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The looming 'fiscal cliff' -- cataclysm or compromise?

While no can say for sure how the negotiations to avoid the so-called "fiscal cliff" -- the expiration of the Bush tax cuts and impending across-the-board spending cuts -- will unfold, the betting here is it will get ugly before it gets better.

First, virtually no one believes what happened last time will happen this time: President Obama won't cave on extending tax cuts for upper income earners.

So will House Republicans come to the table voluntarily, before the first of the year? Or will it require all hell breaking loose -- an expiration of the income and payroll tax cuts, sequestration, the estate tax, and the AMT kicking in, cap gains and dividend rates rising -- before they are forced to come kicking and screaming to an agreement?

The president holds a lot of leverage here -- not just because he just won, Democrats expanded their majority in the Senate, and gained seats in the House. He holds leverage because, structurally, we're talking about tax cuts that are expiring. His position is clear: The rate for the wealthiest will be allowed to go up. If he is willing to go to the wall and let the the lower rates expire, pressure shifts to House Speaker John Boehner to make a deal before his conference is isolated by the business community, which more than anything wants D.C. to just cut a deal, and Senate Republicans, who cut a deal and sold Boehner out last time. Add to that a tanking market and mounting economic hysteria, and that's a lot of pressure on the House GOP true believers, Allen West or no Allen West.

The conventional wisdom is that Obama and Republicans will make a short term deal on taxes and sequestration -- kicking that can down the road yet again -- contingent on agreement on a "framework" for tax reform to be done in the first part of 2013.

There is incentive for Boehner to try and make an early deal, before the first of the year. The question, as always, is will he have the votes to allow tax rates on the wealthy to rise? Seems doubtful. He would have to be a pretty firm and big commitment from Obama on tax and entitlement reform to get them to go along.

Any framework on tax reform would run a danger of losing Democrats, who weren't happy when entitlements were put on the table in the abortive Grand Bargain. Remember, only half ended up voting for even the ultimate legislation that raised the debt ceiling.

Some smart people believe there will be a compromise between the $250,000 income line that the president campaigned on, and the $1 million threshold floated by House Minority Leader Nancy Pelosi earlier in the year. The trouble with that, aside from the president breaking a vow that he ran and won on, is that as the number rises, revenue drops off quickly. Diminishing returns take away the argument that the money can be used to help the middle class, as promised.  

Of course, there is an element in the House GOP conference that wouldn't mind seeing it all burn down. That's another thing they have going against them in the final conflict over public opinion -- the perception that they're reckless ideologues. House Democrats believe, as many do, that Tuesday was a rejection of the Tea Party. Yes, GOP aides say that there are more "realists" in the conference now. Boehner held a conference call with House GOP Wednesday, before he gave his carefully nuanced and telepromptered address on what's next. The mood was described by one on the call as "hushed" and "respectful." In this telling, the losses they saw Tuesday "shocked the pond" and took them by surprise, opened their eyes so that they now can see the need to make a deal with Democrats. But not necessarily one that involves raising taxes.

And there is the Eric Cantor factor. Will the House majority leader continue to undercut Boehner with House conservatives?

One more thing: It's usually a formality, but the first order of business when the new Congress convenes on Jan. 3 is the election of speaker. Does Boehner want to make a deal unpopular with his conference and passed with the help of the hated Democrats before he is elected?

There is also a belief among some Republicans on and off the Hill that this will be Boehner's last Congress. Which brings up the usual "legacy" argument, the one that says public figures want to be known for accomplishing something, in this case a Grand Bargain that flattens and simplifies the tax code. Again, that's all well and good, but where are the votes?

One key to all this: Paul Ryan. Yes, he voted against Bowles-Simpson. What would he do this time?

Finally, what leads us to believe that we won't see the same brinksmanship and partisan posturing that we always see? The election? Amid impeachment in 1998, the GOP lost seats and overthrew their speaker. Undeterred, just days after the election they fired up more impeachment hearings in the Judiciary committee. The thing about true believers is that they don't calculate the big picture politics, and conservative true believers are still the biggest faction in the House GOP.

In any event, don't expect to see anything but posturing in November. Deadlines are the motivator, as always.

It's likely to be a mess.