President Obama was prepared to make a lot of really bad concessions to Republicans in order to get a budget deal. He was prepared to permanently extend tax cuts on the first $400,000 of income a family earned while changing the way Social Security benefits are calculated, resulting in a reduction in the checks of many seniors. He was also prepared to cut even more to domestic spending above and beyond what he agreed to in the 2011 debt ceiling deal, while leaving defense spending largely untouched, a modest $100 billion trim over 10 years, barely a drop in the bucket for a cabinet agency whose budget is nearly equal to all the other ones put together. He was also willing to let the payroll tax cut expire, resulting in a tax increase for middle class Americans. In exchange for permanent changes to our tax code and Social Security recipients, he was getting some temporary things in return - an extension of unemployment benefits, some (undefined) stimulus spending and a between 1-2 year extension to the debt ceiling. In other words, a guy who just won a sweeping re-election met his vanquished foes more than halfway and expected his own party members to vote in meaningful numbers to get a bill passed that favored the other party.
While I was baffled by Obama's negotiating strategy (see "Et Tu, Obama?" http://scarylawyerguy.blogspot.com/2012/12/et-tu-obama.html), his chestnuts just got pulled out of the fire by the only guy in Washington who is worse at negotiating than he is - Speaker John Boehner. Boehner, mid-negotiation, decided to try a ploy, bringing a bill to the floor of the House that would extend tax cuts for the first $1 million in income (this covers 99.8% of all income earned by Americans) along with some additional cuts his right wing colleagues wanted. Why he did this was never made clear, but what is clear is that when he tried to get "Plan B" passed, his own caucus rejected it. Now, he has sent everyone home for Christmas, hoping to regroup after the holiday.
If this sounds eerily familiar, a similar thing happened during the aforementioned debt ceiling negotiation in the summer of 2011. At that time, a considerably weaker Obama was willing to cut an even worse deal than the current one - he was prepared to raise the Medicare eligibility age, cut billions from Medicaid and, as he is doing now, agreed to the "chained CPI" change to Social Security, on top of even bigger domestic spending cuts (you might want to read Matt Bai's tick-tock on that negotiation: http://www.nytimes.com/2012/04/01/magazine/obama-vs-boehner-who-killed-the-debt-deal.html?pagewanted=all&_r=0). In exchange, Obama initially was willing to accept $800 billion in tax increases, but, depending on who you believe, either made a late request to raise that amount to $1.2 trillion, or, realized Boehner could not deliver enough votes on the deal they agreed to. The end result was the same, what was a terrible deal for Democrats was scuttled (thankfully).
So Obama can now thank Boehner twice. Republicans could have had a huge win in the summer of 2011, but gambled that Obama would not get re-elected. After he was re-elected, Obama still made Boehner a very generous offer, but now, House Republicans have shown that any deal is going to require most of the votes to come from the Democratic caucus. If Boehner could not get his caucus to approve tax hikes for two-tenths of one percent of Americans while larding a bill with enormous cuts in domestic spending, why would we think he'll be able to get 100-150 of his members to vote for tax increases at a lower threshold, an extension to the debt limit and stimulus spending?
In other words, Democratic votes, and a lot of them, are going to be required to pass a budget deal, whether one occurs before or after we go over the "fiscal cliff." The balance of power, already in the hands of the President and Congressional Democrats, who, bizarrely, refused to leverage it, is even stronger, if they will only use it. If Boehner tries to salvage a deal before New Year's, instead of bringing the President's deal back to the table, Democrats should press their advantage, drop that tax increase threshold back down to $250,000, pull the chained CPI and either extend the payroll tax cut or make up the difference in lower rates for lower and middle class Americans while also pushing for more stimulus spending along the lines of the President's Jobs Act. If we go over the "cliff," only permit tax cuts at the same threshold, while ensuring that a significant amount of money is invested in infrastructure spending and other stimulus that our still-struggling job market needs. What the President should not do is let Boehner off the hook by making additional concessions in an effort to entice enough of his rogue caucus back to the bargaining table. To do that would simply reward bad behavior that has bordered on political malpractice.