Late plan offers hope in debt battle

Obama endorses effort, calls for action to break impasse; deal would trim Social Security hikes, some tax deductions

By Matt Viser
Globe Staff / July 20, 2011

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WASHINGTON — A bipartisan group of senators yesterday unveiled an ambitious deficit-reduction plan that calls for limiting Social Security increases and reducing mortgage and other cherished tax deductions, a last-minute development that quickly won praise from President Obama and could provide a path to break a months-long budget impasse.

With House Democrats and Republicans hardening their positions over whether and how to raise the nation’s debt limit before an Aug. 2 deadline, the group of senators dubbed the “Gang of Six” outlined the framework of a deal they said would cut the deficit’s growth by $3.7 trillion over 10 years. About $1 trillion of that would be raised by overhauling the tax code to lower individual and corporate rates while slicing myriad loopholes, shelters, and deductions. The proposal attracted support from rank-and-file senators in both parties, if not yet their leaders.

“We don’t have any more time to engage in symbolic gestures; we don’t have any more time to posture,” said Obama, who endorsed the effort during a White House briefing. “It’s time to get down to the business of actually solving this problem.”

The plan rekindled hope that a substantial agreement on spending cuts could clear the way for a vote to lift the nation’s debt ceiling and allow the government to meet its obligations, from paying its creditors to ensuring that Social Security checks or service members’ paychecks are not delayed.

Stock investors cheered the development, accelerating a morning rally into a 1.6 percent increase in the Dow Jones industrial average, its biggest jump this year.

The plan, which has been crafted over seven months of on-again, off-again talks, faces considerable obstacles. In the Senate, party leaders Harry Reid, Democrat of Nevada, and Mitch McConnell, Republican of Kentucky, declined to immediately embrace the framework.

In the House, the linchpin to any deal on the debt limit, its success could be whether GOP leaders or members of the Tea Party movement deem the revenue-raising part of the proposal a tax increase. Such a designation would bury the deal.

Initial comments were mixed. House majority leader Eric Cantor, who has been a staunch opponent to any deal that hints of an increase in taxes, said in a prepared statement: “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.”

Several Massachusetts Democrats — including US Representatives Barney Frank of Newton and James McGovern of Worcester — said that while they hadn’t seen all the details, they would be opposed to changes that would limit increases in Social Security payments.

“I’m frustrated as hell that you’ve got members of Congress talking about cutting benefits for Social Security recipients when they had nothing to do with this economic mess we’re in,” McGovern said in an interview.

An aide to House Speaker John Boehner, a Republican from Ohio, noted that a GOP bid to link a debt limit vote with a push for a constitutional balanced budget amendment was more aggressive in cutting spending. The House last night passed such a bill, 234-190, but its chances of passing in the Senate are nearly zero.

The Senate plan also faces an imposing deadline. Because it is only a framework, with actual legislation to be worked out over the next months, it’s unclear how leaders could leverage a commitment to back the deal into a separate vote to raise the nation’s debt limit.

“Congress takes a couple weeks to put together a declaration to celebrate Susan B. Anthony Day,” said David Schanzer, a professor at Duke University and a former Democratic congressional staffer. “These are complex topics. . . . In a kind of rational and principled political environment, you’d think that could get us past the current crisis. I’m a little bit fearful that we’re not in that climate right now.”

The president was emphatic in his call that prompt action is needed.

“The problem we have now is, we’re in the 11th hour, and we don’t have a lot more time left,” said Obama, adding that he plans to call congressional leaders to the White House for more meetings. He also encouraged Congress to continue working on a backup plan, pitched by McConnell and Reid, that would allow him to unilaterally raise the debt limit in case a broader deal cannot be reached.

The six senators briefed their colleagues yesterday morning. The plan would implement an immediate $500 billion cut in spending while laying the groundwork for congressional committees to enforce more cuts and develop changes to entitlement programs over the next decade.

In its call to radically change the tax code, the plan would:

■ Simplify the code to three rates — ranging from 8 percent to 29 percent — instead of the current six-tier system that ranges from 10 percent to 35 percent.

■ Reduce — but not eliminate — breaks for expenditures such as mortgage interest, charitable deductions, retirement savings, and tax credits for families with children.

■ Abolish the Alternative Minimum Tax, costing the government $1.7 trillion. The tax was created to ensure that wealthy taxpayers paid a minimum amount of tax after they had reduced their exposure through deductions. In recent years, however, more middle-class Americans have been threatened with the additional tax.

In addition, the plan calls for a series of cost-saving changes in the national health care law. One of the most explicit cuts would eliminate the law’s national insurance plan for long-term and nursing care.

It also calls for a more restrictive way to measure cost-of-living increases for Social Security. Economists consider the new method, known as the chained Consumer Price Index, a more accurate reflection of inflation.

Senator John Kerry, a Massachusetts Democrat, was enthusiastic about the plan, calling it “a comprehensive proposal to put our fiscal house in order.”

“It deserves serious consideration, and it’s a worthy starting point for the budget discussion,” he said. “Whether it comes in time to deal with an August 2d deadline is less clear.”

Senator Scott Brown, the Massachusetts Republican, said he was “encouraged” by the proposal but didn’t fully endorse it.

“At the end of the day, I hope to support a plan that avoids default by making substantial spending cuts and which is reasonable and bipartisan and has a chance of being signed into law,” he said.

The framework was not without opposition.

“The plan would result in devastating cuts to Social Security, Medicare, Medicaid, and many other programs that are of vital importance to working families in this country,” Senator Bernie Sanders, an independent from Vermont, said in a statement. “Meanwhile, tax rates would be lowered for the wealthiest people and the largest, most profitable corporations.”

The Gang of Six — Republicans Tom Coburn of Oklahoma, Saxby Chambliss of Georgia, and Mike Crapo of Idaho and Democrats Mark Warner of Virginia, Dick Durbin of Illinois, and Kent Conrad of North Dakota — formed after a high-profile report from an 18-member debt commission formed by Obama. The panel failed to win the 14 votes needed to send its recommendations to Congress, but it succeeded in putting forward a host of ideas for tackling the deficit.

The Gang of Six work was resurrected when Coburn recently rejoined it. He had left in May because he didn’t think the plan would include enough cuts.

He said in a brief interview yesterday that he decided to rejoin the group after some unspecified compromises were made, adding: “The renewed energy is over the hope that we’ll get something that will fix the country.”

Matt Viser can be reached at