The tax deal now heading to the House, where negotiations will be more symbolic than substantive.

Nancy Pelosi can’t give in to the deal as is if she wants to be the leader of the Democrats.  She has every incentive to extract some concessions from the Administration. An easy one is an increase in estate tax rates. This is mostly ceremonial because people can easily game the estate tax. So it’s a triumph of symbolism over substance. The question is if Republicans will be smart enough to give in on symbolism and win on substance.

This deal is all about setting the terms for 2012 when we start debating the grand bargain over our long term fiscal problems on the tax and spending sides. So whatever we bake into this year’s deal will be where the debate will start in 2012.