I don’t know how much Americans are focusing on what’s happening with the payroll tax fight, but this is a big bleeping deal that could have a major impact on the 2012 elections. And it’s make or break time for President Obama.

As you probably heard, yesterday the House Republicans officially nixed the two-month extension of the payroll tax hike, unemployment benefits, and the Medicare “doc fix.” The “doc fix” is a legacy of the 1997 Congress that ties physician reimbursement rates to growth (or not) in the GNP. Since 2003 Congress has voted every year to defer changes, meaning cuts, to physician reimbursement rates. And every year the amount that is deferred gets bigger.

That last part is not getting as much media attention, but if the “doc fix” isn’t fixed, on January 1 Medicare physician reimbursements will be cut by 27 percent. The Administration says it will hang on to bills until January 18 in anticipation of having a deal by then. Even so, if any of you are on Medicare you might want to get any planned medical procedures out of the way before the end of the year. If he cut does go into effect, a lot of doctors are likely to stop seeing Medicare patients.

Of course, the increase in payroll taxes will likely get some attention from workers. And three million people could lose unemployment benefits.

Congressional Republicans are in love with this hostage taking maneuver. Last year congressional Republicans took the “doc fix” hostage by demanding a repeal of the Affordable Care Act in exchange for the fix. A deal was reached on December 9, 2010, that passed the fix for one year, paid for by tweaking benefits in the ACA. That probably encouraged them to engage in the debt ceiling hostage taking stunt this year.

But now it’s December 21, and I understand the Senate officially adjourned for the year after their vote on Saturday. Many House members have packed up and gone home also. President Obama and Sen. Harry Reid say they will do no more bargaining until the House approves the two-month extension. Take it or leave it.

So the propaganda war begins. The House Republicans initially defended themselves by saying they wanted only a 12-month deal, because a two-month deal would be burdensome on payroll software companies. Seriously.

Ezra writes,

The beginning of clarity on this is to realize that it’s not about the payroll tax. If Republicans wanted a clean, one-year extension of the payroll tax, they could get the vote of every Democrat in the House and Senate and this would be done tomorrow.

Rather, this is about finding agreement on two things: the policy concessions that House Republicans will accept as payment for the payroll tax cut, and a process that House Republicans will accept as legitimate in securing those concessions.

Remember, Mitch McConnell had negotiated the two-month extension with Harry Reid, which the Senate overwhelmingly accepted on Saturday so they could all go home. McConnell was supposed to be representing the House as well as the Senate, and the House revolt against the deal was a surprise to Republican leadership. Now they’ve got to defend it.

John Boehner is holding out for a conference committee, and Ezra explains why:

First, it offloads the compromises on a coalition of negotiators who come from different wings of the House Republicans. That protects Boehner in the final agreement. Second, it creates a procedural argument that distracts from the underlying disagreement: House Republicans won’t want to extend the payroll tax cut except in the absence of extraordinary policy concessions, like the immediate greenlighting of the Keystone XL oil pipeline. Third, it lets Boehner spend some time standing up to the Senate and the president who are trying to rush a compromise through the House — a move that perhaps gives him some political capital he can spend on the ultimate compromise, as he’ll have proven to House Republicans that he didn’t capitulate at the first sign of pressure.

But the Dems are out telling the world that if the payroll tax cuts expire, this is entirely the House Republicans’ doing. And I say call that bluff. Thomas Schaller says,

The payroll tax fight provides the president a rare opportunity to pull together so many of the loose threads of his presidency. This is the opportunity for the former law professor to be an educator-in-chief about the growing disparities between those who derived incomes from wealth and those who derive them from work. It is an opportunity to prove that he can stare down and unmask the rump Republican national minority that pretends its House majority represents the public will. It is a chance to prove that Washington’s rigged game need not always result in the spoils of political victory going automatically, or at least disproportionately, to the economically spoiled. This is, in short, a moment for the president to demonstrate the resolve that earned his hopeful believers’ support three years ago, and it comes as he begins asking the electorate for another four-year lease on the Oval Office.

Right now, conventional wisdom says the House GOP might sign off on the extension on the condition that the Dems agree to go to a conference on a one-year extension by February 1. The next most likely outcome is that the payroll tax cut, etc., will be allowed to expire. There is a slight chance the House will propose a one-year extension offset by money budgeted for Iraq and Afghanistan. There is little expectation either side will capitulate entirely.

And someone needs to tell Shiela Jackson Lee to STFU. The President doesn’t have the authority to override Congress on a tax bill, and she’s not helping her party by arguing that he does.

Related: More proof that wingnuts have the emotional maturity of six-year-olds.

Update: See also Steve Benen. It appears the enormous majority of Washington Dems want to let the House Republicans hang themselves.