I like that only now, after nearly two years of deficit fearmongering, does the New York Times bother to mention that doing nothing on the deficit will reduce the deficit far more than any deal.

The latest Congressional failure to agree on a plan for balancing the government’s books could yield a surprising result: a sharp reduction in annual federal deficits, larger than anything contemplated by the special panel that reached its fruitless finale on Monday.

But the absence of an agreement also threatens to significantly slow growth in an already ailing economy by raising taxes on almost everyone while reducing government spending on almost everything.

Tax cuts passed in the Bush administration will expire at the end of 2012. By law, the panel’s failure triggers new caps on spending, cutting $1.2 trillion from the military, education, health care and other priorities over 10 years beginning next fall. The combined impact of higher tax rates and less spending would reverse the growth of annual deficits beginning in 2013, reducing by more than half the current $1.3 trillion gap between annual revenue and spending.

That has inverted the normal reality, in which spending rises inexorably unless Congress musters the political will to impose cuts. Now, although both parties say they are committed to more gradual approaches, an agreement is required to avoid the fiscal equivalent of shock therapy.

The story doesn’t mention the AMT, set to capture more income starting in 2012, and the doc fix, which if not extended would represent a 23% cut to Medicare provider rates (there’s also a 2% across the board cut to those rates in the trigger starting in 2013). But if you let the Bush tax cuts expire, suddenly you can do some of these things without having to fear “bankrupting our children’s future” or whatever deficit scolds want to tell us. At least for a while.

This was the case back in 2010, when the Bush tax cuts were on the table. The close to $4 trillion increase that would arise from allowing them to expire is as big a deficit deal as anyone in Washington has devised, as big as Bowles-Simpson, Domenici-Rivlin, the Gang of Six, the President, all of them. It’s approximately all you have to do, to return revenues back to the Clinton years, which had no impact on economic performance.

The problem is that the President is still talking about extending almost all of the Bush tax cuts, except for those above $250,000 of income. That is a budget buster, and there’s no real way to split the taxes out. The latest gambit is to threaten a veto of any attempt to extend the full suite of tax cuts.

“He won’t sign a full extension,” said one Senior Administration Official at a White House background briefing for reporters on the Super Committee.

“I think if you look at everything that happens in January 2013, it is a compelling argument that there’s a need to make real policy,” said another Senior Administration Official. “And I think the fact the sequester will hit in January 2013 and the expiration of the tax cuts hits in 2013, the right thing to do is tax reform that has both positive impact on the economy and is fair in terms of distribution of the tax burden, and then balanced savings that share the burden amongst all the different parts of the budget from the very rich to people on Medicare and Medicaid.”

This is party-wide, you still have people like John Kerry explaining that anything under $500,000 a year isn’t rich.

There’s a possibility that gridlock becomes an ally here, the Democrats won’t agree to extending the tax cuts without allowing those on the rich to expire, the Republicans won’t agree to anything less than a full extension, and as a result, all of the tax cuts expire.

I do agree that this path forward is an unnecessary and dangerous turn toward austerity, starting right away when the payroll tax cut and unemployment benefits (stupidly) expire. Given where we are, however, trying as much as possible to extend those two in the near term, while not caring a whole lot about tax rates for rich people (who benefit from the tax cuts at all levels; we have a marginal tax system), seems like the right move. And if it means saving cuts to programs for the working poor, saving Medicare, saving Social Security, the very minor increase on the tax rate at the low end is completely tolerable. After all, you can just come back with the “Obama tax cuts” and dare Republicans to block it. Heck, that even sounds like, dare I say it, a campaign platform.