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 too 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.
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.
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.
The plan would require Baucus’ Finance Committee to come up with new ideas for taxation within six months by broadening the tax base, lowering tax 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.