Senator Tom Coburn, an Oklahoma Republican who helped negotiate a bipartisan proposal for a $3.7 trillion deficit-cutting plan, said he wants Congress to “go all-out” to solve the problem of cutting spending and raising the US debt limit.
“My preference would be that we go all-out to try to accomplish this, to solve the problem,” Coburn said in an interview today. He acknowledged the resistance that the plan from the so-called Gang of Six senators faces within his own party: “We have made changes that some people cannot accept,” Coburn said.
Senator Kent Conrad, a North Dakota Democrat who is chairman of the Senate Budget Committee, said lawmakers have drafted legislation for the $3.7-trillion proposal that could advance more quickly than some observers believe. The plan includes spending cuts and reductions in top personal and corporate income tax rates, as well as new taxes, which House Republicans have said they oppose. The nation must “face up” to the situation.
House Budget Committee Chairman Paul Ryan called the Gang of Six proposal a “useful addition to the budget debate.” The Wisconsin Republican is critical of the plan for containing tax revenue and says it falls short in spending cuts. ‘Nevertheless, this effort serves as a sign that we can work together on a bipartisan basis to make a serious down payment now to avert the debt-fueled economic crisis before us,” Ryan said.
Tax rates lowered
The proposal, as outlined in a five-page document, would require Senate committees to produce legislation that would reduce spending and raise revenues. The Senate Finance Committee would be instructed to lower tax rates, eliminate the alternative minimum tax, and “reform” tax breaks for health care, charitable giving and homeownership.
The outline calls for three individual income tax brackets with a top rate between 23 per cent and 29 per cent, down from 35 per cent today. The corporate rate would drop to a single rate of between 23 per cent and 29 per cent, down from a top rate of 35 per cent today. The tax system would need to retain its current progressivity and retain benefits for low-income workers such as the earned income tax credit.
Bi-partisanship praised
Some lawmakers hold hope of a compromise in the plan offered by three Senate Republicans and three Democrats after months of opposition to new revenue among House Republicans.
“The fact that Republicans are coming out for revenues is certainly something of a breakthrough, they haven’t done that before,” Senator Charles Schumer, a New York Democrat, said today. “We hope it shows they’re willing to compromise. But of course we are running out of time. We need to assure the world we will not default on our debt.”
President Barack Obama plans to renew talks at the White House this week with congressional leaders as the Democratic-led Senate and Republican House pursue divergent paths toward ending the stalemate over lifting the nation’s $14.3 trillion debt limit.
“The problem we have now is we’re in the 11th hour and we don’t have a lot more time left,” Obama said yesterday, referring to an Aug. 2 deadline officials have set for raising the debt cap. The president, in remarks at the White House, said he will urge congressional leaders “to start talking turkey” and get “down to the hard business of crafting a plan that can move this forward.”
House Republican plan
House Republicans last night passed their debt-reduction plan 234-190 — legislation that stands little chance of passing the Senate and that Obama has said he would veto if it did. The measure would cut and cap government spending and allow the debt ceiling to be raised by $2.4 trillion only if Congress approves a balanced-budget amendment to the Constitution.
The Senate plan that emerged yesterday from the Gang of Six combines spending cuts with a smaller amount of tax increases. While House Republican leaders indicated a willingness to consider the proposal, they and other members of their fiscally conservative caucus continue to stress opposition to a debt compromise that includes more taxes.
“Tax increases aren’t going to fly in the House,” said Representative Kevin Brady, a Texas Republican and a member of the tax-writing Ways and Means Committee.
That suggests a backup plan along the lines of one still being worked out by Senate Republican leader Mitch McConnell of Kentucky and Senate Majority Leader Harry Reid, a Nevada Democrat, may offer the best chance for a compromise before the Aug. 2 deadline, when the Treasury Department says the government will hit the debt limit. The plan would give Obama $2.4 trillion in new borrowing authority in installments.
‘Just a skeleton’
Representative Tom Price of Georgia, chairman of the Republican Policy Committee, said on Bloomberg Television today that the Gang of Six proposal “appears to be just a skeleton, looks like an outline. There’s some good things in there, some bad things, too.”
He said many House Republicans aren’t yet prepared to support an increase in the debt ceiling. “I don’t think so, without fundamental change,” Price said. “We can’t continue to do business as usual here.”
An NBC News/Wall Street Journal poll released yesterday showed that most Americans favor Obama’s approach to a compromise deal rather than the Republican position. According to the survey, conducted July 14-17, 58 per cent backed Obama’s push for reducing the deficit by $4 trillion over the next decade through a combination of budget cuts and a tax increase, while 36 per cent supported the Republican proposal to shave the deficit by $2.5 trillion solely by reining in spending. The poll’s error margin is plus-or-minus 3.1 percentage points.
Spending cuts
The plan Obama lauded that was released yesterday by the Senate’s Gang of Six, led by Republican Saxby Chambliss of Georgia and Democrat Mark Warner of Virginia, proposes $500 billion in immediate spending cuts.
It then lays out targets and enforcement mechanisms for compelling future reductions, including between $85 billion and $202 billion in Medicare and other health spending, $80 billion from defense, $70 billion from education and labor programs and $11 billion from agriculture programs, according to a summary.
