Dems: No Defense Spending Hike - US Debt Crisis III Ahead?

Two huge budgetary events are set to converge at the end of this year: the Bush-era tax cuts will expire, and a $110 billion cut in defense and domestic spending, mandated by the collapse of the deficit-cutting super committee earlier this year, will kick in.

The latter is an outgrowth of last summer's acrimonious debate over raising America's debt ceiling. Republicans demanded that raising the borrowing limit be accompanied by a deficit reduction program, but refused to sign on to any compromise that combined spending cuts with new sources of tax revenue, so Congress deferred the issue by creating a 12-member bipartisan super committee responsible for narrowing the deficit.

The super committee was designed so that failing to strike a deal would trigger $1.2 trillion in budget cuts over the next decade, distributed between defense and domestic spending. Despite the prospect of a massive reduction to the Pentagon's budget -- a mechanism included partially to entice Republicans to the bargaining table -- the super committee's members could not find an agreement.

Since then, Republicans -- led by fiscal guru Rep. Paul Ryan -- have sought to undo the military cuts by slashing more money from other parts of the budget. But congressional Democrats and the White House have repudiated the effort, saying the GOP must be ready to negotiate if the Pentagon cuts are to be averted.

I am not going to back off the sequestration, Reid told Politico. That's the law we passed. We did it because it wouldn't make things easy for us. It made it so we would have to do something. And if we didn't, these cuts would kick in.

To now see the Republicans scrambling to do away with the cuts to defense, I will not accept that, Reid added. My people - in the state of Nevada and I think the country - have had enough of whacking all the programs. We've cut them to a bare bone, and defense is going to have to bear their share of the burden.

Senate Democrats have signaled for months now their strategy of using the looming budget sequester as leverage in their quest to repeal the Bush-era tax cuts for the nation's wealthiest earners. President Obama agreed to a full two-year extension of the tax cuts in late 2010 as part of a deal to extend unemployent benefits for out of work Americans, angering many Democrats who believe the cuts add to the deficit without stimulating economic growth.

The onrushing year-end showdown carries enormous risks. A report released Tuesday by the Congressional Budget Office warned that if the full range of tax cuts expire -- including those that apply to middle-class Americans, which Democrats have not tried to eliminate -- and if the budget sequester kicks in, it could plunge the nation into another recession.

Speaker of the House John Boehner has also vowed another fight over the debt ceiling when President Obama asks Congress to raise it in late 2012, with members of his Republican caucus already clamoring to slash domestic spending further.