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It appears that Dems and Republicans are ready to strike a deal this week on the tax cuts issue.  Reports indicate that Repubs will allow an extension of unemployment benefits in return for a temporary extension of the Bush tax cuts across the board.  No doubt progressives will be pulling out their hair in protest and calling it another instance of the President caving in to the party of No. Paul Krugman agrees but adds another angle to the story.

Democrats have tried to push a compromise: let tax cuts for the wealthy expire, but extend tax cuts for the middle class. Republicans, however, are having none of it. They have been filibustering Democratic attempts to separate tax cuts that mainly benefit a tiny group of wealthy Americans from those that mainly help the middle class. It’s all or nothing, they say: all the Bush tax cuts must be extended. What should Democrats do?

The answer is that they should just say no. If G.O.P. intransigence means that taxes rise at the end of this month, so be it.

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Yes, letting taxes go up would be politically risky. But giving in would be risky, too — especially for a president whom voters are starting to write off as a man too timid to take a stand. Now is the time for him to prove them wrong.

Krugman’s argument is that temporarily extending the tax cuts for the rich will lead to an eventual permanent tax cut for the top 2 percent.  The logic being that if Republicans can win the argument now, there is no reason they should not win the same argument in two years.  This would lead to a $4 trillion loss in revenue over the next decade thereby creating a fiscal crisis – one where serious cuts in government spending would need to be made.  At the top of the list of cuts?  Social Security and Medicare.

Ezra Klein, meanwhile, explains why “middle class tax cuts” is a misleading term.  The following chart shows how much taxpayers would gain from the tax cut proposal offered by each party.

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The term “tax cuts for the middle class,” which Democrats like to use, has misled. As you can see from the left side of the chart, the “tax cuts for the middle class” also cut taxes on the rich. A family that makes $750,000 a year would pay lower taxes on the first $250,000 of their income. The question has never been whether only middle-class workers should get a tax cut. It’s how much income the tax cut should cover.

It’s a tough call for Dems any way you view it.  The unemployed have been held hostage by Republicans and while tough talk about holding one’s ground sounds noble, the fact remains that unless there is another way of getting an extension of unemployment benefits passed by Congress before the end of the year, millions of Americans are going to get hurt.

The question has become whether or not Dems give in to the blackmailer’s demands.

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