In the era of Fox News and MSNBC, our policymakers and unfortunately our media outlets have largely abandoned the art of positively describing the positions of both sides. Instead, our commentators often describe one side in glowing terms and the other side as morally bankrupt. While this rhetoric may generate great ratings from each side’s supporters, it creates an environment that unfortunately does not facilitate reasonable discussion or constructive compromise.
In this brief essay, I would like to play the virtual mediator by describing both parties’ positions on tax rates in positive terms, teasing out their real priorities and offering an option that may get the parties and the nation much closer to “yes.”
Conservatives value individual liberty and the principle that, to the maximum degree possible, individuals in a free market society should retain as much of their earnings as possible. This retention of earnings provides increased incentive for entrepreneurs to start new businesses, hire people, and grow the economy. They believe passionately that the worst time to increase rates is when the economy is fragile and the unemployment rate is high because it may slow growth further, reduce employment opportunities and potentially result in less federal revenue.
Conservatives acknowledge the need for federal taxation to fund the nation’s common defense and to take care of the truly vulnerable through programs targeted at their well-being, like Social Security, Medicare, Medicaid, Welfare, and unemployment insurance. Yet, mandatory entitlement programs that apply to individuals regardless of income should be reformed to target help at those at the bottom of the income scale. Conservatives worry about the growing national debt because it is irresponsible for anyone, including government, to spend money it doesn’t have, thereby weakening the economy for our children and grandchildren.
Progressives believe that a vibrant economy starts with full employment and a strong middle class. Massive deficits and debt threaten the strength of our economy and its debilitating short and long-term effects will be felt most acutely by those in the middle and lower end of the economic spectrum. Faced with this economic threat, those who have been most blessed in our strong economy can afford to invest a bit more through federal taxes to ensure a stronger economy for everyone. Progressives believe in a tiered tax system where tax rates increase based on the amount earned. Tax rates on upper income levels are significantly lower than in the past so raising them back to levels experienced in some of the nation’s most prosperous years will benefit the economy by reducing deficits and will not harm the individuals impacted.
Federal revenues as a percentage of the nation’s gross domestic product are at their lowest point in the last 60 years. Balancing the budget should be done by increasing federal revenues to historic averages and making further, modest reductions in spending, while protecting the programs targeted at the vulnerable and the middle class, like Social Security, Medicare, and Medicaid. Our nation, as the wealthiest in the world, should take care of its most vulnerable citizens through federal, state and local programs, and when prioritizing how to reduce the deficit, the most vulnerable should be protected the most.
An option to kickstart the negotiations
Conservatives and progressives have common ground in that both want to avoid actions that will weaken the economy; both want to protect the most vulnerable; both understand the value of a strong middle class; and both feel strongly that the government should not spend more than it collects in revenue. They differ in how to achieve these goals, but there seems to be a recognition among even some Republicans that rates on the wealthiest may have to rise to Clinton era levels. In prioritizing each side’s view, it is fair to say that both sides do not want to take any action that will hurt the economy in the short run, but want to take responsible steps to reduce debt in the long run.
Keeping these priorities in mind, this virtual mediator puts forth the following proposal for both sides to consider: a variable top tax rate that fluctuates based on estimated economic growth in the following year. For instance, the two sides agree to a neutral estimator of economic growth – say CBO. If CBO finds in November that economic growth for the following year is supposed to exceed 3 percent, the top rate automatically adjusts to 39.6 percent. If CBO finds that growth will be between 0 and 3 percent, the top rate stays at 35 percent. If CBO finds that GDP will fall, the top rate actually falls to 33 percent in an automatic effort to stimulate the economy. Obviously, the numbers and thresholds can be negotiated, but the concept is an automatic adjustment based on economic conditions. The trigger could be jobs numbers rather than GDP growth, but the essence is that the top rate varies based on economic conditions.
A rate that adjusts based on economic performance achieves stimulus when needed to jump start a weak economy and increased revenue when the economy is humming, which should then be dedicated specifically to deficit reduction. It acknowledges that the wealthy can and should pay more, but only when the economy will not be hurt by collecting the extra revenue.
Obviously, a deal will require an agreement on entitlements, other spending reductions, and a legislatively fullproof way to dedicate savings and additional revenues to deficit reduction. But, right now, the logjam is over tax rates on the wealthy, and a good mediator with a creative approach and some trust from both sides might be able to move us past this issue to achieve a needed agreement.
Leibold is CEO of the American Health Lawyers Association which runs an Alternative Dispute Resolution Service. The views expressed here are the author's own and do not represent those of his organization or its members.