On December 31st, members of Congress and the President engaged in theater that rivaled any you'd find on Broadway. Mind you, the intended audience was not us. No, this was a performance for the markets.

All morning long, Senators scurried around. Republicans dropped lots of misinformation about "negotiations" out there to light progressives' hair on fire, and Democrats stayed low and under the radar.

At around 1:30 pm eastern, President Obama held a speech (see video), twitting Republicans about how he wasn't going to let them hold the debt ceiling hostage for spending cuts, and how a purported Senate "deal" was nearly done even if it wasn't the Grand Bargain he had hoped for. As he lamented that, he tossed out that the purported "deal" was about the best he could hope to get from this Congress. Oh, needles were flying.

That brought out sad-faced Republicans like Grumpy McCain and Lindsey Graham, who said they were shocked that the man they've called "uppity boy" for four years would erode civility that way.

Meanwhile, the Dow Jones Industrial average inched up, closing 168 points higher than where it opened.

Then the actors took a bow.

John Boehner announced there would be no House votes taken on New Years' Eve. It simply wasn't possible. That announcement came just as the markets closed. No surprise there. The talk on the Senate floor went from fiscal cliff worry beads to talk of the Russian government's decision to stop allowing US adoptions of Russian orphans.

John McCain headed straight to Neil Cavuto for strength and sympathy, and as I write, we are waiting for the Senate to adjourn or do something.

Bare bones of a 'deal'

The bones of a deal did emerge. Here's what it looks like:

1. 39.6% tax rate for individual income over 400k/family income over $450k.
2. AMT patched permanently.
3. Dividends and cap gains taxed at 20% for incomes over the $400k/$450k levels. Some deductions phase out for incomes over $300,000.
4. UI extended through 2013.
5. Business corporate tax extenders through 2013.
6. EITC, Tuition Credit, Child Tax Credit and Opportunity Tax Credit extended for 5 years.
7. Estate tax raised to 40 percent on a $5 million threshold
8. One year doc fix
9. Payroll cut expires

No increase in the debt ceiling and no action on the sequester, although Harry Reid was looking for some sequestration resolution as part of any final agreement.

You are reading this on January 1st. I am writing it on December 31st. I do not expect any action on this "deal" today, but it's possible the Senate will act. That's irrelevant, given that the House refuses. Any act by the Senate is purely symbolic.

What ought to happen now

Given that Republicans are now voting to decrease tax rates, the Senate deal should be considered expired as of midnight on December 31st. Return to the $250,000 threshold, extend the tax credits, leave the higher estate and capital gains rates in place. Make no concessions on these because now Republicans are voting for tax CUTS, not increases. Use UI extenders as the sacrifice Republicans can make to get any tax cuts for anyone.

Some would argue that the payroll tax cut should be extended. I am not one of those. If they want to extend the payroll tax cut, they can re-enact the Making Work Pay refundable credit from the stimulus bill and leave Social Security entirely alone. If they want to play with the ceiling for higher rates to add that credit back in, then fine. That payroll tax holiday was and is dangerous and puts Social Security in play when it shouldn't be.

Talk all day January 2nd about it, then wait to act until the new Congress is sworn in. Let the markets swoon a bit to put some pressure on Republicans and their portfolios.

Then get the deed done, include scheduled debt ceiling increases, toss sequestration aside, and go home.

That is what should happen, though highly regarded opinionators like Greg Sargent disagree with me on this. What is more likely to happen? There will be a deal similar to the one which emerged from the Senate, and which will likely pass easily after the new Congress is seated. Because Republicans will always vote for tax cuts. Just not increases, even if it's a distinction without a difference.

Assuming that to be the case, I'm going to say that it's not the most awful deal ever, but it could be a helluva lot better. Long term extensions of important tax credits are good; capital gains taxes should actually be at Reagan - era levels instead of a wimpy leap to 20 percent. Let's not forget Mitt Romney's 14 percent net tax rate on his millions, after all. Extending unemployment insurance is good as is a permanent fix for AMT; not addressing the debt ceiling or sequestration is bad.

This is why it ought to all reset and start over with Democrats driving the deal rather than Republicans. What will happen next? It all remains to be seen.

House members have been instructed not to stray far from the Capitol, which means, I suppose, it's possible they'll do something at 11:59 pm tonight. That would be a mistake, in my opinion, but it ought to make Wall Street feel warm and fuzzy, anyway.