(By Andrew Harrer/Bloomberg)

A package of immediate and specific budget cuts; budget caps reaching out five years to reassure conservatives that tough budget decisions will be made in the future; Medicare reforms short of the House approach; no tax increases — a Republican red line — but perhaps additional revenue from the elimination of tax expenditures.

I’m hearing mostly the same thing. The debt-ceiling deal looks like it’ll be almost entirely composed of cuts and caps. Whatever revenues are in it will be token contributions, at best. There won’t be structural reforms to Medicare, Medicaid and Social Security, and there won’t be a pass at tax reform. The budget caps will make automatic cuts to spending if we’re not on a path to primary balance by 2014. The big question with the cap is whether it just makes automatic cuts to spending or it also raises taxes. It’s not obvious to me why the Democrats would fold on that last point, but they might.

What this means is that Democrats and Republicans have agreed that the “grand bargain” isn’t spending cuts for tax revenues, but entitlement reforms for tax revenues. And since there’s no agreement on either entitlement reform or tax revenues, those decisions will be delayed.

But not forever. The negotiators see deficit reduction as having three phases, connected to three forcing events. The first forcing event is the debt ceiling, and that will lead to the “downpayment” and the establishment of trigger policies that will require more deficit reduction later. That’s where we are now. The second forcing event is the December 2012 expiration of the Bush tax cuts. That’s when we’ll see the real showdown over revenues. The third forcing event will be in 2013 or 2014, and it’ll come from the deficit trigger, which will begin making automatic cuts about that time. That’s where we might see revenues unrelated to the Bush tax cuts and structural reforms to entitlements.