Republicans will cave on the question of raising the tax rate for the highest-income Americans. The only question is whether they do so before or after the government goes over the so-called fiscal cliff.
First, many in the GOP do not believe that raising the rate on top earners from 35 percent to 39.6 percent (the rate before the Bush tax cuts) would seriously damage the economy. Second, they know that most Americans approve of higher taxes on the top bracket, and President Obama, having campaigned and won on that platform, seems dead-set on higher rates. Third, they fear that if the government does go over the cliff and Democrats propose re-lowering taxes for everyone except the highest earners, Republicans would be in the impossible position of resisting tax cuts for 98 percent of the country on behalf of the top 2 percent.
Of course, raising taxes on the top bracket will not produce anywhere near enough money to avert a debt crisis down the road. Nor will cuts strictly in discretionary spending, although some should be made. The most important thing is reining in entitlement spending. So a deal would be: Republicans agree to raise the top tax rate while Democrats agree to cut entitlements.
"You need about $4 trillion over the next decade to stabilize the debt," says former Congressional Budget Office chief Douglas Holtz-Eakin. "I would happily go from 35 percent to 39.6 percent in exchange for a trillion each out of Medicare, Medicaid, and Social Security. That has to be the nature of the deal. Republicans give on taxes, and Democrats have to give on entitlements."
The GOP moved an inch in that direction Monday. In a letter to President Obama, Speaker John Boehner and the House Republican leadership proposed $800 billion in new tax revenues, along with about $1.4 trillion in combined cuts to entitlements and discretionary spending. But the GOP still resisted any increase in tax rates, which they "continue to oppose and will not agree to."
Instead, Republicans insist the new tax revenue will have to come from eliminating deductions and broadening the tax base, which is far more complicated -- and therefore difficult to sell to the public -- than Obama's relatively simple plan to raise taxes at the top.
A Republican offer to allow a top rate increase in exchange for entitlement cuts would turn the spotlight on the Democrats' entitlement dilemma. If President Obama takes the position of many in his party -- AFL-CIO chief Richard Trumka, for example, has written, "NO to cuts to Social Security, Medicare and Medicaid and YES to fair taxes on the wealthiest 2 percent"-- there will be no deal. But that would not stop the Republicans from saying right now: While we do not support raising taxes on anyone, especially in this weak economy, we will accept the president's top-bracket rate increase in exchange for trillion-dollar cuts in the big three entitlement programs.