The progressive Plan B for the fiscal cliff

December 20, 2012

Even before House Speaker John Boehner unveiled his Plan B, a vocal contingent on the left, both inside and outside Congress, was already furious with the state of play on the fiscal cliff: They thought President Obama's offer already gave away too much, too soon, on taxes, stimulus and entitlements, and Boehner's latest move drove their fears home. At this point, as Wonkblog's Ezra Klein explains, the best that Democrats may be able to hope for is deal based off of Obama's last offer, or something close to it, whether or not we end up going off the cliff. There's no putting the genie back into the bottle. 


Charles Dharapak / AP

That said, there are a few fronts that progressives are still pushing on in hopes of salvaging some  of what they fear could be an awful deal. While Obama has already conceded more than they'd like on marginal tax rates and Social Security, there are a few elements in the negotiations whose fate remains hazy, and the way these details are hammered out could be critical to the left. 

First, there's corporate tax reform: In an earlier round of negotiations, Obama explicitly proposed including a comprehensive tax overhaul as part of the fiscal cliff deal, enacted through a fast-track procedure in Congress in 2013 within a framework agreed upon now. That's essentially in line with what Republicans want. But business industry groups and progressive advocates will be watching closely to see exactly what kind of framework will be laid down for tax reform and how binding the constraints will be. 

A coalition of progressive groups is now urging the White House to push for corporate tax reform that would raise additional revenue, rather than revenue-neutral reform that would close loopholes and further lower rates (i.e. "rate-lowering, base-broadening" reform). "Clearly, change is needed to raise more revenue from corporations and to make the corporate tax system fairer, especially to small businesses competing against large companies and domestic companies competing against multinationals," wrote the campaign, Americans for Tax Fairness, in a letter to the White House signed by 500-plus lefty organizations. 

The White House, however, has already given strong indications that it would support revenue-neutral reform: Though its own February plan raises $250 billion in new corporate tax revenue, it's all ultimately offset by lower rates. But even if both parties agree on revenue-neutrality for the tax overhaul, the result will hinge on how "revenue-neutral" is defined.

As PriceWaterhouseCoopers points out, the constraints will vary depending on whether you look at revenue-neutrality using a baseline that's within the 10-year budget window or beyond it; whether it must be revenue within the corporate sector or all business sectors; and whether the baseline is current law (where a lot of business tax breaks are still in place) or current policy (where many of them expire). So legislators could be forced to find significantly more or less revenue from corporate tax reform next year depending on the baseline and parameters that Congress and the White House agree to now. Progressives will make a strong case for maximizing the revenue.

The other big blank is the framework for entitlement cuts. Aside from deciding whether to use chained CPI for Social Security, legislators aren't expected to agree to much more than a numerical target for the savings that Congress will be required to find in 2013. Most of the savings will come from Medicare, but it could also come from Medicaid, which hasn't been on the table in the current discussions. There's likely to be a progressive push to exclude Medicaid from part of the entitlement cuts, and there will be camps on both sides who will want to exclude military health care, known as Tricare, from the cuts.

Finally, progressives will adamantly oppose an agreement to make more cuts to discretionary spending, which Obama on Monday offered to cut by $200 million. That covers all kinds of spending, from Head Start to housing vouchers, and that number could creep significantly higher. 

The left will still press the White House to ratchet back the concessions they've already made on marginal tax rates, Social Security and so forth. But at this point, the real strategy will be damage control. 

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Brad Plumer | December 20, 2012