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KRUGMAN: The cliff's been cleared, but stay tuned

The centrist fantasy of a Grand Bargain on the budget never had a chance. Even if some kind of bargain had supposedly been reached, key players would soon have reneged on the deal — probably the next time a Republican occupied the White House.

For the reality is that our two major political parties are engaged in a fierce struggle over the future shape of American society. Democrats want to preserve the legacy of the New Deal and the Great Society — Social Security, Medicare and Medicaid — and add to them what every other advanced country has: a more or less universal guarantee of essential health care. Republicans want to roll all of that back, making room for drastically lower taxes on the wealthy. Yes, it's essentially a class war.

The fight over the "fiscal cliff" was just one battle in that war. It ended, arguably, in a tactical victory for Democrats. The question is whether it was a Pyrrhic victory that set the stage for a larger defeat.

Why do I say that it was a tactical victory? Mainly because of what didn't happen: There were no benefit cuts.

This was by no means a foregone conclusion. In 2011, the Obama administration was reportedly willing to raise the age of Medicare eligibility, a terrible and cruel policy idea. This time around, it was willing to cut Social Security benefits by changing the formula for cost-of-living adjustments, a less terrible idea that would nonetheless have imposed a lot of hardship — and probably have been politically disastrous as well. In the end, however, it didn't happen. And progressives, always worried that President Barack Obama seems much too willing to compromise about fundamentals, breathed a sigh of relief.

There were also some actual positives from a progressive point of view. Expanded unemployment benefits were given another year to run, a huge benefit to many families and a significant boost to our economic prospects (because this is money that will be spent, and hence help preserve jobs). Other benefits to lower-income families were given another five years — although, unfortunately, the payroll tax break was allowed to expire, which will hurt both working families and job creation.

The biggest progressive gripe about the legislation is that Obama extracted less revenue from the affluent than expected — about $600 billion versus $800 billion over the next decade. In perspective, however, this isn't that big a deal. Put it this way: A reasonable estimate is that gross domestic product over the next 10 years will be around $200 trillion. So if the revenue take had matched expectations, it would still have amounted to only 0.4 percent of GDP; as it turned out, this was reduced to 0.3 percent. Either way, it wouldn't make much difference in the fights over revenue versus spending still to come.

Oh, and not only did Republicans vote for a tax increase for the first time in decades, the overall result of the tax changes now taking effect — which include new taxes associated with Obamacare as well as the new legislation — will be a significant reduction in income inequality, with the top 1 percent and even more so the top 0.1 percent taking a much bigger hit than middle-income families.

So why are many progressives — myself included — feeling very apprehensive? Because we're worried about the confrontations to come.

According to the normal rules of politics, Republicans should have very little bargaining power at this point. With Democrats holding the White House and the Senate, the GOP can't pass legislation; and since the biggest progressive policy priority of recent years, health reform, is already law, Republicans wouldn't seem to have many bargaining chips.


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