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A 35 percent tax rate is a number, not a principle

Republicans believe that the upper-income tax rate should not be raised. It's a line in the sand based on principle. True, low taxes is a principle. But the actual rate is relative, and must be flexible to avoid the 'fiscal cliff.'

By Jim Sollisch / November 20, 2012

President Obama acknowledges House Speaker John Boehner of Ohio while speaking to reporters in the Roosevelt Room of the White House Nov. 16. Op-ed contributor Jim Sollisch writes: 'I’m optimistic that as we approach the edge of the cliff, Republicans will find that the one principle they believe in – even more deeply than 35 percent – is political survival.'

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We’re about to find out if the Republican party is willing to commit political suicide over the idea that no person in America, no matter how wealthy, should ever pay a tax rate above 35 percent.

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Thirty-six percent? No way. Thirty-nine percent? Never. Give us 35 percent or give us death.

Republicans believe that this line in the sand is based on principle. Our Founding Fathers enshrined several absolute rights into the Bill of Rights: the right to bear arms, the right to freely assemble, the right to exercise religious freedom. These are principles worth fighting for.

Life begins at conception. That’s another principle. And I can understand anyone’s unwillingness to compromise on that. It’s not relative. But a top tax rate of 35 percent? Really?

That’s not a principle – it’s a number. The principle underlying it is that lower tax rates stimulate the economy. And from almost any historical perspective, a top tax rate of 38 percent or 39 percent would be low.

Back in 1945, the top tax rate was 94 percent. In the early Roaring Twenties, it was 73 percent. In the early 1960s, when the economy was growing at 5 percent annually, the top tax rate was 91 percent. And in the last big boom of the 1990s, it was around 40 percent.

Tax rates are, by their very nature, relative. 

And that means in real negotiations, there should be room to move that number. But that won’t happen if Republicans continue to treat 35 percent as an inalienable right. And that means there will be little room for a dispassionate discussion, which is what we need in order to approach the fiscal cliff as what it is: a math problem to solve.    

Even though the mood was collegial when leaders from both parties gathered at the White House last Friday, I’m still not convinced that Republicans are willing to leave their dogma at the door when the real negotiations start. And unless that happens, I worry that several meaningful questions that are the bedrock of the lower-taxes-create-jobs-theory won’t even be asked. Like what percentage of people making over $250,000 a year are actual job creators? I understand, at least in theory, that if you give a small business owner a tax break, she may invest more in her business and hire more workers. But at what rate? Does every $50,000 in lower taxes translate to a new hire?

And how about all those lawyers, doctors, CEOs, and upper-management types who make well over $250,000? How do they use the income they keep from lower tax rates to create jobs? They aren’t direct job creators. The thinking is that they invest more money in the stock market, giving corporations more capital so they can hire more workers. Again, this is fine in theory. But the Dow has been over 13,000 for much of the last six months. Where are the jobs?

In the 1950s, if you gave companies more capital, they built more plants and invested in more equipment. And that meant more jobs because they needed people to operate that equipment. Today, when companies have excess capital, they don’t always hire more workers. And if they build another plant, it may be off shore.

So when a neurosurgeon making $850,000 a year gets to keep an extra $100,000, and he invests it in the stock market to create capital so companies can hire more workers, we have to acknowledge that most of the money may simply go to some corporation’s bottom line.

But we can’t have these discussions when a majority in the House treats relative tax rates like Newton’s law of gravity.

Since the election, the pundits are talking about how the Republicans are running straight toward a demographic cliff, even as the nations heads toward the “fiscal cliff.”

The Republican Party needs to change more than its appeal to Hispanics and other minority voters. It needs to show the country that it can help solve our economic problems. I’m optimistic that as we approach the edge of the cliff, Republicans will find that the one principle they believe in – even more deeply than 35 percent – is political survival.

Jim Sollisch is creative director at Marcus Thomas Advertising.

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