how does the balance of power in Washington shift?
1. Taxes are immediately raised on everyone, including the upper 2%. Obama has always been willing to keep the Bush tax cuts for the other 98%. Now the GOP will have to find a reason to turn down reinstating the Bush tax cuts for the 98%. Good luck explaining that to the 98%.
2. Millions of taxpayers will get a triple whammy. (a) FICA withholding will go back up; (2) marginal tax rates will rise; and (3) millions of middle-income taxpayers will get his by the Alternative Minimum Tax. Obama has always been willing to extend the FICA holiday, keep the Bush tax cuts for the 98% and "fix" the AMT. Now, the GOP will have to explain to the 98% why they are getting the triple whammy. Good luck on that too.
3. The "marriage penalty" will return.
4. Defense contractors will begin large-scale layoffs.
5. State and local governments will cut services even more.
Although both the President and the Republicans will get some of the blame, polling data indicates that the public blames the GOP far more than it blames the President.
Given all that, I will be greatly surprised if the GOP doesn't cave at the last minute and take the deal that the President has been offering, perhaps with some fig leaf thrown in to make it look as if the holdout was worth it.