The GOP Case for Higher Taxes on the Rich

George Will has noted that "the proper name" for the fiscal cliff is "the Democratic Party's agenda" because the Democrats would be much happier to go over the cliff -- with its tax increases and defense cuts -- than would the Republicans. Is the Obama administration willing to hop off the cliff if high-income tax rates are not increased? "Oh, absolutely," said Treasury Secretary Timothy Geithner, on December fifth. "There's no prospect in an agreement that doesn't involve the rates going up on the top two percent of the wealthiest."

Republicans need to recognize their weak negotiating position and structure a deal to keep rates as low as possible -- lower than where they will automatically be if no deal is made.

HOW TO MAKE A DEAL

How to structure the deal? Publicly and unequivocally accept rate increases, but insist that they come paired with true spending cuts. Agree only to pass a tax rate increase, but not all the way to the Clinton rates, if it paired with a bill which includes true entitlement reform. Or, if there's not enough time for that, agree to a one-year rate increase that's paired with a few structural reforms, like increasing the Medicare eligibility age or means testing, with the understanding that the bill will be renewed the following year only if paired with true comprehensive entitlement reform.

Both parties need to have skin in the game. Politically, the hardest thing to ask of the Republicans is that they propose an increase in tax rates. The hardest political feat for the Democrats is to propose entitlement reform. Employing only-Nixon-can-go-to-China logic, both must occur. Acknowledging their weak bargaining position, the Republicans should go first and unequivocally accept rate increases for the wealthiest two percent. Then the Republicans would have the credibility to argue that they have done their part, and demand that the Democrats put forward a serious plan for entitlement reform.

Imagine if the Republicans offered this deal. The dynamic of the debate could change completely.

Instead of all the attention being on the Republicans, their unwillingness to ask a bit more from the wealthiest among us, and the Norquist pledge, the spotlight would shine on the Democrats. Are they really willing to cut spending? Are they really willing to reform entitlements?

All of the sudden, the Democrats would lose their main talking point -- a talking point which they have been employing, successfully, for over a decade.

All of the sudden, the Republicans would look like the reasonable adults, putting country before politics -- which they would be doing. The onus would be on the Democrats to match their seriousness. If the Democrats fail, then we may fall over the cliff, but the country knows it was because the left couldn't agree to cut spending. If the Democrats succeed, then the country is better off because we've crafted sound, necessary policy.

Shouldn't the Republicans just pass an extension of the Bush tax cuts for families earning less than $250,000, avert the cliff, eat the tax increase on top earners to the full Clinton levels, and take up entitlement cuts when they have more leverage during the upcoming debt ceiling fight? No. Now is the time, because only now can the Republicans earn the political capital which comes from sacrificing a strong policy preference for the good of the country, and because it's very unlikely that the president will agree to lower top rates from their Clinton levels as part of a debt ceiling negotiation after he's just won the battle to raise them.

Plato tells us that prudence is the chief virtue of statesmen, and conservatism agrees. It is time for the Republican Party to reconnect with conservatism properly understood and to employ the politics of prudence, gaining as much political and policy ground as possible by unequivocally accepting higher tax rates.

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Michael R. Strain is a research scholar at the American Enterprise Institute.

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