THE HOUSE-SENATE conference committee on federal fiscal policy opened for business Wednesday amid appropriately diminished expectations. After this month’s disastrous Republican-provoked clash that resulted in a 16-day government shutdown and near-default on federal obligations, no one expects GOP lions to lie down with Democratic lambs, and conference committee members all but dismissed a grand compromise to stabilize the country’s finances.

“The bar is pretty low; let’s see if we can clear it,” House Budget Committee Chair Paul Ryan (R-Wis.) said. His Senate counterpart, Patty Murray (D-Wash.), called for a “minimum” deal that would replace across-the-board sequestration cuts and set a new level of annual spending on defense and non-defense discretionary programs to replace the current figure of $982 billion. But even that “won’t be easy,” she quickly added.

The big question is what role, if any, higher revenues should play in the deal-making. Undoubtedly, higher taxes will be required to pay for the costs of an aging society, even if, as is also necessary, Congress eventually enacts savings to the entitlement programs (mostly for the elderly) that are also indispensable to a long-term fix. Republicans generally say “no way,” while Senate Majority Leader Harry Reid (D-Nev.) has declared that higher taxes are a must.

The U.S. tax code is riddled with $1 trillion worth of exclusions, exemptions and credits — collectively and clarifyingly known as tax expenditures, since they were generally enacted to subsidize this or that favored group or activity. These breaks distort markets and disproportionately benefit top earners. Eliminating or blunting them — perhaps through a 28 percent overall cap on individual deductions, as President Obama has proposed — would be part of any sensible revenue-raising tax reform.

One of the least defensible breaks, the favorable tax treatment of “carried interest,” as the compensation for hedge fund and private equity managers is known, could be included in a modest budget deal. It’s not only symbolically potent, but economically wasteful— and, at $1.6 billion per year, not very large. Committee member Tom Cole (R-Okla.) has hinted that his party could swallow it in return for Democratic flexibility on Medicare and Social Security.

For the most part, however, revenue is not indispensable to achieve the task at hand: a short-term deal that avoids most or all of the sequester — which would otherwise drive the spending rate down to $967 billion — while re-allocating spending among defense and non-defense programs. This could be paid for by savings in entitlement programs not subject to the sequester, such as federal retirement, farm subsidies or even tweaks to Medicare such as higher premiums for upper-income seniors — a $5 billion per year item that Mr. Obama, like Mr. Ryan, has previously embraced.

In contrast to the hard line Mr. Reid has voiced, Mr. Obama reportedly told GOP senators that revenue is not a deal-breaker for him, depending on the broader shape of the deal. Given the GOP’s very real political advantage — current law makes a reversion to sequester automatic if the conference fails, and the GOP is more willing to accept that than the Democrats — this strikes us as a sensible position.