Six senators, three from each party had been working for months to come up with a bipartisan proposal to reduce the deficit. The gang broke up in May when Republican Senator Tom Coburn of Oklahoma abandoned the talks over an impasse on Medicare cuts.

Those differences have now been worked out and the gang has a plan that as many as 60 senators and president Obama will support.

Please consider Obama Embraces Senators’ Deficit-Cutting Plan

President Barack Obama embraced a $3.7 trillion debt-cutting plan by a bipartisan group of senators that would combine tax increases and spending cuts, saying it could offer a way out of the congressional deadlock over raising the U.S. borrowing limit.

“We now are seeing the potential for a bipartisan consensus,” Obama said today at the White House. He called the proposal by the so-called Gang of Six “broadly consistent” with what he has sought and “a very significant step” in so far fruitless negotiations between Republicans and Democrats over boosting the nation’s $14.3 trillion borrowing authority before a threatened default on Aug 2.

At the Capitol, the bipartisan group led by Republican Senator Saxby Chambliss of Georgia and Senator Mark Warner of Virginia pitched its plan for an immediate $500 billion in spending cuts followed by a longer-term effort to force bigger reductions and $1 trillion in tax increases. The plan calls for lowering tax rates and limiting the growth of entitlement programs such as Medicare and Social Security.

About 50 senators, roughly evenly divided between the two parties, attended a closed-door briefing on the plan, a sign of potentially widespread support for the kind of “grand bargain” to reduce the debt that Obama is urging. One member of the Republican leadership, third-ranking Senator Lamar Alexander of Tennessee, publicly endorsed the plan.

“In the next 24 hours, you’re going to see a significant portion of the Senate come behind this — bipartisan — maybe 60 members, and let’s see how things roll,” said Republican Senator Tom Coburn of Oklahoma, who rejoined the Gang of Six today after he abandoned the talks in May over an impasse on Medicare cuts. “This doesn’t solve our problems, but this creates the way forward where we can,” he said.

House Majority Leader Eric Cantor, a Virginia Republican, said in a statement issued tonight on the Gang of Six proposal that “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.”

It would institute an initial $500 billion of spending cuts, then lay out targets and enforcement mechanisms for forcing more future reductions, including between $85 billion and $202 billion in Medicare and other health spending, $80 billion from defense, $70 billion from education and labor programs and $11 billion from agriculture programs, according to a summary.
Tax Overhaul

It would also call for a broad tax overhaul that would raise $1 trillion by limiting breaks for health, charitable giving, homeownership and retirement while lowering individual and corporate tax rates. And it would scrap the Alternative Minimum Tax, a parallel system designed to prevent higher- earners from avoiding taxes.

Meaning of “Immediate”

I am wondering about the meaning of “an immediate $500 billion in spending cuts“.

Is that “immediate” as in this year, or “immediate” as in a proposed pissy $50 billion a year reduction for 10 years. If it’s the former, I endorse the proposal but if it’s the latter, the deficit cutting is nothing but smoke and mirrors. I strongly suspect this proposal is smoke and mirrors.

Either way, I would feel a lot better about the deal if it contained provisions to end collective bargaining, scrap Davis-Bacon, and institute national right-to-work laws.

Senator Rand Paul in Hiding

Speaking of right-to-work laws, where the hell is Senator Rand Paul hiding? He should be at the forefront of this battle, insisting provisions like those make it into the deal. It does no good to sit back in hiding when everyone knows something will pass.

The idea is to get as much as possible out of an agreement. Going into hiding solves nothing.

Revenue Hikes Reasonable

On the revenue side, the tax hikes are trivial, and in the right places. Getting rid of the Alternative-Minimum-Tax (AMT) is a good idea and should make the minor give-aways tolerable. However, the housing industry will scream bloody murder.

It remains to be seen if the House goes along with this plan, but it is a better option than simply handing the reins over to president Obama as Republican leader Mitch McConnell proposed.

Mike “Mish” Shedlock
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