The 2012 Fiscal Cliff Negotiations - Part 5: Where the Talks Stand Now; Compromise in the Works, But MIght Take Until 2013

The fight over the fiscal cliff has settled into an uneasy stalemate, with both sides waiting for the other to give a little. At least that's the story coming from the combatants.

With a little more than three weeks left before the automatic tax hikes and across-the-board spending cuts kick in, President Obama and Congressional Republicans are all publicly lamenting the lack of compromise present in the negotiations.

"This isn't a progress report because there's no progress to report," said House Speaker John Boehner of Ohio. "When it comes to the fiscal cliff that's threatening our economy and threatening jobs, the White House has wasted another week."

For his part, Obama is riding high in polls, his popularity at the highest point in his presidency since the killing of Osama Bin Laden a year and a half ago. After a resounding victory in last month's election, he is disinclined to budge on his plan to raise taxes on the top 2 percent of wage earners in the country, especially with progressive groups and unions eager for economic policies that favor the middle class.

Republicans balk at returning tax rates on Americans making more than $250,000 a year to the levels seen under Bill Clinton, even though that period saw tremendous economic growth and innovation.

But if a compromise can't be reached, that's exactly what will happen.

Still, there is more room to maneuver than most people let on.

The president has hinted that tax rates for the wealthy may not have to return to the 39.6 percent level they paid under Clinton. Perhaps 37 percent will do for now. And the cutoff for the higher rates need not be $250,000 a year. It might go as high as $500,000, or even $1 million a year.

Or small business owners might be exempt from the higher rates altogether, robbing Republicans of one of their most touted arguments.

For their part, Republicans have at least conceded that new revenues need to be raised, though they have yet to agree to raise them through an increase in the marginal tax rate. Instead, Boehner prefers to limit tax deductions, though many of those are very popular with the middle class.

Boehner also wants deep cuts in Social Security, healthcare and other entitlement programs, but liberal groups are urging Obama to keep Social Security and Medicare off the chopping block.

But more Republicans are coming to the conclusion that they don't have enough leverage to get the result they want.

About 50 Republicans have signed onto a plan that enacts Simpson-Bowles, a bipartisan bill that raises taxes and cuts spending.

Senator Tom Coburn of Oklahoma said he would prefer to raise marginal tax rates than close loopholes and limit deductions.

Obama seems poised to go over the cliff if he has to, confident that he can clean up the mess once Republicans realize he's not bluffing.

And conservatives will have little choice but to follow his lead. They want to avoid higher taxes, but that's exactly the de facto scenario if they can't come to an agreement. Any compromise will actually result in lower rates than if they stand their ground, but they'll hold out as long as they can to save face, in the hopes that Democrats will buckle sooner.

That's unlikely.