UPDATE: Rep. Paul Ryan and Sen. Patty Murray unveiled a budget proposal Tuesday night. The proposal, which has yet to be voted on, busts through sequester caps, setting FY 2014 spending at $1.014 trillion — billions beyond the levels mandated by sequester. The proposal contains no mention of pension reform.

Conservatives had better start paying attention to the budget battle raging in Washington: If things go south — and they are poised to do just that — the tea party’s single greatest policy victory, the sequester, could be destroyed. And worse yet, it could be destroyed in exchange for nothing.

The sequester isn’t popular with Republican defense hawks. President Barack Obama counted on that when he threw it out as an offer he believed the GOP would never take. But the president miscalculated the strength of tea party momentum, and he ended up signing into law the only year-to-year decrease in discretionary spending in modern U.S. history.

This week, Republican Rep. Paul Ryan and Democratic Sen. Patty Murray are leading their parties’ negotiations for a spending deal, without which the government will shut down on Jan. 15, 2014. Reports coming out of the secret meetings, however, indicate that the sides may agree to spending levels that are billions of dollars above the $967 billion-level mandated by the sequester law, potentially scuttling the tea party’s victory and surrendering the Republican’s advantage. (VIDEO: Scarborough on new budget deal: ‘Conservatives are getting ready to get rolled’)

“The sequester is the only place where conservatives have gotten a victory,” Americans for Prosperity spokeswoman Nicole Kaebing told The Daily Caller. “It’s the one place where we have gotten both parties and the president to agree to actually cut spending. It’s silly to walk that back. We have this victory, and Republicans should not be voting to increase government spending.”

Americans for Tax Reform president Grover Norquist agrees — to a point: “Holding the sequester for 10 years is the important thing to do — that’s the win,” Norquist told TheDC. “If we hold the sequester, we never get back into the grand bargain of the Democrats: That’s 10 years to get Republicans back into White House, Senate, then you pass the Ryan budget bill … pay down the national debt — that’s winning.”

So why is sequester being discussed as a bargaining chip at all? For long-term non-discretionary cuts, Norquist explained. Sequester works by cutting gradually into discretionary spending, with the most dramatic cuts in the first two years. Democrats say they want the first two years of cuts to conform more closely with the later, gradual cuts, and that is where Norquist said there is wiggle room.

“What Ryan is looking to do is say we can loosen what they say is the ‘choke collar’ over the next two years,” Norquist argued. “We don’t loosen sequester, we unbuckle the two-year choke collar in return for savings over 10 years, including pensions and other things that wont just change over 10 years, but over 20 or 30 because it’s a law, not a promise.”

But “the only reason to loosen it is if you’re getting permanent savings,” Norquist cautioned. “Permanent reforms, like federal employees paying more of their pensions and health-care costs like Wisconsin did. That saves money not just for 10 years, but for 100 years. You’re never going to undo that. Those reform that go past the 10-year window, that’s what Democrats are trading — spend a little more today for permanently losing access to higher spending in 10 years.”

But Americans for Prosperity isn’t buying it: In a letter to offices on Capitol Hill, the organization said it would score politicians negatively for voting spending levels above those mandated by the caps, explaining, “Now is a critical time to get spending control. … Passing a continuing resolution above $967 billion will trigger the same across-the-board cuts that ushered in President Obama’s histrionics earlier this year.” (RELATED: Another conservative group comes out against expected budget deal)

And don’t expect any major reforms to come through anyway, a senior staffer for a conservative senator told TheDC.

Why? Because of the very process: “Spending by continuing resolution rather than the normal appropriations process creates these series of hard deadlines that make it more difficult for us to actually reform the way Washington spends money, because you create this deadline where if you don’t pass a spending bill by that day then you have a government shutdown.”

“When the crisis isn’t entitlement reform or fixing the debt — and it’s how do we keep the government open — you already start with people who don’t have the will to fight because if they believe if they do it will just lead to a government shutdown and be bad for one party or another,” the staffer continued. “So the goal for these negotiations is to find a way to maintain the status quo and go back to your party and say we got something.”

But the range of powerful fiscally conservative groups aligned against negotiations are clear: Sequester is the status quo — the law of the land — and Republicans have no excuse to bend on it.

“Americans are not against sequester,” one staffer at a powerful free-market organization told TheDC. “The president tried really hard to scare the living daylights out of the American people on this and it didn’t work because people realize spending is a problem. Republicans have all of the leverage on this: They have the wind on their backs — the cuts in place — and they’re about to trade their only policy win for nothing.”

And besides Democratic control of the White House and Senate, a major threat to any hope for Ryan to win in negotiations comes from defense appropriators in his own caucus.

