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The fiscal cliff negotiations in Washington have hit an impasse with Republicans and Democrats entrenched in familiar positions. Democrats want tax hikes on the rich. Republicans want cuts to entitlement programs.

For many, the debate has boiled down to "Why don't the rich pay their fair share?" Taxes on the wealthy are the one policy tool that the majority of Americans support.

As I discussed last week (see "Why not jump off the fiscal cliff?"), ending the Bush tax cuts for the rich (worth around $80 billion a year) or ending them plus limiting deductions, as President Barack Obama has proposed (around $160 billion), won't solve the country's fiscal woes. It won't even come close. The fiscal cliff adds up to a $720 billion economic hit next year, and most of that comes from the expiration of the Bush tax cuts for the middle class.

But the rich do have an important role in getting us out of this mess. Below, I outline two ways the upper crust can break us out of this funk and return us to the path of prosperity.

We need to put their money to work if American jobs are going to return. But income tax hikes aren't the best way to do it.

2 problems, 2 solutions

In another recent column, (see "Is the economy a lost cause?"), I lamented the slow decline in America's economic vigor, with measures such as labor productivity and per-capita growth of gross domestic product having stalled. U.S. society has become increasingly overburdened by the cost of senior care and old debts, and, as a result, we're now neglecting critical investments in capital, infrastructure and young families.

This is unsustainable. If America's potential growth rate -- its economic speed limit -- continues to drop, the tax base will continue to shrink even as rates rise. Reliance on government welfare programs will grow, and the system will collapse on itself.

Anthony Mirhaydari, MSN Money

Anthony Mirhaydari

It's unacceptable in a country as prosperous as ours to have families killed by falling bridges and failing levees. It's unacceptable for time to be wasted on commuting nightmares on par with those in Romania and Hungary. And it's unacceptable to see America's productive capital base -- its machinery and equipment -- rust away due to a lack of business confidence and a corporate system that encourages companies to hoard profits overseas.

For the sake of discussion, let's focus on infrastructure. What's the scale of the problem? California has the country's worst road congestion and faces a $100 billion project backlog. Nearly three-fourths of the major roads in Massachusetts are in poor or mediocre condition. More than half the bridges in Rhode Island are structurally deficient or functionally obsolete. Overall, the American Society of Civil Engineers gave the country's infrastructure a "D" grade and recommended an investment of $1.6 trillion over the next five years.

That's point one.

Point two is that, for a variety of reasons, economic growth has become more unequal over the past few decades. Part of it is technological change. Part of it is rapid globalization and the downward wage pressure created by an army of cheap foreign labor. The result has seen benefits accrue disproportionately to the top.

According to Federal Reserve data, median household wealth for the middle class (in 2010 dollars) has actually fallen from $70,200 in 1989 to $65,800 in 2010. For the top 10% in terms of income, it has increased from $655,200 to nearly $1.2 million over the same period. It's the same story with income: Median income for the middle class dropped to $43,400 in 2010 from $45,800 in 1989, but it rose to $205,300 from $175,900 for the top 10%.

Research by Marianne Bertrand and Adair Morse, both of the University of Chicago, finds that as the rich spent lavishly with their new wealth, everyone else tried to keep up. Coach (COH) bags for everyone!

That, according to research from the International Monetary Fund, drove people into debt -- mortgages to chase the housing bubble, consumer credit, and now, student loans. Government played a role, too, borrowing to fund social programs as people voted to increase their welfare via the tax code and public spending.

As a result, household and government debts have surged, and they now hinder economic growth. Household debt as a percentage of disposable income went from around 70% in the 1970s to a peak of 134% in 2007 to 113% now. Government debt as a percentage of GDP has increased from around 30% in 1980 to near 100% now.

The reason the Federal Reserve's aggressive efforts to stimulate the economy haven't had a bigger impact is because people are unwilling or unable to increase borrowing. The government is focused on budget cutbacks, not investment. And households are focused on shedding debt to find their way back to a sustainable standard of living.

Moreover, the academic research shows that not only does higher debt limit economic vitality, but it increases the risk of financial crisis as well.