US Debt Deal Would See $4 Trillion in Spending Cuts, Tax Hikes
THE CANADIAN PRESS -- WASHINGTON - Leaders of a bipartisan "Gang of Six" senators said Tuesday that they've reached agreement on a major plan to cut the deficit by more than $4 trillion over the coming decade in what could be a bold entry into a debate on the deficit long bogged-down by bitter partisanship.
More than $1 trillion of the deficit cuts would come from tax increases reaped as Congress overhauls the loophole-choked U.S. tax code. It would also repeal a long-term health care program established under the last year's health overhaul and force up to $500 billion in cuts from federal health care programs over the upcoming decade, according to documents provided to senators at a Tuesday morning meeting but not publicly released.
"The reaction was extremely positive," said Budget Committee Chairman Kent Conrad, D-N.D.
With only two weeks for Congress and President Barack Obama to reach a deal to raise the government's debt ceiling, it was unclear how much support the Gang of Six's proposal could muster. Obama called it a "very significant step" and said it offered the potential for a bipartisan consensus. He urged congressional leaders to move on it swiftly.
The Gang of Six plan is separate from a politically freighted effort to lift the nation's borrowing cap and avoid a first-ever default on U.S. obligations. President Barack Obama and Capitol Hill Republicans, however, have failed to reach an accord on what kind of spending cuts to pair with any increase in the borrowing cap as the government teeters toward a possible default in two weeks.
The group's effort was sealed after Oklahoma Republican Tom Coburn rejoined the group after winning concessions on additional cuts to costly federal health care programs. Coburn left the group in May, which dealt it a big setback and delayed an agreement since the two other GOP members of the group — Mike Crapo of Idaho and Saxby Chambliss of Georgia — appeared reluctant to release the plan without Coburn's backing as well.
The group has been labouring for months in an up-and-down effort to reach an agreement that largely mirrors the work of President Barack Obama's fiscal panel, which proposed $4 trillion in cuts over a decade. The fiscal commission plan won positive reviews from many lawmakers but its plan failed to win a vote in Congress.
The Gang of Six plan calls for an immediate $500 billion "down payment" on cutting the deficit as the starting point toward cuts of more than $4 trillion over the coming decade that would be finalized in a second piece of legislation. Most of that savings would come from four years of caps imposed on the day-to-day budgets of cabinet agencies set by the annual appropriations bills. It would also curb the growth of Social Security benefits by moving to a lower inflation adjustment for annual cost-of-living updates.
The tax reform outline would set up three income tax rates: a bottom rate of 8-12 per cent; a middle rate of 14-22 per cent and top rate of 23-29 per cent to replace the current system that has a bottom rate of 10 per cent, with five additional rates topping out at 35 per cent. It would reduce but not eliminate tax breaks on mortgage interest, higher-cost health plans, charitable deductions, retirement savings and tax credits for families with children.
The idea is that a bipartisan plan would gain critical mass in the Senate, powered by the endorsement of conservatives like Coburn and liberals like Dick Durbin of Illinois, the No. 2 Democrat in the Senate and a member of the group.
Both Republican and Democratic leaders, however, remain wary of the effort, since it would raise revenues by about $1 trillion over 10 years and cut popular benefit programs like Medicare and Medicaid. But many rank and file senators were enthusiastic.
"This a concrete way to reduce the deficit and assure that we are on a long term plan that will bring down the debt to a reasonable level," said Sen. Kay Bailey Hutchison, R-Texas.
Like the deficit commission, the Senate group's plan calls for a fundamental overhaul of the tax code that would slash special tax preferences and deductions as a way to lower tax rates — along the lines of the 1986 tax reform measure signed into law by President Ronald Reagan. In addition to skimming some of the revenue to reduce the deficit, advocates of the plan say it would spur the economy and fill federal coffers further because of such growth.
The measure also calls for tight "caps" on the daily operating budgets of federal agencies, as well as a major overhaul of programs like Medicare, Social Security, and farm subsidies. The details of the changes wnould be left to congressional committees to draw up.
For instance, the Armed Services Committee would be assigned $80 billion in savings from military retirement and health care accounts, but the Agriculture Committee would only have to find $11 billion over 10 years.