Both Eric Cantor and Jon Kyl have walked away from talks. This is almost certainly a negotiating tactic aimed at forcing the President to resolve the tax issue and perhaps to open the Boehner-Obama talks that Republicans have been seeking for some time. More than likely, no matter how the process is altered, this impasse is a first step toward what will be a more modest debt ceiling increase-fiscal consolidation program than the $2.4 trillion debt ceiling hike the White House has been seeking.
For Republicans, revenue raising measures (be it through subsidy, deduction, preferences, credits reductions or tax rate increases) is off limits. For Democrats, some degree of revenue raising measures is key to their agreement on significant mandatory spending reductions. More than likely, this potentially irreconcilable gap will be resolved not through compromise, but through an approach that involves smaller savings (largely insulating the mandatory spending programs this time around) and for which revenue increases are not needed to secure the savings. In short, the stage is being set for another fiscal punt. Such a compromise will ultimately be needed for credible fiscal consolidation. It probably won't occur until at least after the 2012 elections, at the earliest.