The New York Times is reporting that Congressional leaders have been informed about a “major deal” that would increase the debt limit, cut spending massively and garner future revenue from taxes after an overhaul of the system. This is being worked out between House Speaker John Boehner and President Obama.

With the government staring at a potential default in less than two weeks, the officials said the administration on Wednesday night notified top members of Congress that a bargain with Mr. Boehner could be imminent. The Congressional leaders, whose help Mr. Obama would need to bring a compromise forward, were told that the new revenue tied to the looming agreement to increase the debt limit by Aug. 2 would be produced in 2012 through a tax code rewrite that would lower individual and corporate rates, close loopholes, end tax breaks and make other adjustments to produce revenue gains.

Officials knowledgeable about the conversations between the administration and Congressional leaders said the details of the potential package remained unknown but they presumed it would include cuts and adjustments in most federal programs, including Medicare.

However, officials on all sides of the tense negotiations warned that no firm deal was in hand yet, and tried to downplay the progress — if only to stave off attempts to block it or influence its shape by hardliners on both sides of the debate on taxes and spending.

But both Boehner’s office and the White House denied that a deal is imminent. And this would seem to run into the same brick wall on taxes that any other grand bargain has run into. The difference here is that the spending cuts would be direct and immediate, while the tax reform would be put off until next year. Yeah, right. In an election year. One side or the other is going to give in on tax issues.

The likelier outcome would be for the tax piece to break down, leaving only crippling spending cuts.

Incidentally, this Obama-Boehner deal is viewed as to the right of the Gang of Six. As I explained yesterday, while the Gang of Six’ tax plan makes almost no sense, it does use a baseline that assumes the expiration of the high-end Bush tax cuts. I imagine that the Obama-Boehner baseline, assumes the extension of those and all the other Bush tax cuts, which means that, while they could claim it raises revenue by $1 trillion, in reality it would be a $3 trillion tax cut.

This just sounds like Sisyphus rolling the ball up the hill, only for it to come crashing down again. But I will say that the Gang of Six’ inclusion in this debate has massively increased chances of a default. You now have Senators invested in the Gang of Six process who want to make room for it. Kent Conrad called for a six-month increase in the debt limit to buy time for the Gang of Six plan. Others have more short-term extension ideas. Still others want to attach the Gang of Six to McConnell-Reid.

At this point, the more ideas there are, the less of a chance for an agreement. The Gang of Six plan adds to what’s out there and pushes people away from any consensus solution. Default is a bigger possibility as a result. That’s unless Obama and Boehner swoop in with some right-wing proposal to save the day, and the President puts the screws to his party and says they will be blamed for catastrophe if they don’t go along.

David Dayen

David Dayen