Ezra Klein on how the Democrats had the upper-hand on taxes and threw it away:

It's very important to realize how strong of a hand Democrats had -- and to some degree, have -- on the Bush tax cuts. Right or wrong, the Democrats' original position on this was that the tax cuts for income under $250,000 should be extended, and the tax cuts for income over $250,000 should expire. The public agrees: 49 percent share the Democrats' position, 14 percent want all the tax cuts to go, and 34 percent want to see all the tax cuts extended. Put another way, 63 percent of Americans don't want the tax cuts for the rich extended.
The GOP understood this just fine: Back in July, Rep. Dave Camp, then the ranking Republican on the House Ways and Means Committee, admitted that his party couldn't hold tax cuts for the middle class hostage in order to secure tax cuts for the rich. "I'll probably vote for it myself," he said of the Democrats' proposal. In September, John Boehner joined him. "If the only option I have is to vote for some of those tax reductions," he told Bob Schieffer, "I'll vote for it."
Democrats, it seemed, had won this one. They had the popular position, the president's veto pen and control of the Congress. But they simply refused to carry the ball over the goal line. Instead, they began negotiating with themselves, talking about millionaires' brackets and short-term extensions. Republicans noticed the Democrats' disarray and lost their fatalism: "Incoming House Majority Leader Eric Cantor (R-Va.) said on Bloomberg Television he was ready to instruct GOP members to vote down legislation Democrats plan to bring to the floor that would extend the expiring Bush-era tax cuts only for the middle class."

The counter-argument is that Democrats couldn't risk letting the tax cuts expire. Here's how David Leonhardt made the case in the New York Times the other day:

Much of the recent commentary about the tax cuts has skipped over this political reality. It’s instead focused on how tough the Democrats should be and whether they should insist on the expiration of all the Bush tax cuts on income above $250,000 a year. But that’s no longer one of their options. Unless they believe they will benefit more than Republicans from a standoff in which taxes go up, which is hard to believe with a Democrat in the White House, their only choice now is among various versions of retreat.

So the idea here is that, if taxes go up, Democrats will get stuck with the blame because everybody knows Republicans hate taxes. It's not that Democrats wimped out, it's that any party has to tread carefully on an issue where the other party holds a historic advantage.

I think that's the wrong analysis for a couple reasons.

First, Republicans may have more credibility on taxes in general, but they also have the liability of being seen as too close to the rich and big business. Throughout the debate, Republicans have made it perfectly clear that they do not want to be in a position to have to vote for an unpopular tax cut solely for income over $250,000 a year. Indeed, all the maneuvering is to avoid putting the GOP in that position. That's a weakness Democrats have failed to exploit.

Second, we can test this by looking at analogous issue where the shoe was on the other foot. In 2003, Republicans were trying to pass the Medicare prescription drug benefit that George W. Bush had promised during the 2000 campaign. For various reasons, the bill was not to Democrats' liking -- it was basically designed to maximize profits for insurers and the prescription drug industry, rather than to deliver a needed benefit at the most affordable price. I remember asking Senate Democratic sources if they would filibuster the bill, and they replied that they wouldn't dare oppose popular legislation like that.

If they were thinking like Republicans think today, they would have blocked the bill, and then in 2004 campaign against Bush for failing to pass the bill he had promised. They didn't do that. Perhaps they feared Bush's power, as president, to shape the terms of the debate and put them on the spot. That would be a valid fear. But that would also be reason for them to hold tough on tax cuts today.

The fact is, blame for failing to extend the popular elements of the Bush tax cuts should be placed on Republicans. They're the ones who won't extend a bill like that without getting something (unpopular) in exchange. Instead, Democrats have simply assumed that they'll get stuck with the blame and there's nothing they can do about it.

I think the sense among liberals that Democratic leaders simply need to get tougher is generally overblown. It's usually not that simple. In this case, it really is. They took a strong hand and threw it away because they assumed in advance they can't win at politics.