Senate GOP shows flexibility in debt, budget fight

[July 20, 2011]  WASHINGTON (AP) -- Senate Republicans are showing far more flexibility than their tea party-backed House colleagues as Washington policymakers seek to steer the government away from a first-ever default on its financial obligations.

As the House doubled down on a symbolic vote to condition any increase in the government's borrowing authority on congressional passage of a balanced budget constitutional amendment and a fresh wave of spending cuts, the warm reception by many Senate Republicans to a new bipartisan budget plan revealed a thawing in GOP attitudes on new tax revenues.

President Barack Obama also lauded the deficit-reduction plan put forward by a bipartisan "Gang of Six" Senate lawmakers, which calls for $1 trillion in what sponsors delicately called "additional revenue" and some critics swiftly labeled as higher taxes.

The plan by the Gang of Six is far too complicated and contentious to advance before an Aug. 2 deadline to avoid a default that Treasury Secretary Timothy Geithner and other experts warn would rattle markets, drive up interest rates and threaten to take the country back into a recession. But its authors clearly hope it could serve as a template for a "grand bargain" later in the year that could erase perhaps $4 trillion from the deficit over the coming decade.

In the House, the 234-190 vote Tuesday to pass the House GOP "cut, cap and balance" plan reflected the strength of tea party forces elected in last year's midterm election. GOP conservatives reveled in their victory, however temporary it may be, since the plan faces a White House veto threat and is a dead letter in the Senate anyway.

"Let me be clear. This is the compromise. This is the best plan out there," said Rep. Jim Jordan, R-Ohio, head of a conservative House group known as the Republican Study Committee.

The GOP measure would impose an estimated $111 billion in immediate spending cuts next year and would cap overall spending at levels called for in the House's April budget plan, backed up by the threat of automatic spending cuts. But what conservatives like most about it is its requirement that Congress approve a balanced budget amendment to the Constitution -- a step that requires a two-thirds vote in both House and Senate -- before any increase in the current $14.3 trillion debt limit can be shipped to Obama.

Now that the House has blown off steam, Obama said Tuesday that he wants to "start talking turkey" with top congressional leaders like House Speaker John Boehner, R-Ohio, Senate Majority Leader Harry Reid, D-Nev., and Senate GOP leader Mitch McConnell of Kentucky. A White House meeting had yet to be scheduled, though Obama seemed to hint one could take place Wednesday.

Reid has lined up behind a controversial McConnell plan to allow Obama to order up as much as $2.5 trillion in new debt without approval by Congress, which could only block the administration from issuing new debt if Congress disapproves by a veto-proof two-thirds margin in both House and Senate.

In exchange, Reid wants to attach to the McConnell plan a requirement for a bipartisan panel of 12 lawmakers to negotiate on a compromise that could come up for a vote later this year.

The Gang of Six plan promises almost $4 trillion in deficit cuts, including an immediate 10-year, $500 billion down payment that would come as Congress sets caps on the agency budgets it passes each year. It also requires an additional $500 billion in cost curbs on federal health care programs, cuts to federal employee pensions, curbs in the growth of military health care and retirement costs, and modest cuts to farm subsidies.

"This a concrete way to reduce the deficit and assure that we are on a long-term plan that will bring down the debt to a reasonable level," Sen. Kay Bailey Hutchison, R-Texas, said.

It also requires a major influx of new tax revenues as Congress overhauls the loophole-choked U.S. tax code. It calls for getting rid of myriad tax loopholes, preferences and deductions and using the savings to sharply lower income tax rates. But $1 trillion to $2 trillion would be skimmed off the top and used to reduce the deficit, depending on who does the calculations.

House GOP leaders were muted in their criticism and pointed to promised reductions in income tax rates rather than the net increase in overall tax collections.

"On the positive side, the tax rates identified in the Gang's plan -- with a top rate of no more than 29 percent -- and the president's endorsement of them are a positive development and an improvement over previous discussions," House Majority Leader Eric Cantor, R-Va., said. "That said, I am concerned with the Gang of Six's revenue target."

The tax reform outline would set up three income tax rates -- a bottom rate of 8-12 percent, a middle rate of 14-22 percent and top rate of 23-29 percent -- to replace the current system, which has a bottom rate of 10 percent with five additional rates, topping out at 35 percent. It would reduce but not eliminate tax breaks on mortgage interest, higher-cost health plans, charitable deductions, retirement savings and families with children.

[Associated Press; By ANDREW TAYLOR]

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