Morici: Republicans—Compromise to Win an Enduring Majority

Republicans don’t have a mandate to impose a rigid conservative agenda.

Voters want less government and smaller deficits but polls indicate upwards to 80 percent want Republicans to compromise with Democrats to get things done.

Like Bill Clinton in 1992, Barack Obama mistook his 2008 victory as a mandate for an aggressive liberal agenda—socialized medicine, bailouts for Detroit and Wall Street, and an obsession with race and gender on everything from preschool enrollment to judicial nominations.

Like Clinton, President Obama got his House Speaker fired.

To keep their gains, Republicans must work with the President on taxes, spending, regulation, health care, and trade.

President Obama wants higher taxes on families earning more than $250,000. That would catch 50 percent of small business profits and stifle jobs creation. Republicans should settle for repealing the Bush tax cuts for families above $1,000,000 and declare victory.

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Without legislation, the estate tax snaps back to 55 percent with a $1 million individual exemption in 2011. President Obama advocates 45 percent and $3.5 million, while many Republicans would prefer 35 percent and $5 million.

Settle for 40 percent and $4.25 million. That’s $8.5 million for couples who create a cumbersome family trust. Eliminate that paperwork too.

In 2007, Nancy Pelosi became Speaker, and federal spending and the budget deficit were 19.6 percent of GDP and $161 billion, respectively. For 2011, President Obama projects 25.1 percent and $1.3 trillion. More regulators and industrial policies, which don’t create tax-paying, private jobs, contribute mightily.

The financial crisis and BP disaster were caused not by too few regulators but by bureaucrats too cozy with industries they are paid to watch.

To accomplish less costly, effective reform, listen to Paul Volcker and write rules that ban objectionable behavior—similar to anti-laundering and racketeering laws—but avoid thousands of pages of narrow rules businesses can game like the tax code. Then prosecute, not bail out, malefactors.

Fixing Obama Care poses tough challenges.

Provisions Americans like—barring insurance companies for denying coverage for preexisting conditions and permitting children to stay on parents’ policies until age 26—drive up insurance costs. Canceling individual and business mandates to buy insurance, as Republicans advocate, would increase federal outlays.

Neither party admits guaranteeing health care for everyone requires European style-price regulations, even if the private sector continues to provide the insurance function.

The President wants free trade agreements with Korea and other nations, but the trade problem causing U.S. unemployment are China’s intransience on exchange rates and barriers to imports. Addressing those problems requires countermeasures that veer from free market principles.

Your Money Your Vote - A CNBC Special Report
Your Money Your Vote - A CNBC Special Report

By linking support for free trade agreements to pragmatic responses to Chinese mercantilism, Republicans could continue U.S. leadership for broader, global free trade.

Health care and trade crystallize challenges both parties face. Most Americans neither want liberal Democrats’ brand of Euro-statism nor believe markets, deregulation and tax cuts solve all problems.

The Party that defines a credible Third Way will win a mandate to govern for the next decade.

Peter Morici is a professor at the Smith School of Business, University of Maryland, and former Chief Economist at the U.S. International Trade Commission.