Reading the tick-tocks on how the debt limit deal imploded, it appears both sides fashioned some last-minute changes that the other side could not accept. First, on the Democratic side, my instinct that the Gang of Six proposal heightened the probabilities of default turned out to be correct. In this case, because the Gang of Six raised far more revenue than what Obama and Boehner were negotiating, it forced Obama to up his ask on that front:

The tax overhaul they had been discussing to raise $800 billion in revenue over a decade had to be bigger, Obama told Boehner and House Majority Leader Eric Cantor during an evening meeting in the Oval Office. Obama’s new offer: $1.2 trillion.

A new proposal by the “Gang of Six,” a bipartisan group of senators who were calling for $3.7 trillion in budget savings over 10 years to slash the deficit, had changed the dynamics of the accord that Obama and Boehner had been negotiating in closed-door talks for weeks, the president told the speaker [...]

“It’s the president who walked away from his agreement and demanded more money at the last minute,” Boehner, of Ohio, told reporters at an evening news conference on Capitol Hill, hours after calling Obama to tell him he was abandoning their negotiations. “Dealing with the White House is like dealing with a bowl of jello.”

I think he means nailing Jello to the wall, I don’t know what’s so hard about dealing with a bowl of Jello, you use a spoon and eat it. OK, diversion over.

The $1.2 trillion in increases is actually still lower that the $1.8 trillion sought by the Gang of Six. So Obama is correct to say that the revenues they wanted were less than that bipartisan plan. And at any rate, the Republicans wanted zero revenues, so I don’t see how this really altered the basic problem. Boehner walked on July 22 for the same reason he walked on July 9 – he couldn’t abide by a tax increase. Indeed, the $800 billion he allegedly signed off on were, in his conception, coming entirely from “economic growth and efficiencies in our tax system.” This is similar to the up-is-down take that tax cuts increase revenues.

On the Republican side, they retaliated to this increase in revenue by seeking the insertion of a policy item into the trigger mechanism. Under the grand bargain, Congressional committees would work on a long-term entitlement and tax reform plan. If it didn’t take, there would be triggers, unpalatable forcing mechanisms that would kick in if nobody came to agreement. Late in the negotiations, Republicans tried to include a repeal of the individual mandate of the Affordable Care Act into that trigger, as well as the dissolution of the Independent Payment Advisory Board, the panel empowered to deliver recommendations to Congress on cost-savings in Medicare and Medicaid. The White House rejected the proposal.

This gamesmanship at the end of the process blew up what would have been a substantial deal, with well over $3 trillion in spending solutions, more like $4 trillion if you include the foregone debt payments that would result. And yes, the accounting gimmick on the wars in Afghanistan and Iraq accounts for a full trillion dollars.

On the discretionary spending front, both sides had “identical offers,” said one of the officials. There would be $1.2 trillion in cuts over the course of ten years; $1 trillion in savings that would come from the draw-down of the wars in Afghanistan and Iraq; and $250 billion in savings in Medicare over the course of 10 years. Both sides had also agreed to attach a second piece of legislation, to be decided via the reconciliation budget process, that would have changed the retirement age for Medicare and changed the premium structure for Medicare Part B and D, while eliminating certain kinds of supplemental insurance. That bill would also contain changes to the way Social Security benefits were paid starting in 2015, with buffers put in to protect the lowest-income beneficiaries.

There was, in addition, an informal agreement to try and extend Social Security’s solvency by an additional 75 years. How they would get there, however, remained a point of contention, with the president wanting a package of benefit and premium changes and Republicans focusing just on the benefit side. Unable to overcome that impasse, the two sides settled on vague language requiring them to meet that 75-year goal with future reforms.

Where the two sides remained apart were on Medicaid cuts, with Republicans demanding tens of billions of dollars more in cuts than the president was comfortable making. White House officials described that difference as possible to overcome, however.

The Medicaid gap was only about $40 billion. That and taxes was basically all that was left on this deal. It remains available if Republicans would accept those tax increases.

So what happens now? There’s a meeting happening at this hour at the White House, which began at 11am ET. McConnell-Reid, which matches $1.3-$1.5 trillion in spending cuts, all on the discretionary side, to a complicated system where Obama takes all the responsibility for increasing the debt limit, seems like the best available option at this point.

There’s also renewed discussion of a clean debt limit increase, which Rep. Peter Welch touted yesterday. Even Grover Norquist, holder of the infamous anti-tax pledges, conceded that the debt limit must be increased and called on his party to allow it, and take the issue into the election. I do think you’ll see the pressure ratchet up over the next week.

This morning, Boehner spokesman Michael Steel reiterated the House GOP position that they must have a dollar-for-dollar connection between the debt limit increase and any deficit reduction. He wrote:

For months, the Speaker has been crystal clear that — to be serious — cuts in spending must be greater than the size of the debt limit increase. He will reiterate again today that in order for a bill to pass the House, it must include cuts greater than the debt limit increase.

Last night the President said, ‘the only bottom line that I have is that we have to extend this debt ceiling through the next election.’ Now, we do not know what size or shape a final package will take, but it would be terribly unfortunate if the President was willing to veto a debt limit increase simply because its timing would not be ideal for his re-election campaign. We want the most significant deficit reduction possible, but linking the full faith and credit of the United States to presidential campaign politics is not a defensible position.

This would seem to suggest that Boehner will take up the agreed $1.2 trillion in spending cuts and raise the debt limit by the same amount, daring the President to veto.

I don’t think there is a clear endgame, to be honest.