We’ve already ‘soaked the rich.’ Republicans should admit it, and use it.
It is hard to believe the Republican Party is in the business of politics. They are so bad at it.
Any casual observer knew the Democrats would never back away from the signature program of Obama’s presidency. Besides, the fight over Obamacare took attention away from the alleged focus of the Tea Party movement — the budget deficit.
As further proof of Republican bumbling, the Democrats have succeeded in steering the popular press wisdom as to why no “grand bargain” can be reached to the idea that Republicans will not entertain any tax increase.
It is almost impossible to read an article on the next impending impasse without encountering this diagnosis. The fact that it is patently false does not seem to bother anyone — including the Republican Party.
In 2013 alone the following tax increases have taken effect on high-income taxpayers:
1) The top income tax rate for individuals has increased from 35 percent to 39 percent;
2) The capital gains rate (including the tax on dividend income) has increased from 15 percent to 20 percent;
3) A surtax of 3.8 percent is added to their investment income;
4) An additional 0.9 percent tax is added to their FICA or self-employment income;
5) The personal exemption deduction is phased out and eliminated; and
6) Itemized deductions are limited.
Together, these provisions represent a huge tax increase on high-income taxpayers and are in keeping with President Obama’s pledge to limit tax increases to single taxpayers earning more than $200,000 and married taxpayers earning more than $250,000. But in no way can anyone plausibly argue that the Republicans haven’t been agreeing to tax increases. Yet everyone does, including the Republican Party itself, which apparently doesn’t want to claim, or even acknowledge, these recent tax increases.
So what will be the basis for compromise come January, when the next game of chicken is scheduled? Obama is on record ruling out tax increases on those earning less than $200,000. Yet the truth of the matter is that you can tax millionaires all you want and there simply aren’t enough tax dollars there to have a significant impact on the budget. Besides, as demonstrated above, we have already “soaked the rich” with additional taxes this year.
So it appears the Democratic Party’s position is to not make any changes in the entitlement programs driving the deficit and debt, while agreeing with the Republican Party that taxes on those earning less than $200,000 should not be raised. Since taxes on “the rich” have already gone up significantly, exactly what is the Democratic plan to reduce the burgeoning debt? Am I the only one who can’t figure it out?
Whether or not you agree with its ideas, the Republican Party, through Rep. Paul Ryan and others, has put forth specific plans to reduce entitlement programs and other spending. The Democratic Party has been adept at blistering these proposals, while avoiding any specific counterproposals themselves. While this makes great politics, it makes lousy governance. Yet the recent spectacle has only reinforced the perception that only the Republican Party causes the lack of compromise, upon which governance depends.
So here is some unsolicited political tax strategy for the Republican Party: First, acknowledge the myriad tax increases that went into effect this year. This would include the 2-percentage-point restoration of the payroll tax that impacts most taxpayers. Like the Affordable Care Act, the tax hikes aren’t going anywhere, so don’t pretend they didn’t happen. Rather, take away the canard that Republicans won’t agree to any tax increases.
Second, agree to listen to a Democratic plan to reduce the debt by a set amount, such as $5 trillion over the next 10 years. Force the Democrats to either propose a massive tax increase to the middle class or some real changes to the entitlement programs.
Finally, be willing to compromise. If politics is the art of the possible, the Republican Party has utterly failed. It does no one any good to draw lines in the sand. Some additional small tax increases to obtain serious spending reductions are a good deal.
Such a strategy would reveal that the Democratic Party has no clothes. Either it would have to enact a massive tax increase or finally address the entitlement program dilemma. In one fell swoop the Republican Party will have taken back the political high ground, while at the same time opening the door to true compromise that will be necessary to bring the budget under at least some short-term control. Such a strategy makes political sense.
Of course, we are talking about the Republican Party, so it will never happen.
Paul Gutterman is director of the Master of Business Taxation program at the University of Minnesota’s Carlson School of Management.
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