S&P; 500 futures are up 24 points (1.7%) and gold is up $22 (1.3%) on news McConnell-Biden Said Close to Deal Except for Sequester

The White House and congressional negotiators have agreed to contours of a deal to avert the fiscal cliff including tax cut extensions, with the remaining sticking point being how to handle automatic military and domestic cuts, according to an official familiar with the talks.

Income tax cuts would be extended on families earning up to $450,000, the official said, with rates rising to 39.6 percent on incomes above that.

Rates on estate taxes would rise to 40 percent, on amounts above $5 million. Extensions of business tax breaks would continue through the end of 2013. There would be a permanent fix to the alternative minimum tax threshold.

The Medicare payment rate for doctors would be extended through 2013.

The contours of the possible deal would generate $600 billion toward deficit reduction. The debate over how to postpone automatic federal spending cuts remains. Democrats propose postponing it for a year, while Republicans want to allow cuts to begin taking effect with the new year.

Debate on How to Further Postpone Begins

In simple terms, Congress will achieve zero budget cuts if Democrats get their way. Republicans appear to be quite fine with that as long as military spending is not cut.

Thus, out of a trillion dollar budget deficit, Congress will have addressed a mere $60 billion a year in revenue and something close to $0 in budget cuts, allegedly avoiding a fiscal cliff but in reality creating a far bigger one a few years down the road.

Last year, before the election, Republicans could have gotten $10 in budget cuts for every $1 of additional revenue. Now they have agreed to tax hikes, getting virtually nothing in return.

The only hope for sanity is the House punts this bill a mile high, but don’t count on it.

Mike “Mish” Shedlock