It calls for a broad tax overhaul that would raise $1 trillion by limiting breaks for health, charitable giving, homeownership and retirement, while lowering individual and corporate tax rates. It would scrap the Alternative Minimum Tax, a system designed to prevent higher-earners from avoiding taxes.
About 50 senators, roughly evenly divided between the two parties, attended a closed-door briefing on the plan, a sign of potentially widespread support for the type of “grand bargain” to reduce the debt that Obama is urging.
‘Only’ bipartisan plan
Colorado Democratic Senator Michael Bennet said today that the proposal is the “best bipartisan plan that we’ve seen —the only one.” Members of both parties in the Senate are pushing for an agreement that avoids a government default, Bennet said on Bloomberg Television.
“‘No’ is not an answer for the American people,” he said.
One member of the Republican leadership, third-ranking Senator Lamar Alexander of Tennessee, endorsed the proposal.
Obama called it a “balanced” plan that may offer potential for a bipartisan consensus.
Also praising it were former White House budget director Alice Rivlin, who served under Democratic President Bill Clinton, and former Senator Pete Domenici, a New Mexico Republican who headed the Budget Committee.
‘Long-Term Solution’
The Gang of Six proposal “recognizes that all parts of the budget must contribute to any long-term solution, including defense spending, tax expenditures and entitlements,” Rivlin and Domenici said in a statement. Saying they hoped the plan “leads to agreement by the president and both houses of Congress,” they called on “members of both parties to put the good of the country ahead of ideology and return our nation to a fiscally responsible path.”
The pair are co-leaders of the Washington-based Bipartisan Policy Center’s Debt Reduction Task Force, which has been cautioning Republicans about the potential hazards of breaching the U.S. debt ceiling.
Even as the Gang of Six’s plan was greeted positively, Senate leaders cast doubt on whether it would provide the quick solution needed in time to raise the debt limit.
“There are a lot of practical, procedural difficulties” to advancing the plan during the next 13 days, said Senator Max Baucus of Montana, the Democratic chairman of the tax-writing Finance Committee. “The real question is: What can we accomplished prior to Aug. 2.”
Reid said Senate rules wouldn’t allow such a plan to be passed quickly. He also said he asked Warner to report back to him today about which elements might be included in the proposal Reid is working on with McConnell.
‘Balanced approach’
The White House believes the Gang of Six plan can help Obama make the case for his preferred “balanced” approach of tax increases and spending cuts to shrink the deficit, according to an administration official who spoke on condition of anonymity to discuss internal deliberations.
It would need more vocal support from Republican senators to overcome the resistance of House Republicans to including tax increases, the official said.
McConnell was noncommittal. “I don’t have an opinion yet,” he told reporters.
House Speaker John Boehner, an Ohio Republican, also tempered his reaction. The “plan shares many similarities with the framework” Boehner has discussed with Obama “but also appears to fall short in some important areas,” Boehner’s spokesman, Michael Steel said
Cantor’s position
House Majority Leader Eric Cantor gave a mixed review.
“While there are still portions that are unclear and need more detail, this bipartisan plan does seem to include some constructive ideas to deal with our debt,” he said in a statement.
“That said, I am concerned with the Gang of Six’s revenue target,” Cantor said. “I continue to caution that a tax increase is the wrong policy to pursue with so many Americans out of work.”
The plan and Obama’s endorsement boosted optimism in the markets. Stocks surged, sending the Standard & Poor’s 500 Index to its biggest gain in four months, and Treasuries rallied amid optimism lawmakers were moving closer to a deal.
The Standard & Poor’s 500 Index jumped 1.6 per cent to 1,326.73 yesterday. Ten-year Treasury note yields lost five basis points to 2.88 per cent, and 30-year bond yields fell 12 basis points to 4.19 percent, according to Bloomberg Bond Trader prices.
‘Robust proposal’
“The upside in Treasuries has been a function of this new, more robust proposal from the Gang of Six,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “There’s a reasonable amount of perceived momentum behind that, the concept being that’s the type of proposal needed to keep the credit-rating agencies at bay.”
Grover Norquist, head of the anti-tax Americans for Tax Reform that pressures Republicans to hold the line against any tax increase, took an arms-length approach to the Gang of Six proposal.
“It is a mistake to invest one’s hopes or fears while the ‘plan’ remains unclear and subject to change by a Senate Finance Committee selected by Democratic leader Senator Harry Reid,” he said in a statement.
Backstop Plan
McConnell and Reid continued working on a backstop plan to give Obama $2.4 trillion in new borrowing authority in installments. They were discussing empowering a bipartisan group of lawmakers to propose spending cuts to accompany the increases while setting out tough consequences if reductions weren’t achieved.
Boehner said Republican leaders are also considering a backup as members of his caucus urged him to repudiate McConnell’s plan.
“It is responsible for us to look at what Plan B would look like,” Boehner told reporters. “There are a lot of options available to us.”
More than 60 Republican lawmakers have signed a letter being circulated by Illinois Representative Joe Walsh urging Boehner not to allow a House vote on McConnell’s proposal, said spokeswoman Elizabeth Lauten.
The letter said McConnell’s “plan enables Congress to avoid making the hard decisions.”
Reid is keeping keep the Senate in session daily -- including weekends -- until the debt ceiling impasse is resolved. House leaders have also advised members of possible weekend sessions.
