As part of this retreat, Republicans would permit Democrats to pass an overall tax package that accedes to the President’s number one priority and campaign promise of raising the top two tax rates on individuals and families who make more than $200,000 and the $250,000 respectively (indexed for inflation), while making permanent the Bush tax rates for all other taxpayers. This result will cause far less economic damage than permitting the Bush tax rates to expire for all. However, in making this concession, Republicans should make clear their belief the Obama tax hike will hurt the 98% by slowing job creation and income growth.
To avoid a veto, the Republicans also may have to permit an increase in the capital gains tax rate to 20% from 15%. However, they should make clear the most likely result will be lower capital gains tax revenues and less economic growth.
In exchange for these concessions, the Republicans would limit the increase in the dividend tax rate to 20% in order to maintain its equivalence to the capital gains tax rate. There is significant support for taxing capital gains and dividends at the same rate among key Senate Democrats.
Next, taxpayers would be protected by making permanent the current death tax rate of 35% with a $5 million exemption, indexed for inflation. At least three key Democratic Senators have voiced their opposition to the President’s call for an increase in this tax.