Obama is fully aware of this, and he'll hopefully try to avoid it, but the options are limited.

He lacks control of the House and insufficient numbers in the Senate to have any flexibility on the issue except confrontation.

The Republicans will not negotiate unless tax cuts for the rich are preserved in their entirety. For any negotiation to be useful, both parties have to enter into it on a good faith basis, but these Repubs are negotiating without any of that.

In the absence of good faith, the only reasonable outcome is for the talks to break down. The least destructive option becomes simply letting the tax cuts expire.