Today in ‘Fiscal Cliff’: If the GOP folds on taxes, what would Dems give up in return?

December 5, 2012

Democrats won't compromise on tax hikes for the wealthiest 2 percent of Americans. And there are signs that this hard-line strategy may be working: Today, Sen. Tom Coburn (R-Okla.) became the latest Republican to say that he'd be open to increases in marginal tax rates to raise revenue.

“Personally, I know we have to raise revenue; I don’t really care which way we do it,” he told MSNBC. “Actually, I would rather see the rates go up than do it the other way, because it gives us greater chance to reform the tax code and broaden the base in the future.”

It isn't the first time that Coburn, a Gang of Six member, has bucked GOP orthodoxy on taxes. But he joins the growing ranks of conservatives who say that it's not worth the fight on upper-income tax rates, signaling that Republicans may ultimately concede the issue to Democrats.

As that reality has begun to sink in, there's been a lot more talk about about how Republicans can best position themselves and what they might demand in exchange for increases in tax rates, assuming that they have lost that battle. That raises the question of what Democrats would be willing to concede in return.

One thing is certain: President Obama won't be willing to give Republicans any leverage over the next debt ceiling, which we're expected to hit within a few weeks. "The thinking is the Republicans will have more leverage because there will be another vote on the debt ceiling, and we will try to extract more concessions with a stronger hand on the debt ceiling," the president told business leaders at a meeting this morning. "That is a bad strategy for America, it is a bad strategy for your businesses, and it is not a game that I will play."

What's less clear is whether Democrats would be willing to go along a deal that raised individual taxes on the wealthy and raised the debt-limit but didn't include any stimulus that the president has asked for (an payroll tax extension, unemployment benefits); kept Bush tax rates for estate taxes and capital dividends; and/or included entitlement reforms like raising the Medicare age and reducing Social Security benefits, all of which Republicans have also demanded.

In other words, would raising taxes on the top 2 percent be worth the price of more economic pain in the short term, continued tax breaks on wealthy people's assets, and hard-to-swallow entitlement cuts further down the road? If Republicans do concede on the first part, that's the next big debate we'll be having.

Cliff notes:

— Austin Frakt: Raising the Medicare age isn't meaningful entitlement reform.

— Sen. Sheldon Whitehouse (D-RI) agrees.

— No, the Fed can't save us from the fiscal cliff.

— No Christmas for Congress without a fiscal cliff deal.

— The Joint Economic Committee finds that cutting the Social Security payroll tax actually increases revenue because the economic stimulus puts more people to work.

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Brad Plumer · December 5, 2012