How to resolve the fiscal cliff

In my latest column, I suggest another strategy, one the current Republican Party seems quite far from:

 To see how this could work, consider this script: Let’s say the Republicans decide to largely give in to what the President Obama is proposing. There is, however, a catch: the president has to agree to raise marginal tax rates on all income classes, not just on the rich. The tax increase would be one-quarter of a percentage point, or some other arbitrary small amount, with larger increases possible for higher incomes, as has been discussed. The deal also stipulates that both the president and Congress must publicly acknowledge that current plans for government spending can’t be financed unless taxes on most or all income groups climb further yet, and by some hefty amount.

Given the slow economy, it is undesirable to reverse all or even most of the Bush tax cuts. A small but publicly trumpeted clawback of some of the cuts would send the right message to voters, while minimizing the macroeconomic fallout. The nice thing about symbols — single shots across the bow — is that they often can suffice.

If people already rationally expect these tax increases, this signal would do neither good nor harm, but perhaps such an approach would nudge political expectations closer to reality without draining the economy.

And this:

In the minds of many moderate and independent voters, the Republicans are currently identified with dysfunctional politics. But this proposal would let them take a credible stand against obstructionism. If the president didn’t like such a deal, he would be the naysayer, and the resulting publicity would shine a bright spotlight on the tax-and-spend mismatch. Suddenly, it would be the Republicans emphasizing the classic American line that “we are all in this together.”

Read the whole thing.


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