Democrats often bring up the Clinton administration and point to the strong economic growth in Clinton's second term despite higher tax rates at that time. What that economic history demonstrates is simply that marginal tax rates are not the ONLY key factor affecting economic growth. After the Clinton tax increase, economic growth was slow and steady in Clinton's first term, mainly because of very strong demographics in America at that time. The mid-point of the Baby Boom generation turned 29 years old in 1993, the first year of the Clinton Adminstration. During the next eight years almost all the Boomers moved into their 30s and early 40s, which are the years when people buy the most big-ticket items, such as houses, appliances, furniture, and motor vehicles. Strong demographics kept growth going in Clinton's first term, despite the tax increases, and then our economy got a big break in Clinton's second term: the rapid initial build-out of the commercial internet occurred in Cinton's second term. The growth of the internet, combined with strong demographics, was powerful enough to overpower the economic drag from higher tax rates. But today we are an older country with much weaker demographics, and the internet has been almost completely built out in America and is no longer a big source of economic growth. There's no Big New Thing on the horizon to spark economic growth. So today we can't afford the economic drag from higher marginal tax rates on business owners. The democrats need to get their economics straight and stop using politically-oriented polling to determine their tax policy. Raising marginal rates on business owners and top professionals is a really bad idea for our economy today. We're already growing very slowly and higher marginal tax rates on business owners will only slow our economy even more.
Here's what I suggest the House Republicans offer in this deficit-reduction deal--Keep the top rate on ordinary income at 35% and then offer to: 1) Limit total itemized deductions to $100K for everyone, regardless of how much mortgage interest people are paying, 2) Raise the top rate on dividend income to 19% from 15% on income above $500K (with the Obamacare tax added in that takes the total rate to about 23% on income above 500k), 3) Increase the rate on the lowest bracket to the rate for the second lowest bracket for people earning more than $500K, 4) As a final offer, bump up the rate on long-term capital gains and carried interest on private equity investments from 15% to 17% (before Obamacare taxes). I would make that offer and say: that's all you get and additional revenue has to be generated through stronger economic growth.
Score that proposal, see how much increased revenue it generates, and then make sure you get spending cuts equal to that amount. Start by cutting the vast Obamacare bureaucracy that I've read about--which reportedly has a planned workforce of 150,000 government employees, IN ADDITION to all the people who already work in health care administration in the health insurance companies. That 150,000, if correct, is absolutely mind-boggling. They couldn't possibly need more than 8,000 people, using good information systems, to administer the entire Obamcare law (in addition to the people already working for health insurance companies).
Correction to item 4 above: I forgot to say that this increase in the long-term capital gains rate and the rate on carried interest should only be on income above $500K.