The Wall Street Journal
By: Janet Hook, Naftali Bendavid & Damian Paletta
July 20, 2011
President Barack Obama, in a last-ditch bid for a bipartisan "grand bargain" on the budget, threw his weight Tuesday behind a $3.7 trillion deficit-reduction plan unveiled by six Republican and Democratic senators.
The plan, which would span a decade, has scant chance of passing intact as the solution to the current debate over raising the government's borrowing limit. Some Republicans were wary of the plan's changes in tax rules. Democrats said it would be near impossible to draft legislative language and pass it quickly.
Still, some elements from the so-called Gang of Six senators could be incorporated into a final deal to shrink the deficit and raise the government's $14.29 trillion debt cap by Aug. 2. That's when the Treasury Department says the government will run out of cash to pay all its bills without an increase in borrowing authority.
Even House Majority Leader Eric Cantor (R.,Va.), one of the party's most combative conservatives, didn't dismiss the plan out of hand. "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."
The developments come against a backdrop of a dramatic shift in public attitudes toward the debt ceiling. A new Wall Street Journal/NBC News poll found a plurality of Americans--38%--now say the debt ceiling should be raised, while 31% say it shouldn't. A month ago, sentiment was the reverse, with 39% opposing the idea while just 28% said it should be raised.
The senators backing the new proposal say 74% of the deficit reduction would come from spending cuts and 26% from new taxes. It would impose spending cuts and caps, and make changes in Social Security to make the program solvent over 75 years. It would direct congressional committees to reduce the deficit by specific levels in their areas of jurisdiction, likely including major entitlements such as Medicare and Medicaid.
The plan also would make big changes to the tax code. It would lower personal and corporate tax rates, eliminate the unpopular Alternative Minimum Tax and many deductions and tax breaks.
Comparing the Gang of Six plan to current law, which provides that all Bush tax cuts expire in 2012, it would cut taxes by $1.5 trillion over 10 years, making it attractive to some Republicans.
By another commonly used Washington yardstick--one that assumes, as the Bowles-Simpson bipartisan fiscal commission did, that Congress was certain to extend several expiring tax breaks--it would raise roughly an additional $1 trillion over 10 years, which could make it attractive to some Democrats.
The pace of jockeying is quickening as several budget proposals have arisen, only to be shot down. A conservative budget-balancing plan passed the House late Tuesday on a 234-190 vote, but is likely to die in the Senate. Another, far more modest back-up plan, known as Plan B, is being crafted by Senate leaders, but is meeting stiff opposition from House Republicans.
For Mr. Obama the sudden emergence of a new option from the Gang of Six offered another political opportunity: He highlighted the plan in a midday statement to the press and repeated that he is seeking a sweeping deal that would improve the nation's financial picture for the next decade. The president said he would invite senior congressional leaders to the White House for another meeting in the coming days.
The president warned that negotiators are in the "11th hour" for getting a deal and markets could soon begin to react negatively if partisan wrangling goes down to the wire.
His support for the plan seems to have cheered some in the stock and bond markets. Prices for the 30-year Treasury bond jumped, pushing yields, which move in the opposite direction of prices, sharply lower Tuesday. Prices for the 30-year bond have lagged behind other Treasurys lately, which traders and analysts have interpreted as one of the first tangible signs investors were growing concerned over the debt-ceiling debate.
Stocks also surged, with the Dow Jones Industrial Average posting its biggest daily increase this year, closing up 202.26 points, or 1.6%, to 12587.42. Analysts attributed the gains to both Mr. Obama's praise for the debt plan and International Business Machine Corp.'s strong earnings.
Some House Republicans reacted with cautious interest to the Gang of Six proposal. "It's something I would definitely want to look at," said Rep. Adam Kinzinger, a freshman Republican from Illinois.
A spokesman for House Speaker John Boehner (R., Ohio), whose private efforts to negotiate a big budget deal with Mr. Obama collapsed more than a week ago, treated the new proposal gingerly: "This plan shares many similarities with the framework the speaker discussed with the president, but also appears to fall short in some important areas.''
In the Senate, the plan picked up support from one influential member of the GOP leadership, Lamar Alexander of Tennessee.
But senior Democrats--including Sen. Dick Durbin (D., Ill.), a member of the Gang of Six--cautioned that it would be hard for Congress to process such complex legislation before Aug. 2.
Still, Senate Majority Leader Harry Reid, (D., Nev.), said he invited the bill's supporters to suggest elements that might be included in the Plan B framework being crafted by him and Senate Minority Leader Mitch McConnell (R., Ky.).
In the House, conservatives laid out their big-picture approach to the deficit by voting for a deficit-slashing plan that would dramatically cut the federal budget, impose stringent caps on future spending and require that Congress approve a Constitutional amendment to balance the budget before raising the debt ceiling.
The bill was expected to be taken up in the Senate later this week, but was given no chance of passing.
The vote on the GOP budget bill, known as the "Cut, Cap and Balance Act,'' was scheduled in part to give voice to conservatives' principles before any compromise is adopted.
But Mr. Boehner indicated he is already looking for alternatives. "I'm not going to give up hope on cut, cap and balance, but I think it's responsible to look at what Plan B would look like," he said.
Many conservatives oppose that back-up plan being devised by Sens. Reid and McConnell. It would avert default by giving the president new power to increase the debt limit by $2.5 trillion in three installments over the next year.
It also would set up a congressional committee to recommend a deficit reduction plan by the end of the year, and require the House and Senate to vote on it without change. Critics say it does too little to cut the deficit and gives too much power to the president.
"It abdicates our congressional responsibility to lead and do something about the debt,'' said Rep. Joe Walsh (R., Ill.), who has gathered about 70 GOP signatures on a letter opposing the McConnell plan.
--Carol E. Lee, Matt Phillips and Jonathan Weisman contributed to this article.
Write to Naftali Bendavid at firstname.lastname@example.org and Damian Paletta at email@example.com