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Tuesday, July 19, 2011

Government: The Gang of Six provides a debt-ceiling escape hatch?

The Gang of Six -- a bipartisan group of senators who've been trying to craft a deficit-reduction plan for months -- may be the deus ex machina that magically resolves the debt-ceiling impasse. Or not, depending how willing lawmakers on both parties are to stick a fork in their favorite campaign issues. The group estimated that its plan would reduce projected deficits by $3.6 trillion to $4.65 trillion over the coming decade, depending on the assumptions used. That's far more than $1.5 trillion to $2.5 trillion being sought by Senate leaders and House Republicans, respectively, which may lend it some credibility among deficit hawks.
Sen. Richard J. Durbin (D-Ill.), a Gang of Six member, told the Hill that the proposal won't be ready to be voted on by Aug. 2, the drop-dead date set by the Treasury Department for raising the debt ceiling. But early expressions of support from other senators and President Obama suggest that key elements of the proposal could be used to make a debt-ceiling bill more palatable to recalcitrant lawmakers. That's because it makes important concessions to the main concerns on both sides of the aisle, enabling Republicans and Democrats to claim some kind of victory -- despite the numerous provisions that would be toxic to one party or the other if they were voted on separately.
According to the outline released Tuesday, the group's approach would raise $1 trillion in revenue by eliminating numerous corporate and individual tax breaks, but also reduce tax rates sharply and eliminate the Alternative Minimum Tax that's been an increasing threat to middle-class earners. Those reductions paradoxically translate into $1.5 trillion in tax cuts over 10 years if one assumes the Bush-era tax cuts aren't renewed and the AMT remains in place, which are dubious assumptions. The plan would also slow the growth of Social Security benefits, eliminate the long-term care program enacted last year and stop Medicare and Medicaid spending from rising significantly faster than the economy. But it would exclude Social Security savings from being used to reduce the deficit, preserve food stamps and the Earned Income Tax Credit, and guarantee a minimum Social Security benefit that's 25% higher than the poverty line (but only until 2017).
Whether this sort of compromise can survive in these uncompromising times is an open question. Slowing benefit growth to fix Social Security or Medicare's long-term financial problems has been a nonstarter with Democrats, who want to hold themselves out to voters as the last line of defense for those programs. And Republicans have dug themselves in against increasing tax revenue to narrow the budget gap because their political message is about cutting spending, not cutting deficits.
It's worth noting that no House Republican signed onto the proposal on which the Gang of Six's work is based: the final report from the White House commission on fiscal responsibility. Two of the three House Democrats on the panel rejected it as well; the exception was former Rep. John Spratt (D-S.C.), a centrist who'd lost his bid for reelection a few weeks earlier.
One thing working in the proposal's favor is its relative lack of specificity. It calls for several actions right away that would save half a trillion dollars over 10 years, including selling unused federal property and establishing a "more effective" trigger for federal unemployment benefits. But the rest of the savings would be contingent on Congress enacting a deficit reduction plan that the proposal presents only in outlines. It lays out how much in savings would have to be achieved over 10 years through changes in tax law, entitlements and domestic programs, but leaves many of the details blank.
The proposal seems to have teeth, however. It includes mechanisms that force across-the-board cuts if the various congressional committees don't achieve the savings they're assigned. It also has fail-safe mechanisms to shrink the deficit and hold down healthcare costs, although how they would work isn't clear.
The biggest stumbling block for the Gang of Six proposal is that it apparently isn't ready to be voted on, and the window of opportunity is closing. Yet the lateness of the hour (in debt-ceiling terms) could also lead more sober-minded legislators to embrace the group's approach, rather than holding out for something that's less painful to their side.

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