So, it looks to me like the president is beginning to break the Republican will on taxes, which is directly due to his hardline negotiating position. Assume the GOP grants the White House a clean middle class tax extension. Most Republicans vote against it, but enough join with the Democrats to pull it over the line. What is there to negotiate over now? The president wouldn't put himself in the position of vetoing a middle class tax extension because it doesn't include a Grand Bargain. Therefore, he will most likely sign such a bill (which as I've argued is the GOP's best strategy).
So, what should the White House do after ending up in such a scenario?
One, the White House could negotiate. They'd get bogged down in negotiations that strictly focus on spending and entitlement. Such negotiations would probably center around the debt ceiling and the adminsitration wont be able to deal with the tax issue since it would have already been taken care of to their satisfaction. We've been down this road before. Democrats would probably get a bad deal from a beaten and angry Republican Party.
Second, the White House could cave on everything but Social Security. This would basically mean mostly capitulating to Republicans on Medicare, Medicaid, and spending overall. Essentially this would involve turning the President on his base to convince us to take the bad medicine after having won a tax increase on the wealthy. It will mean the inverse of what happens during these negotiations: convincing moderate Democrats to join with the Republican majority and allowing progressives vote against it.
Third, the White House could simply cut off negotiations (by stonewalling). Now, there would be a political cost to cutting off negotiations among the Washington punditry. The president would take a pounding from the media. He'd lose some points in popularity for sure. But the president would have two opportunities to reset the debate around effectively cutting off negotiations: the inaugural address and the state of the union. These would have the effect of raising the price of a clean debt ceiling vote. Essentially, this involves stabbing the Republicans in the back on promises of future tax and spending reform made to get the middle class tax cuts extended. Those Republicans who vote for it will get demolished and the president will be called a backstabber. You know how I feel....fuck em.
I like how things are playing out.