Just a month from tomorrow, we could hit the X date for default, followed two weeks later by the sequester deadline. But there's been surprisingly little discussion as to what Congress and the White House would actually propose to do about it, beyond the broadest contours of an agreement. A few groups have begun to lay out more specific proposals and demands for the next stage of budget negotiations — among them the AFL-CIO.
As in the last round of the debate, the labor giant opposes any benefit cuts to Social Security, Medicare or Medicaid. Since President Obama already put chained CPI for Social Security on the table during the negotiations, it's unlikely that entitlement benefits will remain untouched, though labor will be leading the backlash to proposed cuts. Instead, the AFL-CIO wants any deficit reduction to come out of new tax revenue from "clos[ing] loopholes for Wall Street and the richest 2% of Americans" — that is, from changing both the corporate and individual sides of the tax code.
President Obama suggested as much in his remarks this morning on the debt ceiling, but the White House hasn't put forward specific proposals yet. The AFL-CIO, however, has a few suggestions of where to find new revenues, outlined on its blog:
— Close tax loopholes that allow U.S. corporations to lower their effective tax rate when they send jobs overseas.— Close tax loopholes to make Wall Street firms pay their fair share in taxes.— Limit tax deductions for the richest 2% of Americans.— Close the loophole that prohibits Medicare from negotiating lower drug prices with pharmaceutical companies.
But there are at least two big challenges that such proposals will face: First, the White House had previously promised to overhaul the corporate tax code through a "revenue-neutral" overhaul that would use revenue from closing loopholes to lower corporate tax rates. So the administration would face fierce opposition from big businesses they made these promises to — corporations who were willing to go along with higher individual tax rates with the understanding that a revenue-neutral corporate overhaul would be part of the deal. And both parties already showed their willingness to preserve a whole slew of corporate tax giveaways in the Jan. 1 debt-ceiling deal.
The problem is, unless corporate tax revenue is part of the deal, it may be difficult tor raise enough revenue to reach the White House's likely target (which would be at least $600 billion, the amount needed to replace the sequester with Obama's preferred 1:1 ratio of cuts to revenue). The AFL-CIO's suggested changes would only get you part of the way there: about $400 billion through limiting tax deductions using Obama's previously proposed 28 percent deduction cap, by Marc Goldwein's rough back-of-the-envelope calculations; and $156 billion from negotiating drug prices in Medicare Part D.
So there will be plenty of debate about what legislators want out of the revenue side of the deal, not to mention the entitlement side. It just hasn't really started yet.