“Fighting for sequester isn’t just not sexy, half our caucus disagrees with it because of what [cuts from] the military,” the senior staffer for a conservative senator told TheDC. “We would love to be able to fight on spending levels, but we all know that spending levels is not going to get people unelected, so you’re going to find the debate over $967 billion vs. $1,058 billion — those things don’t translate into electoral victories like Obamacare does.”

“There’s no question they can find the votes with Democrats to pass this in the House,” the staffer lamented — “and definitely in the [Democrat-controlled] Senate.”

“The danger we have right now, and the threat to the tea party’s accomplishment, is Republican appropriators on the Armed Services Committee,” Norquist agreed. “They’re the ones who are threatening to bust sequester permanently.”

But Ryan can keep them in line, Norquist argues, with the right deal: “Now, if we can get through these two years by moving things around at the same dollar amount, that would be fine,” he told TheDC. “Not a victory, but putting us in a position to maintain sequester — and removing the possibility of the Armed Services [Committee] guys throwing in with the Democrats. … House leadership is very happy with sequester numbers, Ryan’s position is we can live with a sequester — we’re happy with a sequester.”

“But the Republican leadership doesn’t like sequester any more than the appropriators do,” a policy analyst at an organization opposed to busting the caps told TheDC. “To a lot of these establishment guys, [sequester] is a big ding — it takes away their power. An appropriator’s power doesn’t have anything to do with entitlement spending — their power is to write those [spending] lines.”

But what of breaking caps for a pension deal?

“Replacing cuts with revenue — be it from reportedly suggested spectrum sales, airline passenger fee increases or increased revenue in pension reform — what you’re doing is increasing revenue for spending,” a policy insider opposed to busting the caps told TheDC. “The only good deal here is to bank discretionary savings and then use these things to deal with the debt. Negotiating on the caps is [House Minority Leader Nancy] Pelosi’s version of pay-go: more spending, more revenue. And it’s against the goal of conservatism, which is smaller government.”

“The reason Social Security is not going bankrupt like Medicare is in 1983 they got the age limit moved up over years, and it didn’t even start until [President Ronald] Reagan was out of office,” Norquist offers as proof of negotiated, legal entitlement tweaks working. “So the amount of savings some of these things would generate in the tail, that would be significant.”

Still, examples of future Congresses passing “fixes” to laws that were originally designed to reign in spending abound as well.

It’s worth the fight, Norquist says: “If you change the law and say, ‘People, when they pay for federal government workers will pay x percentage of pension benefit costs, x percentage of health-care costs,’ if you begin to move that toward private sector levels, it’s a tremendous saving for taxpayers because it remains indefinitely: savings not just in years one, two, three, but 10, 20, 30.”

“We would love to see pension reform, but it’s not going to be locked into this budget bill,” Americans for Prosperity president Tim Phillips told TheDC. “There might be some vague promised, but we know what happens when Washington politicians make promises — they get discarded, just like the sequester.”

“I don’t see any scenario, really, [where pension reform works],” Phillips continued.

What, then, can fiscal conservatives call a win?

According to Norquist, the goal posts are: “Did we avoid tax increases; did we maintain sequester at the same or better levels; and did we change laws that will save money past the window people are looking it?”

“And the Democrats are willing to make some of those changes because they are so present-oriented,” Norquist argued. “They took some of the big ones like Medicare off the table, but what is likely to happen is for two years, we’ll let [Congress] spend more money than you were planning in those two years, but then the reforms will take effect, so the savings you maintain in sequester stay intact and are greater over the long term. And I think Ryan will be able to accomplish it.”

“That’s the game plan,” Norquist concluded. “And one of the dangers is [House Armed Services Committee Chairman Buck] McKeon and defense appropriators holding. Everyone else is holding, leadership is holding — it’s the appropriators.”

And, of course, the president. And the Senate.

“The only way we can actually cut spending or defund Obamacare, the only way to do that legitimately, is to take back the Senate and win in 2016,” the senior conservative senator’s staffer told TheDC. “But expecting a Harry Reid Senate and Barack Obama to capitulate on these small spending things? That’s a pipe dream.”

“Look how petty [Senate Majority Leader] Harry Reid is on everything,” the staffer continued. “He won’t even allow us amendments on [the National Defense Appropriations Act], which has passed with bipartisan support for 50 years. “We’re not getting anything from this guy. He’s not going to compromise on anything that benefits Republicans on anything — so what we need is an issue where we go back to the American people and say put us back in charge.”

“The American people demanded, and were promised, reasonable spending limits,” Phillips wrote in a letter warning Republicans not to falter in budget negotiations.

“We have held members of Congress accountable for actions on Obamacare,” Phillips told TheDC, “and we will absolutely hold members of Congress accountable if they break their word on sequester.”

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