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My, my, how far lawmakers’ ambitions for the fiscal cliff negotiations have fallen in the past two weeks.

President Obama said at the White House on Monday that a deal was "within reach." That means the most likely scenario now is that the two parties will reach a small-bore compromise to appease markets and to try to combat a growing perception among consumers and investors that Washington politicians favor political ideology over the health of the economy.

Such a deal would extend Bush-era tax cuts for household income below $450,000; patch the alternative minimum tax permanently; extend unemployment insurance benefits; deal with the doc-fix; and extend business tax breaks for one year. The fate of the sequester is unclear.

The deal may not happen until later this week, as the clock runs out toward the New Year. Asked for a timeline on when the Senate would vote, Chairman of the Senate Finance Committee Max Baucus, D-Mont., said on Monday he wasn't sure if it'd be today, but "we're getting closrer all the time."

Diving over the fiscal cliff for some short time period seems plausible now, especially after Senate Majority Leader Harry Reid reiterated this morning that discussions “continue” but that issues still need to be “resolved.”

"Our single most important goal is protecting middle class families," Reid said.  

This small-scale deal is not exactly the boon to the middle class that the Democrats portray it as. Sure, it extends the middle class tax cuts, but it also defines the wealthy as people who earn close to half a million a year. That’s a huge political victory for the Republicans, because it extends the majority of the Bush-era tax cuts, so much so that the cuts have become part of our accepted reality. “This is now part of the tax code,” says Roberton Williams, a senior fellow at the Tax Policy Center. “Any change in taxes is now measured relative to that.”

Taxing household income above the $500,000 threshold would end up taxing just 965,000 people, out of the roughly 158 million taxpayers in this country, according to Tax Policy Center data. That’s not a great swath of people.

The package does not raise as much revenue as the White House had originally proposed. The current small-scale deal in play does little to boost economic growth, because the package would not contain stimulus money. It does not streamline the tax code, the pet project of the business lobbyist groups. It does not even deal with the deficit in a meaningful way, as the Wall Street Journal aptly laid out.

The upshot is that it would extend the Obama-era tax credits that gave breaks to college students with loans, families with children, and low-income families. That's a big victory for the administration.

The downside, of course, is that the package shoves many of the tough decisions about long-term tax and spending policy into January and February, when lawmakers will face the debt ceiling: a moment that Republicans view as ripe for an overhaul of the entitlement programs.

The clock already has started on that fight. Treasury Secretary Timothy Geithner announced last week that the federal government would hit the debt ceiling on Dec. 31 and prompt Treasury to take “extraordinary measures." Those steps will allow the federal government to pay its bills for about two months.

This is a long way of making one major point. The fiscal cliff is not just one mountain but a series of hills that the country will face over and over again in the coming months. If you thought Washington acted in a dysfunctional manner now, just wait.

Today, though, it seems like the drama will end on this scene: New Year’s Eve spent in the Capitol, among grumpy security guards, cafeteria workers, and journalists dressed in sequin tops that can double as evening party wear.

Michael Catalini contributed

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