As reported in Huffinton Post by Ryan Grim and Elise Foley

WASHINGTON — More than half the Senate was convened early Tuesday morning by Sen. Mark Warner (D-Va.) for a briefing on a deficit-reduction plan being negotiated by group of five senators from both parties once known as the “Gang of Six.”

The gang had previously comprised six lawmakers before Sen. Tom Coburn (R-Okla.) abandoned the talks, rebuking Democrats for being unwilling to cut Social Security or Medicare. Yet Coburn had heavy praise for the plan outlined Tuesday morning, raising hopes (and fears) that the gang may be getting back together.

Senators were effusive about the plan after the briefing meeting, calling it “great” and saying it would likely gain support from a majority of the Senate. The plan includes $1.5 trillion in tax cuts, managed by spending caps and cuts to government programs.

“We’ve gone from a Gang of Six to a mob of 50,” said Sen. Joe Manchin (D-W.V.) after the meeting.

More than half of the Senate arrived to hear about the debt-reduction plan Tuesday morning, and the general atmosphere was positive, said Sen. Susan Collins (R-Maine).

“Everyone felt a sense of relief that there was a bipartisan, carefully constructed plan before us,” she told reporters outside the meeting.

A Senate Democratic aide familiar with the negotiations with Coburn said that the Oklahoma senator had refused Democratic entreaties, even after cuts to entitlements were offered. But now that the five other Senators are moving forward without him, the aide said, Coburn is more interested in being involved again.

// “This type of a wider audience may make him less important, particularly if there are other Republicans willing to step up,” said the aide.

A different Senate aide said it remains unclear whether there is enough time to move forward with the plan before Aug. 2, the date the Treasury Department predicts the federal government could begin defaulting on its debt. But Collins said the Gang has completed enough work on their deal that it could be ready in time for a pre-Aug. 2 vote.

“They have done so much work that a lot of the issues have been gone through, and they’re in the midst of drafting statutory language,” Collins said. “I believe it should be considered in conjunction with the debt ceiling plan.”

Sen. Kay Bailey Hutchison (R-Texas) said the plan could gain traction in the Senate and even in the Republican-controlled House, which is committed to major spending cuts.

“I think if you look at the details here, they will see it does lots of things they’ve called for,” Hutchison told reporters.

“They have come up with a plan that can get a majority vote in the Senate, very likely 60,” she said, adding she would vote for the plan. “The House should like this plan because it has spending cuts.”

UPDATE 1:45 p.m.: President Barack Obama expressed some support of the Gang of Six plan during remarks to the press on Tuesday, calling the plan a “very significant step” that is “broadly consistent with the approach that I’ve urged.”

“What it says is we’ve got to be serious about reducing domestic spending, both in domestic and in defense,” he said. “We’ve got to be serious about tackling health care spending and entitlements in a serious way and we’ve got to have some additional revenue so we have an approach in which there is shared sacrifice.”

UPDATE 2:10 p.m.: The Gang of Six plan is laid out in a summary flyer obtained by HuffPost and details the group’s proposal for cutting the deficit by more than $3.6 trillion over the next decade.

The plan would immediately cut $500 billion in spending to bring down the deficit. It would also include major tax cuts, with about $1.5 trillion in overall tax savings, its authors say.

But that estimate factors in a $1.7 trillion cut to the alternative minimum tax — a tax Congress already eliminates much of every year. But even with the AMT cuts, the package raises only a net $200 billion compared to cuts of more than $3 trillion — not exactly a balanced approach.

Much of the Gang of Six plan would require other agencies and Congressional committees to work to find savings, setting up guidelines for $80 billion in armed service cuts and $70 billion from health, education, labor and pensions. Under the plan, the Budget Committee would be required to set spending caps that would extend over the next decade.

UPDATE 3:10 p.m.: Senate Majority Leader Harry Reid (D-Nev.) threw some cold water on the Gang of Six plan Tuesday, voicing doubts that the plan could be scored and passed before the Aug. 2 deadline for raising the debt ceiling.

