FROM DENIAL TO ACCEPTANCE

12.17.12

GOP Leaders Finally Ready to Cave on Taxing the Rich

Boehner, McConnell, and other key Republicans are signaling they’ll agree to make the top 2 percent pay more. Many GOP House members still aren’t on board, but they need to realize the war over higher taxes on the rich is over, says Daniel Gross.

Fiscal cliff hostage situation, day 40. It’s taken six weeks, but President Obama has finally got the Republican House leader to make the case for a more progressive tax system. In an effort to resolve the fiscal cliff impasse, John Boehner reportedly has offered to raise income-tax rates on people who make more than $1 million a year—but if, and only if, Obama agrees to entitlement cuts. In addition, The Washington Post reported, Boehner also has offered to take the toxic debt-ceiling debate off the table for a year.

Like those Japanese soldiers holed up in caves on Pacific islands in 1945, the House Republicans don’t seem to grasp that the war over higher taxes on the rich is effectively over. This war ended, of course, with the election. Because it meant there would be no President Romney to demand the continuation of low tax rates. And because the Republicans, failing to take back the Senate, had no way to move legislation on their own preserving the Bush tax cut. And because the Republicans instantly lost hope of repealing Obamacare, which levies higher payroll and investment taxes on the wealthy. And because for the second straight time, the nation’s voters elected to office a president who had campaigned on the explicit promise to raise taxes on those making $250,000 or more.

And yet, it took several weeks for the reality to set in. The initial Republican orthodoxy seemed to be that Obama’s reward for winning a second term should be to capitulate to Republicans on taxes and propose deeply unpopular entitlement cuts. But as the fiscal cliff hostage situation has dragged on, and as the Obama administration has developed an effective stiff arm, the Republican mood has shifted from denial to acceptance—especially in the Senate.

Several Senate Republicans have come out and said the best course might simply be to cut a deal with Obama to preserve the low tax rates for the overwhelming majority of taxpayers and to let the top 2 percent who earn more than $250,000 in taxable income per year shell out a little more. Even Minority Leader Mitch McConnell, the most hardened partisan warrior in the Senate, seems to be backing this plan. And that’s a pretty major concession.

But the House Republicans—a very conservative bunch who generally hail from safe districts—aren’t quite on board. And Speaker Boehner is reluctant to get out too far ahead of his caucus in advance of an impending intraparty election early next year. So his proposal to soak the very rich, while welcome, doesn’t really advance the ball much. Sure, this marks a step toward Obama’s position. But keep in mind, the president gets much larger tax increases on a broader swath of the very rich without entitlement cuts come Jan. 1.

The Republicans want Obama to own the unpopular cuts to Social Security and Medicare they have long wanted to impose. In exchange for agreeing to the higher tax rates on the seven-figure crowd, Boehner wants, according to Politico, “to use a new method of calculating benefits for entitlement programs known as ‘chained CPI,’ which would slow the growth of Medicare and other federal health programs and save hundreds of billions over the next decade.” Unlike Paul Ryan’s proposals, which would protect those over 55—the core Republican constituency—from any significant changes, this suggestion would affect people who currently rely on the program. The Republicans, of course, want Obama to own those changes. (I wouldn’t put it past them to then run against Democrats in coming election for making benefits more stingy.)

Boehner hasn’t quite pushed the GOP’s wealthy constituency under the bus. But with time running out, high earners would be well-advised not to stand too close to the curb.

For his part, Obama doesn’t mind owning the higher tax rates on the wealthy. He ran on them twice. But he does want Republicans to own them, too. Obama isn’t simply waiting for his interlocutors to concede the inevitability of higher taxes on the rich; he’d prefer for them to make the case for a more progressive tax system. And not just through some vague promises of future reform and the closing of loopholes and the capping of deductions that can’t be named. No, he wants Republicans to throw the rich under the bus.

Boehner’s proposal is still a nonstarter. To accept any changes in entitlements, Obama will need Republicans to expose a larger chunk of people to higher taxes. That will likely come in the next few weeks—before or after the nation goes over the cliff. Boehner hasn’t quite pushed the Republicans’ wealthy constituency under the bus yet. But with time running out, high earners would be well-advised not to stand too close to the curb when the House leadership is assembled at the stop.