'Gang of Six' plan triggers search for debt compromise

McClatchy NewspapersJuly 20, 2011 

WASHINGTON — President Barack Obama and congressional leaders worked furiously Wednesday to craft a compromise plan to cut federal spending dramatically while raising the nation's debt ceiling, with Obama saying he could accept a short-term deal if it's tied to a bigger agreement.

With 13 days left before the government loses its authority to borrow — forcing an unprecedented default that could trigger an economic crisis — lawmakers were looking seriously at whether to include some elements of the Senate's bipartisan "Gang of Six" proposal in a debt-ceiling hike.

The Gang of Six's sweeping long-term $3.7 trillion plan, which got generally good reviews from lawmakers of both parties, calls for trimming future federal budget deficits by $500 billion via short-term action.

It also would trigger a six-month congressional process to overhaul the tax code, raise $1 trillion in new revenues while reducing tax rates, trim Medicare and Medicaid spending while retaining their basic structure, and cut spending sharply on virtually all government programs, including defense, over 10 years.

The Gang of Six plan also would have Congress "consider Social Security reform," but only under strict conditions. Among them is that the 75-year solvency of the program must be ensured, and any savings must go toward the program's solvency, not deficit reduction.

Obama continued to push for the big deal, meeting separately during the day with Democratic and Republican congressional leaders.

White House spokesman Jay Carney said the president could back a short-term fix, one lasting perhaps only a few days, that lifts the debt ceiling long enough to permit a big deal to work through Congress. That's a switch from Obama's previous firm stand against a short-term debt-ceiling extension.

"If both sides agree to something significant, we will support the measures needed to finalize the details of that," Carney said.

Congress must raise the nation's $14.3 trillion debt limit by Aug. 2 or risk default. The Gang of Six's proposal created new, if cautious, optimism that a deal could be reached, although Republicans in the House of Representatives remained the least enthusiastic.

The plan spurred two conversations all over the nation's capital: one political, one about how to change tax and spending laws.

The political consensus was that the Gang of Six plan was too ambitious, and complicated, for Congress to enact in the next two weeks.

"I don't see how we do this in time, "said Senate Finance Committee Chairman Max Baucus, D-Mont., whose committee has jurisdiction over taxes and Medicare.

Even "gang" members conceded it's unlikely the package could be adopted that quickly, but they worked to show that consensus was developing around its goals. They circulated a letter, addressed to Senate leaders, that said, "It is our strong belief that this plan can not only serve as a template for addressing this crisis, but would allow the Congress to work, and reignite our troubled economy by providing the leadership and certainty the American people expect and deserve from us."

The plan ignited feverish discussions all over the Capitol and in state capitals and among interest groups, many of which issued pre-emptive strikes against it in a bid to protect their favorite programs from spending cuts.

"While details about the latest bipartisan deficit-reduction plan are limited, we remain concerned that the latest proposal from the Gang of Six would cut deeply into Social Security and Medicare benefits as part of a deal to pay the nation's bills," said Nancy LeaMond, an executive vice president at AARP, the nonpartisan seniors organization.

"There's no shared sacrifice here," AFL-CIO President Richard Trumka protested. "The only sacred cows being gored are working people, the middle class, seniors and the poor."

The plan largely lacks specifics. Its short-term $500 billion "down payment" would impose limits on spending through 2015 and would change how the annual Social Security cost-of-living increase is computed, a revision estimated to slow the growth of annual benefits by about 0.25 percentage point less than the current formula.

The "gang" also would repeal the CLASS Act, a part of the 2010 health care overhaul that will cover home care for people with disabilities. It's controversial for several reasons. Among them: Though beneficiaries would pay premiums, the benefits are expected to exceed those premiums after 2020, meaning potentially huge budget deficits.

The plan would require Baucus' Finance Committee to come up with new ideas for taxation within six months by "broadening the tax base, lowering taxes rates and generating economic growth."

Among its suggestions: Simplify the tax code by reducing the number of "tax expenditures," usually corporate tax breaks, and establish three individual tax brackets with rates of 8-12 percent, 14-22 percent and 23-29 percent. The current rates range from 10 to 35 percent.

It would "reform, not eliminate, tax expenditures for health, charitable giving, homeownership and retirement," but it prescribes no specifics, leaving those to the Senate Finance Committee to write.

The alternative minimum tax, which threatens to increase taxes on middle-income people, would be repealed, and the Finance Committee would have to provide $1 trillion in additional revenue.

The plan could trigger substantial changes to Medicare. The controversial Medicare Sustainable Growth Rate, a complex formula that governs payments to physicians, would be revamped, and lawmakers would be directed to find billions more in savings from federal health programs.

Senate Republican Conference Chairman Lamar Alexander of Tennessee listed several things he liked about the Gang of Six plan: "It's bipartisan, it reduces rates and stabilizes debt as a percentage of gross domestic product, and it aims to be pro-growth."

Asked about the revenue hikes, he laughed. "I'm not listing any objections. I'm looking for a plan that understands our obligations and reduces our debt," he said.

Some House Republicans were also sympathetic. "I'm not in love with every specific, but that's not where we are at this moment in time," said Rep. Steven LaTourette, R-Ohio. "We just need a wagon upon which we can hop on and ride. If this is it, great," he said. "If it's not it, we'll figure out something else."

But the House Republican caucus is dominated by conservatives who oppose any plan that raises taxes. South Carolina Rep. Trey Gowdy, one of the 87 House Republican freshmen, is more concerned about the gang of 240 — the House GOP majority — than the Gang of Six.

He said he didn't know much about the Gang of Six plan's details, and didn't need to. "It's fair to say there's healthy skepticism," he said.

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McClatchy Newspapers 2011

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