In politics, there are both political and policy outcomes, and because of this, you can win by losing and sometimes lose by winning. A defeat or setback that unites you and lays the groundwork for future victory will be one that turns out for the best.

What Obama is attempting is the trifecta of winning on policy, winning on politics, AND dividing the Republicans, causing a long-term setback for Republicans. He is doing it on the favorable terrain for him of higher tax rates for the top income levels aka ‘end the tax cuts for the rich’, the result of ten years of demagoguery by Democrats.

We are seeing two really bad ideas percolate – “Go over the cliff” and “Give them what they want”.

On the first, go over the cliff, treats all Americans as children that need punishment for re-electing Obama “That’ll show them” but why would Republicans want to allow a $4 trillion tax increase to happen? To create leverage somehow that doesn’t exist right now to force Obama to … do what exactly? Go to a compromise that would somehow be better than what we might get now?  Or insist on taxing all Americans more? All or nothing plays right into the Democrat stereotypes, and if Republicans are handmaidens in punishing Americans, surely that will return back to them in the next election. This is doubtful.

The second path to losing double is “Give them everything they want.” That throws away political power and gives the Democrats a monopoly, a disgrace to all who Republicans and anyone who cares about our country. Caving totally will haunt the Republicans, and likely lead to the very divisions that Obama seeks.

There is a third way, that threads the needle and makes Obama pay for overreach – the Pyrric Victory way. The President will get his victory. He has to. The President and the Democrat Senate plus the media mean that they can set certain terms and win the PR war.So the GOP will in the end have to give something and show Obama ‘won’ on the top tax rates. Let him have his top rates on the rich, but for a price. Protect the maximum number of taxpayers and cut the most spending possible. That’s the goal.

The tax cliff is precisely the event that set Republicans back, and the best way forward is simple: Get over it! Protect the taxpayers to the greatest extent possible while cutting spending by as much as possible, do NOT raise the debt ceiling or lock in future spending, and make as much of the Bush tax cuts permanent. This is the key thing: Making Bush tax rates permanent for 99% of Americans on a bipartisan basis is actually a huge win for protecting taxpayers and recovery from the fact that all the Bush tax rates have been ‘temporary’ for 10 years and is at risk. Its an affirmation not of Obama – but of Bush and Republican tax policy.

The way to get there: Unify; acknowledge we won’t get our way, so stop punishing Republicans for daring to pursue the best compromise; extract the most political and policy leverage at this point by limiting the tax increases.

Making even the rates under $250,000 permanent is a win for lower taxes, but we can do better. Plan B was an attempt to do so at $1 million income level; since Obama had previously offered $400k income, any compromise would be in this range or above, raising tax rates on those above that level while leaving rates alone below it. GOP Senators indicated $500k may be the level. Should these Bush tax rates be made permanent, that is $3 trillion in lower taxes than we’d get with expiration of all Bush tax cuts.  We might expect a ‘final cliff deal’ that raises rates above $600,000 income or so. This would raise about $700 billion over 10 years, and the ‘price’ of this should be at least two times that in spending cuts.  If a deal raises taxes on above $500k income only, and cuts spending by $2 trillion, its a deal that works fine. But we won’t get that much spending cuts. A problem? Well, the smaller the deal the better for the GOP, because the more the ‘cut’ (fake or real, mostly fake) the more the tax hikes.

We’ll also need AMT fixed, and the Democrats will want unemployment, maybe payroll tax cut for yet one more year. Congress will do its usual Christmas tree thing.

We need to stop blaming Republicans for failing to do the impossible. We can’t ‘win’. Obama is President and Democrat Senator Reid runs the Senate, and they want their ‘higher rates at the top’ scalp or no deal. No deal means a tax hike that nobody wants and which Rpeublicans are set to be the scapegoat for.  Boehner’s Plan B was the framework for the kind of compromise that Republicans should support: Gives Obama his top rate while minimizing taxpayers that get hurt, and does NOT raise debt ceiling, leaving the leverage on spending available for another day.

The lessons we should have learned by now is: Big deals are bad deals; small deals where the devil is in details that Obama cant campaign on, are deals that help us win on policy. Policy changes that expose the contradictions in Obama’s failed economic program will be the chickens that come home to roost. We need to bit by bit erode Obama’s advantage.

Locking down and making Bush tax rates law for 99% of Americans or more is not a loss, it’s a win for lower taxes. What it further does – and few people notice this – is that once these are locked in, Obama is stuck. He can’t go back to the ‘we need more taxes’ well again, not anytime soon. He’s “won” after all! The only path forward on taxes and spending and deficits is spending reductions and real tax reform.

The real cause of our massive deficits is the large increase in spending, the increase in spending from 2007 to 2011 was $1.3 trillion, leading to our $3.8 trillion budget and over $1.2 trillion deficit. We all know that $70 billion in more revenue barely is 10% of that gap. After a ‘fiscal cliff’ deal is done, this fact will be manifest, plain and evident to all – and there won’t be the ‘tax cuts are to blame’ excuse to hang on them. Why? Obama’s signed them, he got his increases, its his tax levels. He agreed! The debate will then shift to where it ought to shift: Cut the spending. we could easily cut $5 trillion or more from Obama’s spending plans and cut, cap and balance did just that.

Clinton won the PR way in the 1995/1996 budget battle, but GOP won on substance. The GOP needs to learn to win via ‘death by thousand cuts’ always demanding small advantages for each thing Obama wants.

It’s time for Republicans to Win by Losing in Obama’s second term, and it will start with a ‘small deal’ compromise that makes the Bush tax rates permanent for over 99% of taxpayers, limits the tax increase, and removes Obama’s #1 political hammer he uses against Republicans. If we do this right, it will in retrospect be Obama’s high water mark.