From what I’m picking up in the ether (and from Ez Klein’s tweets and from here) it sounds like a deal is forming to avoid the cliff.

–The income tax rate for households with income above $450,000 goes from 35% to 39.6% ($400,000 for individuals);

–Couples with incomes above $300,000 would lose some tax exemptions from which they currently benefit;

–Dividend and capital gains rates go from 15% to 20% but only for households above $450,000;

–The estate tax goes to a 40% rate up from 35% and a $5 million exemption for an individual’s estate, $10 million for couples;

–Sequester is unresolved; AMT and doc fix (payments to Medicare docs) get patched;

–Another year of extended unemployment benefits; payroll tax break expires;

–Raises $600 billion in revenue over 10 years;

–Nothing on the debt ceiling!

I don’t know if this deal could pass both houses but I suspect it could.

Well, I’m always saying that politics is about compromise, and there are important parts of this deal that are real wins for the country—the deal marks the long-awaited end of asymmetrical tax policy on income tax rates that has prevailed for decades: the idea that rates can only go down, never up.  And a year’s UI extension is very welcome news, both for the long-term jobless and for the overall economy (it’s great stimulus).

But jeez…this meets the R’s further on their side of the field than one might have expected given the White House’s (WH) leverage.  The wealthy end up facing a considerably smaller tax increase under this deal—I’m sure the TPC will soon tell us how much smaller—than any other deal that the WH or D’s have offered thus far, including the Boehner-Obama deal under discussion in 2011.

As Ezra notes in the link above, the theory of the case for the WH is a) we avoid the cliff, finally break the R’s on tax rates, and get UI, and b) when we get to the debt ceiling fight, we’ll insist that for every dollar of spending cuts, there’s a dollar of new tax revenue.  If the R’s want a trillion in spending cuts for a debt ceiling increase of that magnitude, the WH will only agree if a) the R’s identify the cuts–no more D’s doing that work for them, and b) any such cuts are accompanied by the same amount in new tax revenues.

OK—but what are you gonna do, WH, when R’s say, “forget it…let’s default?”  Unless the President is willing at that point to tell his Treasury Secretary to go forth and borrow as needed—i.e., override the R’s—this plan will fail.

So, here’s my first blush response to this deal.  The thing that worried me most in the endgame is that the WH would be so intent on a deal that they’d lock in too few revenues with no path back to the revenue well, and that they’d leave the debt ceiling hanging out there.  Remember, the ultimate goal of Repubicans here is still to “starve the beast”–to shrink government by hacking away at both sides of its ledger–receipts and outlays.

Those fears will be realized unless the President really and truly refuses to negotiate on the debt ceiling and is willing to blow past those who would stage a strategic default.  If he is not, and if this cliff deal passes, then I fear the WH may have squandered its hard won leverage.