Bloomberg has the story of an emerging deal to extend virtually all fiscal issues that kick in at the end of the year into March 2013, and throwing in the fiscal 2013 budget along with it.

Republican and Democratic congressional leaders are weighing whether to delay automatic federal spending cuts until March 2013, according to a House aide and industry officials who were briefed on the discussions.

The $1.2 trillion in automatic spending cuts over a decade, half of which would affect the Defense Department, are scheduled to begin in January 2013. At the same time, lawmakers must decide what to do about income tax cuts and other tax breaks scheduled to expire at the end of the year.

Leaders in both chambers are discussing whether to propose a catch-all bill that would delay the automatic cuts, fund the government through March or later and temporarily extend the George W. Bush-era tax cuts and other tax laws, said the House aide and industry officials, who asked to speak on condition of anonymity.

There are reasons to believe this is a good policy idea and also reasons to believe this is bad politics. On the good side of the ledger, obviously the effects of the fiscal slope are such that you would want to avoid them from all hitting during a sensitive time for the economy. That’s especially true for the trigger cuts, which kick off in 2013 in a big way. So avoiding them for a couple months buys some time. Also, this takes the decision-making out of an unaccountable lame duck session, and allows the election to be something of a referendum on the fiscal picture of the country.

I think that’s very preferable to hoping that a bunch of short-time lawmakers can be cajoled into doing the right thing. As this kind of scheme would have to pass before the new fiscal year begins on October 1, neither side would know if they bargained themselves into a better position, if it will happen under a new President or with a new party in control of either chamber of Congress.

And yet there are pitfalls to this approach, the most important being how this intersects with the debt limit. Under the current operating procedure, the fiscal slope would hit earlier than the debt limit. Treasury can probably engage in extraordinary measures to keep borrowing going until… well, until around March. And extending all the fiscal slope measures would guarantee that the government would have to borrow more, not less. So the debt limit would hit even faster. Aligning the debt limit and the fiscal slope gives conservatives much more leverage in the negotiations. They can use the imminent debt limit in a hostage-taking event, as they did in summer 2011, to get a favorable deal on taxes and spending. Right now, the leverage is arguably on the side of Democrats, since by doing nothing, two things the Republicans really don’t want – the expiration of the Bush tax cuts and the trigger on defense spending – would take place.

In this matter, the idea that the election would “decide” the outcome of the fiscal slope would actually be untrue. It would only take 41 Republican votes in the Senate to hold Congress to their demands. Mitch McConnell has vowed to use the debt limit as a forcing event. So this would give leverage back to the Republicans (unless Democrats hold the Senate and abolish the filibuster, of course).

So it’s unclear how to view this “fiscal punt.” You trade the back rooms of a lame duck grand bargain with the political dynamic of the Democrats at the relative mercy of the opposition.

…I don’t see this in the text, but according to Travis Waldron, an extension would include the payroll tax cut, long thought to be completed when it expires at the end of December.