Senate GOP Showing Flexibility in Debt Fight

By: Associated Press Email
By: Associated Press Email

WASHINGTON (AP) - Senate Republicans are showing far more
flexibility than their tea party-backed House colleagues as
Washington policymakers seek to steer the government away from a
first-ever default on its financial obligations.

As the House doubled down on a symbolic vote to condition any
increase in the government's borrowing authority on congressional
passage of a balanced budget constitutional amendment and a fresh
wave of spending cuts, the warm reception by many Senate
Republicans to a new bipartisan budget plan revealed a thawing in
GOP attitudes on new tax revenues.

President Barack Obama also lauded the deficit-reduction plan
put forward by a bipartisan "Gang of Six" Senate lawmakers, which
calls for well over $1 trillion in what sponsors delicately called
"additional revenue" and some critics swiftly labeled as higher

The plan by the Gang of Six is far too complicated and
contentious to advance before an Aug. 2 deadline to avoid a default
that Treasury Secretary Timothy Geithner and other experts warn
would shake the markets, drive up interest rates and threaten to
take the country back into a recession. But the plan's authors
clearly hope it could serve as a template for a "grand bargain"
later in the year that could erase perhaps $4 trillion from the
deficit over the coming decade.

Speaking on the Senate floor Wednesday morning, Democratic
leader Harry Reid said he was confident Obama and congressional
negotiators could avoid a government default, but the Senate still
needed to hear from the House.

"We have a plan to go forward over here so I await word from
the Speaker," said the Nevada lawmaker, who also mentioned that he
spoke to Obama Tuesday night.

At a brief appearance with reporters Wednesday morning, House
Minority Leader Nancy Pelosi, D-Calif., replied "No" when asked
whether she would advise Democratic lawmakers to vote against the
Gang of Six proposal.

But shortly afterward, her spokesman, Nadeam Elshami, expressed
uncertainty that her remark represented a definitive position,
cautioning that the plan lacked specifics and was still subject to

In the House, the 234-190 vote Tuesday to pass the House GOP
"cut, cap and balance" plan reflected the strength of tea party
forces elected in last year's midterm election. GOP conservatives
reveled in their victory, however temporary it may be, since the
plan faces a White House veto threat and is a dead letter in the
Senate anyway.

"Let me be clear. This is the compromise. This is the best plan
out there," said Rep. Jim Jordan, R-Ohio, head of a conservative
House group known as the Republican Study Committee.

The GOP measure would impose an estimated $111 billion in
immediate spending cuts next year and would cap overall spending at
levels called for in the House's April budget plan, backed up by
the threat of automatic spending cuts. But what conservatives like
most about it is its requirement that Congress approve a balanced
budget amendment to the Constitution - a step that requires a
two-thirds vote in both House and Senate - before any increase in
the current $14.3 trillion debt limit can be shipped to Obama.

Now that the House has blown off steam, Obama said Tuesday that
he wants to "start talking turkey" with top congressional leaders
like House Speaker John Boehner, R-Ohio, Senate Majority Leader
Harry Reid, D-Nev., and Senate GOP leader Mitch McConnell of
Kentucky. A White House meeting had yet to be scheduled, though
Obama seemed to hint one could take place Wednesday.

Reid has lined up behind a controversial McConnell plan to allow
Obama to order up as much as $2.5 trillion in new debt without
approval by Congress, which could only block the administration
from issuing new debt if Congress disapproves by a veto-proof
two-thirds margin in both House and Senate.

In exchange, Reid wants to attach to the McConnell plan a
requirement for a bipartisan panel of 12 lawmakers to negotiate on
a compromise that could come up for a vote later this year.

The Gang of Six plan promises almost $4 trillion in deficit
cuts, including an immediate 10-year, $500 billion down payment
that would come as Congress sets caps on the agency budgets it
passes each year. It also requires an additional $500 billion in
cost curbs on federal health care programs, cuts to federal
employee pensions, curbs in the growth of military health care and
retirement costs, and modest cuts to farm subsidies.

"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," Sen. Kay Bailey Hutchison, R-Texas, said.

It also requires a major influx of new tax revenues as Congress
overhauls the loophole-choked U.S. tax code. It calls for getting
rid of myriad tax loopholes, preferences and deductions and using
the savings to sharply lower income tax rates. But $1 trillion to
$2 trillion would be skimmed off the top and used to reduce the
deficit, depending on who does the calculations.

House GOP leaders were muted in their criticism and pointed to
promised reductions in income tax rates rather than the net
increase in overall tax collections.

"On the positive side, the tax rates identified in the Gang's
plan - with a top rate of no more than 29 percent - and the
president's endorsement of them are a positive development and an
improvement over previous discussions," House Majority Leader Eric
Cantor, R-Va., said. "That said, I am concerned with the Gang of
Six's revenue target."

The tax reform outline would set up three income tax rates - a
bottom rate of 8-12 percent, a middle rate of 14-22 percent and top
rate of 23-29 percent - to replace the current system, which has a
bottom rate of 10 percent with five additional rates, topping out
at 35 percent. It would reduce but not eliminate tax breaks on
mortgage interest, higher-cost health plans, charitable deductions,
retirement savings and families with children.

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