Ryan Streeter
Political observers are debating whether Obama is “capitulating” or “triangulating” by expressing a willingness to go along with the Republicans on tax cuts. However one views the issue, one thing is clear: the Democrats’ attempt to own the “middle class” and paint Republicans as millionaires' friends hasn’t turned the public against extending the Bush tax cuts for all income brackets. As Rasmussen points out, Americans are fairly divided over extending tax cuts for all income brackets, but the trends throughout the fall have been in the Republicans’ favor.
The lesson for Republicans right now is this: the American public is more ready than ever to accept unpopular means of jumpstarting the economy. Enough people have gotten the message that extending the tax cuts for everyone - including the rich that everyone loves to loathe - helps growth. And this has helped the GOP gain the upper hand.
Republicans should capitalize on this current momentum and go into the new year making three complementary, though equally unpopular, arguments:
First, should the GOP succeed in getting a full, temporary extension of the tax cuts, they shouldn’t let the issue die. In the new year, they should take the lead in the public debate about more fundamentally reforming the tax code, continuing to argue that lower taxes for everyone is connected to economic growth, period.
The Congressional Budget Office’s (CBO) September analysis of the Bush tax cuts shows that a partial permanent extension (meaning for everyone except high earners) impedes growth more than a full extension, especially with a strong labor response. Under no CBO scenario does a partial extension have a more positive effect on the economy than extending the cuts for everyone.
The conclusion the GOP should draw from this is clear: the evidence is on their side that economic growth and lower taxes for everyone go together. We may not like letting the rich get richer, but if it means that you and I have a better chance at getting richer, then it’s the best policy.
Second, the GOP should build upon the deficit commission’s recommendations and push for lowering America’s corporate tax rate from 35 to 28 percent (if not lower) for the simple reason that it will create the growth that creates jobs. The OECD, no right-wing group, has determined that high corporate tax rates are the single-most harmful inhibitor of economic growth.
Republicans should also embrace former CBO director Douglas Holtz-Eakin’s proposal to couple the deficit commission’s proposal with an end to the U.S. practice of taxing companies worldwide, a draconian ritual that none of our economic competitors practice. Again, arguing that “big business” should enjoy a lower tax rate and less international tax exposure will not win any friends in the media. But it will create jobs, both directly and by growing our international markets.
Third, Republicans should focus on making it more likely that investors will stop sitting on capital and invest it – which again will create new ventures and jobs. They could promote a recent proposal by economists Luigi Zingales and Oliver Hart in City Journal in which the Federal Reserve announces the minimum conditions that must be met to avoid being classified as “systemically important.” Those who cannot meet the conditions will face additional regulation. While a more fundamental reform of the new Dodd-Frank bill is still a good objective, Republicans should also do what they can to refine it now so that capital gets moving. The Zingales-Hart proposal is a good step in that direction. Freeing up bankers to invest and make more money is not popular. But, like the first two proposals, it stands a better chance of helping middle class families than anything the Democrats are proposing. The Republicans can make this point over and over.
Republicans have proved that unpopular arguments can succeed. They shouldn't shy away from continuing to make them - for the sake of the economy and, yes, the middle class.
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