Matt Yglesias makes a valuable point about the political realities of federal spending today. The reality is this: Republicans don't care about the deficit. When they're in power, they enact tax cuts and spending increases without bothering to pay for them. Democrats do care about the deficit. When they're in power, they abide by PAYGO rules that require all spending programs to be paid for.
This is not a law of nature, but it does describe the actual way that Washington works. This means that if, say, future president Hillary Clinton wants to enact a universal preschool program, she'll need to find tax hikes to pay for it. That will be a lot easier if current president Barack Obama doesn't make a grand bargain that includes lots of tax hikes. If, instead, he makes a deal with only $800 billion in new revenue, it gives future Hillary a wider menu of possible tax increases to pay for her preschool program. So maybe a small deal is the best bet after all.
This is not the whole story, of course. Large and persistent deficits also make it harder to enact new spending programs, so if Obama makes a deal that keeps the deficit high that will act as a brake on future spending initiatives in the same way that already high taxes would. I think it's a little hard to figure out exactly how the political calculus would net out here.
More broadly, I'd say this: if liberals want to retain the option to enact new programs in the future, the best thing working in their favor is a strong economy. That's more likely to lead to a Democrat winning the presidency in 2016 and it provides an environment far more conducive to spending more money. So the question is: what policy is most likely to lead to medium-term economy recovery? On that score, the answer is the same as always: higher spending now and lower deficits in the future. The exact composition of the deficit reduction is probably a second-order issue here.