While there’s no guarantee it will pass, especially in the Republican-dominated House, the “Gang of Six” plan put forward by a bipartisan group of Senators is the best hope we’ve had come out deficit-reduction negotiations so far. Shortly after its authors presented the plan, which would cut $3.7 trillion from the national budget over the next 10 years, President Obama held a press conference to publicly approve of the plan.
“The framework is broadly consistent with what we’ve been working on here in the White House and with the presentations that I’ve made to the leadership when they’ve come over here,” Obama told reporters. The plan is more ambitious than recent talks have led lawmakers to expect. Over 40 senators, both Democrats and Republicans alike, have expressed their optimism over the plan. Given its potential to be a last minute Hail Mary pass, lawmakers on both sides voting against the proposal could hurt their chances of getting re-elected in 2012. At this point, the public are more concerned with a deal, any deal, that will prevent the government from defaulting on its obligations, which could send the economy into another recession.
The Gang of Six proposal is modeled on a plan set forth by the two co-chairmen of Obama’s debt commission — Erskine Bowles and Alan Simpson — and calls for a two-step legislative process that would begin with reducing the deficit by $500 billion and then institute a more comprehensive debt-reduction plan that would ultimately cut trillions from the budget. Here’s a breakdown of how the plan will both decrease spending and increase revenue:
- Tax reform. The plan will eliminate Republican-backed tax breaks for some of the wealthiest Americans, while decreasing the number of income tax brackets from six down to three and reducing tax rates. Rates for the lowest bracket will fall between 8% and 12%, the middle bracket will fall between 14% and 22%, and rates in the top bracket will be between 23% and 29%. The plan would also do away with the Alternative Minimum Tax. The Gang of Six says the plan will ultimately cut $1.5 trillion in taxes over 10 years.
- Spending cuts. In order to reduce the national debt by $500 billion over the next 10 years, the plan would impose statutory discretionary spending caps through 2015, sell unused federal property, and re-work cost-of-living adjustments for taxpayers. Changes to Supplementary Security Income, which goes to seniors and disabled people with low incomes, would be delayed for five years, and then phased in over the following five years. The plan would freeze congressional pay and repeal the CLASS Act established by the 2010 health reform law that paid for helpers for seniors. The proposal would cut spending for both discretionary and mandatory programs like the armed services and the Commerce Department.
- Social Security reform. If the plan is passed and garners 60 votes in the Senate, it will require lawmakers to reform social security in order to decrease spending. However, it also calls on lawmakers to use any budgetary savings resulting from the plan, other than the $500 billion going toward reducing the national debt, to be put back into the program.
On top of measures to balance the budget and decrease national debt, the plan also outlines plans for how to go about budget negotiations in the future, in order to avoid the sort of last-minute scramble and resulting economic uncertainty that has plagued markets, and Americans, for months now.