Reid said he got a call from Congressional Budget Office Director Doug Elmendorf, who said the plan would take at least two weeks to score for cost and savings, putting the completion of that work just beyond the Aug. 2 deadline. Reid called the plan “wonderful” and said he does not want to diminish enthusiasm over it, but said alternatives still must be considered.

Reid said Sen. Mark Warner (D-Va.), a Gang of Six member, would meet with him in the next 24 hours with parts of the plan that can be incorporated into a deal brokered by Reid and Senate Minority Leader Mitch McConnell (R-Ky.) to raise the debt ceiling.

Michael McAuliff contributed to this report.

By  Bruce Bartlett, Published: July 7

 

In recent months, the federal debt ceiling — last increased in February 2010 and now standing at $14.3 trillion — has become a matter of national debate and political hysteria. The ceiling must be raised by Aug. 2, Treasury says, or the government will run out of cash. Congressional Republicans counter that they won’t raise the debt limit unless Democrats agree to large budget cuts with no tax increases. President Obama insists that closing tax loopholes must be part of the package. Whom and what to believe in the great debt-limit debate? Here are some misconceptions that get to the heart of the battle.

1. The debt limit is an effective way to control spending and deficits.

Not at all. In 2003, Brian Roseboro, assistant secretary of the Treasury for financial markets, explained it best: “The plain truth is that the debt limit does not affect the deficits or surpluses. The critical revenue and spending decisions are made during the congressional budget process.”

The debt ceiling is a cap on the amount of securities the Treasury can issue, something it does to raise money to pay for government expenses. These expenses, and the deficit they’ve wrought, are a result of past actions by Congress to create entitlement programs, make appropriations and cut taxes. In that sense, raising the debt limit is about paying for past expenses, not controlling future ones. For Congress to refuse to let Treasury raise the cash to pay the bills that Congress itself has run up simply makes no sense.

Some supporters of the debt limit respond that there is virtue in forcing Congress to debate the national debt from time to time. This may have been true in the past, but the Budget Act of 1974 created a process that requires Congress to vote on aggregate levels of spending, revenue and deficits every year, thus making the debt limit redundant.

 

2. Opposition to raising the debt limit is a partisan issue.

Republicans are doing the squawking now because there is a Democrat in the White House. But back when there was a Republican president, Democrats did the squawking. On March 16, 2006, one Democratic senator in particular denounced George W. Bush’s request to raise the debt limit. “The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure,” the senator thundered. “Increasing America’s debt weakens us domestically and internationally. . . . Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren.”

That senator was Barack Obama, and he, along with most Democrats, voted against a higher limit that day. It passed only because almost every Republican voted for it, including many who are now among the strongest opponents of a debt-limit increase.

 

3. Financial markets won’t care much if interest payments are just a few days late — a “technical default.”

Some Republicansbelieve that bondholders know they will get their money eventually and will understand that a brief default — just a few days — might be necessary to reduce future deficits. “If a bondholder misses a payment for a day or two or three or four,” Rep. Paul Ryan (R-Wis.) told CNBC in May, “what is more important [is] that you’re putting the government in a materially better position to be able to pay their bonds later on.”

 

This is nothing but wishful thinking. The bond-rating agencies have repeatedly warned that any failure to pay interest or principal on a Treasury security exactly when due could cause the U.S. credit rating to be downgraded, which would push interest rates up as investors demand higher rates to compensate for the increased risk.

J.P. Morgan recently surveyed its clients and asked how much rates would rise if there was a delay in payments, even a very brief one. Domestic investors thought they would go up by 0.37 percentage points, but foreign buyers — who own close to half the publicly held debt — predicted an increase of more than half a percentage point. Any increase in this range would raise Treasury’s borrowing costs by tens of billions of dollars per year.

Some may think that a rise in rates would be temporary. But there was a case back in 1979 when a combination of a failure to increase the debt limit in time and a breakdown of Treasury’s machines for printing checks caused a two-week default. A 1989 academic study found that it raised interest rates by six-tenths of a percentage point for years afterward.

 

4. It’s worth risking default on the debt to prevent a tax increase, given the weak economy.

While Republicans’ concerns about higher taxes are not unreasonable, most economists believe that any fiscal contraction at this time would be dangerous. They note that a large cut in spending back in 1937 brought on a sharp recession, which undermined the recovery the country was making after the Great Depression.

