Should Obama Call the Republican Bluff on Taxes?

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President Obama wants to let the Bush tax cuts for the rich expire, which would allow top marginal tax rates to increase from 35 percent to 39.6 percent. Andrew Sullivan isn’t sure this is a hill for Obama to die on:

My overall view is that the most important thing is to increase revenues, not rates necessarily. I can understand why Obama wants to get the top rate back to Clinton levels — and it would require much deeper inroads against deductions than the GOP has previously accepted. But [] I’d give on this if I were Obama — in order to see if the GOP could come up with removal of tax deductions for those earning over $250,000 that would bring in the same amount of revenue. If they don’t want a rate increase, ask them how to get the same amount of money from the same group of people by ending deductions. Call their bluff — and show you are not wedded to redistribution that could even theoretically impede growth and entrepreneurialism.

I concede that this would be interesting. Mitt Romney spent an entire campaign insisting that he could close enough loopholes and deductions to make up for his proposed 7 percent rate cut on the wealthy. Democrats scoffed, but Republicans all insisted that Romney’s plan was eminently feasible and that details would be forthcoming during tax negotiations after the election. Well, the election is over, tax negotiations have started, and their goal is considerably easier since they only have to make up for the 4.6 percent rate cut that keeping the high-end Bush tax cuts entails.

There are two upsides to working with Republicans on this. First, Obama gets to look sweetly reasonable. You want to close deductions instead of letting the higher rates expire? Let’s reason together, my friends. Show me your plan.

Second, I think a big part of Obama’s strategy here is to break the Grover Norquist stranglehold—and the Norquist blood oath isn’t about never voting for a rate increase, it’s about never voting for a net revenue increase, no matter how you get there. Obama wants Republicans on record voting for something that breaks that oath, and closing a bunch of deductions works as well as a rate increase.

If I were part of the Republican leadership, though, I wouldn’t take the deal. Their problem is the mirror image. First, if they’re going to break the oath, it doesn’t matter how they do it. Closing deductions doesn’t buy them anything. Second, closing a bunch of deductions is something that will be forgotten very quickly, leaving a low top rate in place that will be an easy target for Democrats who want to soak the rich even further. Frankly, Republicans would be better off just agreeing to the higher top rates now, leaving them an easier job of protecting the rich in the next round of tax reform.

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