Jonathan Weisman has a great story today breaking the outlines of the bipartisan deficit agreement being discussed behind closed doors. We can't draw too many conclusions from the report because the agreement is in flux, and its translation via Weisman is probably imprecise. Those caveats aside, this looks like Democrats are giving the game away on the revenue side:

The Senate group's working plan calls for placing separate caps on security and nonsecurity spending, and missing a budget target in one area would not trigger mandatory cuts in the other. The spending targets would follow proposals laid out by the deficit commission, which recommended cutting discretionary spending by $1.7 trillion through 2020. Lawmakers on the spending committees would draft legislation to meet the targets. But if they were not met, automatic, across-the-board cuts would go into effect.
The tax-writing committees would be given two years to overhaul both the individual and corporate tax codes, with general instructions to close tax breaks and minimize or eliminate tax deductions while lowering tax rates. The committees would be given a target for additional revenues to be raised by the new code. The deficit commission's version of tax reform would net $180 billion in additional revenues over 10 years.

This is actually hard to believe. According to this story, the deal calls for nearly ten times as much spending cuts ($1.7 trillion) as higher revenue ($180 billion.) Do you know how little $180 billion over ten years is? It's essentially nothing. It's one-quarter as much as the cost of extending the Bush tax cuts only on income over $250,000.

What makes this all the more bizarre is that Democrats hold the whip hand on revenue. The default course of action is for the entire Bush tax cuts to expire after 2012, which would nearly solve the medium-term deficit problem all by itself. That is enormous leverage for the Democrats. I've been arguing that President Obama should use this scenario to take care of the deficit -- simply refuse to extend the tax cuts that exclusively benefit the rich, and the Republicans will refuse to extend the rest of the tax cuts.

At the very least, Democrats need to assume that just the tax cuts on income over $250,000 will expire, and negotiate any revenue increases over that baseline. What they cannot by any means allow is to lock in the Bush revenue levels as a baseline. That's madness. Among other things, it will ensure that the deficit never comes under control, since there simply aren't enough agreeable cuts (even to Republicans.)

The worst possible course of action would be to agree to the token $180 billion/ten year revenue hike instead of the partial or complete repeal of the Bush tax cuts. Democrats would be better off negotiating a deal that consists entirely of spending cuts, and leave themselves the flexibility to use the expiration of the Bush tax cuts as leverage. Giving up the $700 billion of revenue from the Bush tax cuts for the rich, and quite likely the $3.9 trillion from the total expiration of the tax cuts, in return for $180 billion would be nuts.

It's so nuts I'm tempted to assume this story couldn't possibly be correct. But the assumption that "story X can't possibly be right because there's no way people in high positions of power could possibly be so stupid" has got me burned too many times before.

Update: It occurs to me that this would make sense if the tax deal concerned corporate taxes only. You could reform the corporate side, lowering rates and closing loopholes while netting $180 billion, while leaving the individual side untouched. That would make sense, though of course that doesn't mean we should assume it will happen.

Second Update: A couple well-informed readers have pointed out that the Bowles-Simpson commission calls for $180 in higher revenue in year 10, so it's likely Weisman simply confused this with the 10-year net.