Impasse

The real impasse in the current fiscal cliff negotiations can't really be blamed on either the president or the Republicans in Congress. The real culprits here are the extreme wings of both parties. House speaker Boehner is under tremendous pressure from the right not to raise any taxes.  President Obama is under tremendous pressure from the left not to cut a penny from entitlements.  Since realistically it will take both tax increases and entitlement cuts to make any difference at all in the current fiscal problem, this resistance from both extremes makes these negotiations almost impossible.

I would guess that the president is prepared to go over the fiscal cliff rather than drop his demand to raise taxes on the wealthy, even though, as I have pointed out before, taxing the wealthy more makes almost no difference to the problem. But he campaigned on this as a populist position, and seems determined to go through with it even though it is only a cosmetic change.

He would be unwise to do that, though, because he faces yet another fight in a few months when we once again reach the federal debt limit and he has to ask Congress to raise it again.  If he proves too intransigent in these talks, and leaves the Republicans embittered enough as a result, the Republicans may well decide they have nothing to lose letting the country default on the federal debt in response.

A reasonable deal would let all taxes, including middle-class taxes, increase significantly and would make significant cuts in both entitlements and military spending.  But it would phase these changes in slowly, over several years, so as to limit the drag on the slowly-recovering economy.  That would require both sides to compromise. But it's not likely to happen.