to find an alternative. That delay was paid for through spending cuts as well as a new tax on some retirement savings.
At the time, President Barack Obama said the deal "enshrines ... a principle into law that will remain in place as long as I am president: The deficit needs to be reduced in a way that's balanced."
Republicans now scoff at the idea that the fiscal cliff established any type of precedent when it comes to tapping revenue to cut the deficit. Utah Sen. Orrin Hatch, the top Republican on the Finance Committee, dismissed the idea of a precedent as "bull."
"They haven't established anything," he said. "All they've established is they want to spend at all costs, and they keep themselves in power by spending it and saying how compassionate they are with everybody else's money."
"There will be no last-minute, backroom deal and absolutely no agreement to increase taxes," Senate Minority Leader Mitch McConnell (R-Ky.) said Friday as he prepared to meet with congressional leaders and Obama at the White House.
The sequester was designed to be a fail-safe -- an outcome that scared both parties so much that they would each have incentives to strike a fiscal compromise to avoid it. But the failure of the 2011 supercommittee was the first strike against that line of thinking. And even Obama's reelection and the fiscal cliff deal weren't enough to stave off the cuts.
Republicans flexed their muscle in the Senate on Thursday, blocking a Democratic measure that would have replaced the sequester through 2013 with a more palatable mix of spending cuts and revenue increases. A competing measure offered by Republicans that would have given Obama wide latitude in implementing the cuts also wasn't allowed to proceed.
Democratic leaders were left to drag out the same rhetoric they employed in the weeks before the cliff deal, blaming Republicans for another round of Washington gridlock based on an ideological opposition to new taxes. Only this time, it's not at all clear that the strategy will soon pay dividends.
"We've tried everything we can," Senate Majority Leader Harry Reid (D-Nev.) told reporters Thursday. "They will not budge on anything dealing with revenue."
"They're saying it's more important to keep these tax loopholes than it is to prevent these arbitrary cuts," Obama said today at the White House.
Indeed, after ceding the battle over tax rates to Obama in the fiscal cliff compromise and allowing tax rates to rise on the wealthiest taxpayers -- rather than take the blame for a major tax increase on all Americans -- Republican leaders on both sides of the Capitol decided that they couldn't afford to lose the tax fight again so soon.
There are plenty of opportunities ahead for Democrats to try to extract more revenue from Republicans. The next chance comes at the end of March, when government funding expires. Democrats are likely to again try to turn off the sequester with tax increases as part of a deal to keep the government open.
And the debt ceiling, which will have to be addressed sometime this summer, provides another venue for a tax fight.
Still, Democrats' failure to replace the sequester at least partially with new revenues can be viewed as the product of questionable strategy: a belief that the fear of defense spending cuts would force Republicans to embrace new taxes and a sense that the party broke the long-standing GOP opposition to revenue once and for all with the fiscal cliff deal.
Neither of those hopes has come to pass.
Michael Ettlinger, the vice president for economic policy at the liberal Center for American Progress, said he was "always nervous" that Republicans would block revenue from being used to offset the sequester. But he said this isn't the last chance for Democrats to make their case on the issue.
"There may have been a little excessive optimism at one point," he said. "But it's important to remember this isn't over yet. We haven't seen the end game yet."
That's the message Democrats in Congress are trying to send, to counter any sense that the party is once again fighting in vain for higher taxes.
"This fight's not over," said Maryland Rep. Chris Van Hollen, the top Democrat on the House Budget Committee. "We've got a long way to go, so let's just see what happens."
When asked whether Democrats spent the first two months of the year misreading the Republican position on taxes, Senate Majority Whip Dick Durbin said, "No, we know where they are."
"We tried to reach an agreement and now we'll try to reach another one," the Illinois Democrat said.
But it's not at all clear that they'll be able to again crack Republican opposition to new taxes. House Ways and Means Committee Chairman Dave Camp (R-Mich.) again reiterated that he'll oppose any "one-off" approach to raise revenue by closing so-called loopholes. He wants to save those options for the comprehensive tax code overhaul he seeks to move through his panel later this year.
Still, Democrats aren't showing signs of backing down and will hold events across the country over the weekend to highlight the negative impacts of the across-the-board spending cuts. Sen. Robert Menendez, a member of the Finance Committee, will join other New Jersey Democrats on Friday at Newark Liberty Airport to bemoan the impact of the cuts on air travel.
"I don't know what cracks them," Rep. John Larson (D-Conn.), who's on the Ways and Means Committee, said. "All we can say is: Look, don't you think it makes sense for us to do this in a balanced way?"
This article first appeared on POLITICO Pro at 10:07 a.m. on March 1, 2013.
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