Here's my suggestion:
The two sides should agree at once to restore the pre-Bush tax rates for couples making more than $1 million a year -- pending a comprehensive tax reform that raises revenue mainly by capping deductions. Under this formula, each side gains something and loses something.
Democrats gain a more progressive tax code, but give ground on higher rates for couples making between $250,000 and $1 million. Republicans limit the scope of higher marginal rates and get the commitment to the base-broadening approach they say they favor, but concede higher rates right now for the very rich.
On public spending, neither side wants sequestration. The immediate fix is simply to lift the threat of it. The forward- looking commitment should abolish the recurring calamity of the debt-ceiling procedure -- and, ideally, set an adjustable cap on federal spending as a share of gross domestic product. What that number should be, how to adjust it according to demographic or other circumstances, and what to do if it's breached would have to be argued -- strenuously, no doubt -- next year.
The issue couldn't, and shouldn't, be settled once and for all. Mere convergence on the principle would be a notable, confidence-boosting achievement. In effect, it would be a promise to limit the scope of the fiscal wars -- a commitment to moderation.
The main thing is to avoid starting down the fiscal slope, and to do this in a way that persuades onlookers that the impasse really has been broken rather than just prolonged into the first part of next year. There's no time for a worked-out grand bargain before December 31 -- but there's time for an exchange of concessions that says a grand bargain is finally on the way. A temporary fix that allows both sides to say they haven't given ground falls short, because that's a commitment to more of the same.
The CRFB has some detailed analysis of the options for capping deductions: how to get more revenue and greater progressivity without raising rates. This should be part of the longer-term solution even if the details can't be settled in time for the short-term fix.
Could Obama agree to something less than restoring tax rates to their 2000 levels for incomes above $250,000, having promised so often not to give way on this again? Most of the country, I think, would be impressed if he did what I'm suggesting and proposed a higher threshold. And that would make it hard for the Republicans to say no. There must be a limit to how unreasonable they are willing to seem.
I'm unsure what the Democratic base would say, though. Some might declare victory; others might be inconsolable -- another humiliating and unnecessary climbdown. If I were Obama, I wouldn't care one way or the other. His days of needing those votes are over. In due course we'll see how much his election victory has weakened the GOP in Congress as compared with 2011-12, but it's not too soon to say this: Obama can disappoint the left of his party now as much as he likes.