Republicans respond that tax increases are especially harmful to growth. However, they made the same argument in 1982, when Ronald Reagan requested the largest peacetime tax increase in American history, and again in 1993, when Bill Clinton also asked for a large tax boost for deficit reduction. In both cases, conservative economists’ predictions of economic disaster were completely wrong, and strong economic growth followed.

 

5. Obama must accept GOP budget demands because he needs Republican support to raise the debt limit.

Republicans believe they have the president over a barrel. But their hand may be weaker than they think. A number of legal scholars point to Section 4of the 14th Amendment, which says, “The validity of the public debt of the United States . . . shall not be questioned.”

Some scholars, including Michael Abramowicz of George Washington University Law Schooland Garrett Epps of the University of Baltimore Law School, think this passage may make the debt limit unconstitutional because by definition, the limit calls into question the validity of the public debt. Thus Treasury may be able to just ignore the debt limit.

Other scholars, such as Michael McConnell of Stanford Law School, say the 14th Amendment will force Obama to prioritize debt payments and unilaterally slash spending to pay bondholders. But this would involve the violation of laws requiring government spending.

Either way, a failure to raise the debt limit would force the president to break the law. The only question is which one.

 

Bruce Bartlett, a former adviser to President Ronald Reagan and a Treasury official in the George W. Bush administration, is the author of “The New American Economy: The Failure of Reaganomics and a New Way Forward.” He will be online at 11 a.m. on Monday, July 11, to chat. Submit your questions and comments now.

Want to challenge everything you know? Visit our “Five myths” archive, including “Five myths about interest rates,” “Five myths about the Bush tax cuts,” “Five myths about defense spending,” and “Five myths about the deficit.”

By KEN THOMAS 06/26/11 07:18 AM ET AP

 

COLUMBUS, Ohio — Vice President Joe Biden said Saturday the Obama administration wouldn’t let middle class Americans “carry the whole burden” to break a deadlock over the national debt limit, warning that the Republican approach would only benefit the wealthy.

Addressing Ohio Democrats, Biden said there had been great progress in talks with Republican lawmakers on a deficit-reduction plan agreement. But he insisted that his party wouldn’t agree to cuts that would undermine the elderly and middle-class workers.

“We’re not going to let the middle class carry the whole burden. We will sacrifice. But they must be in on the deal,” Biden said in a speech at the Ohio Democratic Party’s annual dinner.

Biden led efforts on a deficit-reduction plan but Republicans pulled out of the discussions last week, prompting President Barack Obama to take control of the talks.

The sides disagree over taxes. Democrats say a deficit-reduction agreement must include tax increases or eliminate tax breaks for big companies and wealthy individuals. Republicans want huge cuts in government spending and insist on no tax increases.

On tax breaks for the wealthy, Biden used the example of hedge fund managers who “play with other people’s money.”

“And they get taxed,” Biden said. “I’m not saying they don’t do good things, they do some good things. But they get taxed at 15 percent because they call it capital gains. Because they’re investing not their money, (but) other people’s money.”

To ask senior citizens receiving Medicare to pay more in taxes when people earning more than $1 million a year receive a substantial tax cut “borders on immoral,” the vice president said.

“We’re never going to get this done, we’re never going to solve our debt problem if we ask only those who are struggling in this economy to bear the burden and let the most fortunate among us off the hook,” Biden said.

Republican leaders say without a deal cutting long-term deficits, they will not vote to increase the nation’s borrowing – which will exceed its $14.3 trillion limit on Aug. 2. The Obama administration has warned that if Congress fails to raise the debt ceiling, it would lead to the first U.S. financial default in history and roil financial markets around the globe.

Obama and Biden are scheduled to meet with Senate Majority Leader Harry Reid, D-Nev., and Senate Republican leader Mitch McConnell of Kentucky on Monday. McConnell and House Speaker John Boehner, R-Ohio, say no agreement can include tax increases.

