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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.

Solution No. 1: The big fix-up

With governments at both the federal and local level burdened, we need to find a creative way to finance and manage new infrastructure projects. Preferably, it should tap into the massive hoard of private capital (all that wealth the top 10% have accumulated) and use private ingenuity and the profit motive to deliver projects on time and under budget.

I'm talking about public-private partnerships, which the British are already using to fund new infrastructure. Such partnership projects now account for between 10% and 13% of all U.K. public infrastructure investments.

A recent report by Deloitte outlines the options and benefits. The basics are that, instead of issuing bonds or using savings, a transportation authority authorizes a private company to build and operate a road, school or water facility in exchange for revenue from tolls or usage fees. Standards of service are determined. Deals can be structured so that, after a certain time, asset ownership transfers to the government.

Risks, such as project cost and completion time, are transferred to private entities.

There are many benefits to doing it this way. New sources of capital become available. Project timetables can be moved up and social benefits accrued sooner. And the faster we fix the problems, the better: The World Economic Forum ranks America 23rd in the world for overall infrastructure quality, between Spain and Chile.

The U.K.'s National Audit Office reported in 2003 that 73% of construction projects that were not public-private partnerships were over budget and 70% were delivered late. In comparison, only 22% of PPP projects were over budget and 24% were late. As for quality of service, more than three-quarters of U.K. end users reported PPP projects were performing as expected or better than expected.

A few states here at home are dipping their toes in. The Virginia Pocahontas Parkway project avoided a 15-year construction delay by eliminating the need for public funding. (Search on Bing to learn more.) Private funding accelerated South Carolina's toll road system by 20 to 30 years.

It's worth remembering that no less than President Abraham Lincoln was a firm believer in the public-private partnership model. He used it to complete the first transcontinental railroad in the 1860s.

Solution No. 2: The wealth tax

Frequent readers know I've been hammering on about how terrible it would be to try to close the government's budget deficit by relying on higher taxes for the rich. Not only would it not solve the problem, it would actually make it worse by damaging CEO and small-business confidence, further reducing capital expenditures and investment, and limiting new hiring. (See "Why CEOs need our love, too.")

Already, the NFIB Small Business Optimism Index has fallen to a record low in November due to an "overwhelmingly negative response" among small-business owners to Obama's re-election.

But there is still a need to use the incredible wealth that has accumulated to the top to "reset" this morass and get us back on track. I'm talking about a one-time wealth tax, an idea that was recently proposed by the folks at the Boston Consulting Group (.pdf file).

To make it work and reduce the economy's debt-to-GDP ratio to a sustainable 180% level, BCG calculates that we would need to raise nearly $11 trillion. That translates into a 26% wealth tax. The money would be used to reduce both public and private indebtedness -- think Treasury bond repurchases, paying off mortgages and paying off student loans.

(I think we could make do with less, say a 10% wealth tax, by not focusing as intently on reducing corporate debt -- big business is just fine -- and keeping some government debt on the books, since Treasury yields are still low.)

Money would also be raised by levying higher capital-gains taxes on real estate and taxing corporate profits that aren't reinvested.

Better than a tax hike

Yes, I can hear the complaints already. It's a huge wealth transfer. It's punishing the rich. It's redistribution. And it is. And it's a tragedy that poor choices by policymakers and economic actors large and small have forced us to consider once-unthinkable options.

Yet, given the crazy-bad situation we're in, I think it's the best option.

This would be a better way to lean on the rich, from an academic perspective, than income tax hikes. It wouldn't damage future investment decisions the same way. Plus, the top 20% of households in terms of income are already paying 70% of the federal tax burden, according to Congressional Budget Office data, so higher tax rates seem excessive.

Simply raising ongoing income taxes also reduces any incentive the government has to reform big entitlement programs and attack health-care costs -- which, I explained last week, are the real cause of the long-term deficit. (See "Why not jump off the fiscal cliff?")

The other tax-hike option is jacking up capital-gains rates, but that would work against rebalancing the economy away from consumption toward savings and investment. So that's a no-go.

I also like the idea of making this a one-and-done event. Confidence at the top would be hit, temporarily. But if combined with real entitlement reform, a surge of new infrastructure, a stronger housing market and enthusiastic consumers, everyone could end up being better off. BCG also suggests teaming this with a reduction in income-tax rates on the wealthy.

Clearly, there are negatives. People could be encouraged to take outsized risks again, hoping that the government will bail them out if things go wrong. That would need to be addressed.

However, the BCG thinks the benefits outweigh the risks:

"Such a source of action would pose a significant issue of moral hazard, benefiting those who were reckless and imposing a share of the burden on those who were careful. But the government could conclude that the total economic and social costs of a prolonged period of low growth and deleveraging are so huge that unconventional measures are justified."

For the rich, it's better to pay a little now, and then profit from the building of new roads and bridges and the growth revival that results, than to risk a Greek-style social revolt later as governments are unable to deal with the fiscal crunch of aging populations, crumbling infrastructure and slow growth.

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The current solution to the problem of too much debt -- playing for time -- just isn't working.

At the time of publication, Anthony Mirhaydari did not own or control shares of any company mentioned in this column in his personal portfolio.

Be sure to check out Anthony's new money management service, Mirhaydari Capital Management, and his investment newsletter, the Edge. A free, two-week trial subscription to the newsletter has been extended to MSN Money readers. Click here to sign up. Mirhaydari can be contacted at anthony@edgeletter.com and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.