Please Assume the "Brace" Position for Our Ride Over the Fiscal Cliff

In early September, I made another prediction on which I'd like to double down:

...Maybe the Republicans will suddenly decide to put the best interests of the nation ahead of political power games.  But the problem is that they honestly, truly believe that the endpoint of a successful second term for Obama results in national ruination.  Compared to that, a double-dip recession seems a small price to pay.  Furthermore, repeal of the middle-class tax cuts will mitigate the deficit caused by the recession, which will make the deficit hawks happy.  Bottom line:  the GOP is gonna play scorched-earth if Obama wins.

I don't think this is a good idea.  A double dip will put us way too close to a debt crisis for comfort.  But I'm not sure that the House GOP thinks that a debt crisis can be avoided any more.  Maybe they make the calculation that the deficit reductions from nuking the Bush tax cuts in toto are enough to stave off the debt crisis and give them the political whip hand.

Let's look at this a bit more closely:

1. Short of an encyclical by His Holiness, Father Grover, pontiff of the Church of No Tax Increases Ever, most House Republicans are on pretty firm ground refusing to vote for any replacement to the expired Bush tax cuts, while still getting to execute a huge tax increase that will ultimately remove a big chunk of the deficit.
2. Obama may offer to extend the Bush tax cuts again, but that has a certain Lucy-with-the-football-esque quality to it.  Better to get the pain out of the way early in Obama's second term so he gets blamed for the shambles, rather than getting pinned up against the next mid-term or presidential election.
3. There is no upside to the Republicans for a grand bargain unless it's a clear win for them.  That would involve, at the very least, genuine tax reform and a deal to soft-land the transfer payments crisis at some viable percentage of total outlays (60% would be my guess).  I think Obama's too arrogant to take that deal.  (Minor prediction:  We'll hear at least one of the phrases, "Elections have consequences" or "I won" from the President some time in the next 3 months.)
4. There is nothing but political upside for the GOP to doing nothing.  Things going to hell in a handbasket three months after Obama's reelection has a cause-and-effect association that will impress even the lowest of low information voters for a long time.  ("Long time" >= 4 years.)

In short, the only thing that saves us is if Obama is willing to take a big, yummy bite of Mr. Boehner's Famous Crap Sandwich.  ("Ya want dingleberries on that, Mr. President?" he asks with a big,--oh, what's that modifier?--grin.)  I'd love to believe that Obama has the character to understand his position and do the right thing, but I think we're way too close to his blind spot for him to exhibit the necessary self-awareness.

Oddly enough, tax reform could be Obama's salvation.  You can hide a huge tax increase under the guise of "reform" and nobody will be able to figure it out.  But it'll come at a price, one that will look oddly Romneyesque when the dust settles.  My proposal:

• Across-the-board rate reduction of 5% in exchange for capped deductions and a reversion to the 20% capital gains rate at incomes above $500K.  Similar corporate tax reform.  The package should bring in $1 trillion over 10 years.
• An additional $2 trillion out of Medicare and Social Security over 10 years.  The best solution would be to means-test both programs.  I don't think Obama can go for premium support after all the stupid things he said during the campaign, but he's gonna have to throw the GOP a bone that convinces them that he's not going to get the savings with price controls.
• A targeted set of reforms to ACA:  a reduction in IPAB's power and smoothing over the small business penalty for hiring the 50th employee would go a long way.
• From there, we're down to needing about an extra $1 trillion in cuts over 10 years.  This is within the zone of possible agreement between Obama and the GOP.

It's doable, but I have to say that the GOP has a massive strategic advantage going into this.