Biden assailed moves by GOP governors in Wisconsin and Ohio to strip away collective bargaining rights from most public workers while criticizing efforts by Republicans in Congress to alter the Medicare program. He defended Obama’s handling of the economy, pointing to difficult decisions on an economic stimulus package and the rescue of U.S. automakers.

Ahead of Biden’s visit, Republicans countered that Obama’s policies led to GOP gains in 2010 and have failed to revitalize the economy.

“All the visits in the world from President Obama, Vice President Biden and other top-level surrogates won’t change the administration’s job-killing policies,” said Republican National Committee spokesman Ryan Tronovitch.

Biden, who spoke frequently of his blue-collar roots in Scranton, Pa., during the 2008 presidential race, is expected to be a frequent visitor to the Midwest during next year’s campaign.

Obama won states such as Ohio, Michigan and Pennsylvania in 2008. But those states elected Republican governors in 2010 and are considered prime targets for Republicans next year.

Looking ahead to 2012, Biden called Ohio “the state that we must win and will win.”

As reported in Huffington Post

By Andy Sullivan

WASHINGTON — Negotiators trying to tame the United States’ spiraling debt said on Thursday that they had tentatively agreed on a number of cuts and are now gearing up for tough trade-offs that could lead to trillions of dollars in savings.

“We’ve gone through a first, serious scrub of each of the categories that make up the total federal budget,” Vice President Joe Biden told reporters. “Now we’re getting down to the real hard stuff: I’ll trade you my bicycle for your golf clubs.”

Biden and top Democratic and Republican lawmakers aim to reduce the country’s stubborn budget deficits by $4 trillion over the next 10 years in order to give lawmakers the political cover to raise the $14.3 trillion U.S. debt ceiling to prevent a default.

The agreed-upon cuts will serve as bargaining chips in the coming weeks as the two sides tackle a stark divide over taxes and health benefits, participants said.

“Even stuff we agreed to that we may have refined today is all subject to be reopened if we don’t get agreement on some of the big issues. We’ve got a long way to go here,” said Democratic Representative Chris Van Hollen.

Farm subsidies, federal employee pensions, student loans and the trillion-plus dollars that Congress spends each year on everything from defense to river dredging could come under the knife.

But Republicans have refused to consider increased taxes, while Democrats have resisted wholesale changes to health benefits for the poor and the elderly.

COMPROMISE ON TAXES, HEALTHCARE?

Compromise is not impossible in these areas. Democrats hope to boost tax revenues primarily by ending breaks and closing loopholes, rather than raising rates. Two recent Senate votes have given them heart as Republicans backed closing tax breaks for ethanol providers.

On healthcare, Democrats have blasted a Republican plan that would scale back the Medicare health program for future retirees. But they have proposed less dramatic changes that could still save hundreds of billions of dollars.

Both President Barack Obama and Republicans have proposed significant changes to the Medicaid health program for the poor. Obama has also said he would support limiting medical malpractice lawsuits — a longtime Republican priority.

“I think we really are covering every type of spending program there is,” Representative Eric Cantor, the No. 2 House Republican, told reporters. “We are doing all that we have set out to do.”

The group is stepping up negotiations as it faces a self-imposed deadline of July 1, with longer and more frequent talks set for next week.

The Obama administration has warned that it will run out of money to pay the nation’s bills if Congress does not raise the debt ceiling by August 2 — a prospect that could push the country back into recession and upend financial markets across the globe.

Washington needs to show investors that it can rise above its dysfunctional reputation, Biden said.

“The single most important thing to do for the markets is convince them no, that’s not true, we can handle difficult decisions,” he said.

Republicans want at least $2 trillion in cuts, measured over 10 years, to go along with a similar increase in the debt ceiling to ensure Congress doesn’t have to revisit the politically toxic issue before the November 2012 elections.

The Biden group could claim another $2 billion in savings by mandating automatic cuts or tax increases if Congress doesn’t meet specified deficit targets in coming years.

Budget deficits in recent years have hovered at their highest level relative to the economy since World War Two. The deficit is projected to hit $1.4 trillion in the fiscal year that ends September 30.

(Additional reporting by Richard Cowan; Editing by Eric Walsh)