Update: The Latest on Deficit-Reduction Negotiations

President Obama spoke today from the University of Maryland on the current state of deficit-reduction discussions. He emphasized the importance that any plan include new tax revenue in addition to large spending cuts. On Friday, Democrat-controlled Senate rejected the “Cut, Cap and Balance” bill recently passed by the Republican-controlled house that contained massive cuts to spending but no tax hikes, while the bipartisan “Gang of Six” plan, which is heavy on cuts but also includes some tax hikes, is likely to gain approval in the Senate but meet opposition in the House.

In his speech today, Obama stressed that, if the the government attempted to close the budget deficit with spending cuts alone, it would result in significantly higher Medicare costs for senior citizens, increased difficulty for students in getting education loans, and huge cuts to medical and clean-energy research. “If we only [balance the budget] with cuts . . . then a lot of ordinary people would be hurt, and the country as a whole would be hurt,” said Obama. “If we’re going to reduce our deficit, then the wealthiest Americans and the biggest corporations should do their part as well.”

Obama emphasized that the tax hikes are not just a Democratic agenda, but have support from both parties and they only need to win over a few more members of the House of Representatives in order to institute the more balanced plan. The House would have to pass a plan by next Wednesday in order to leave enough time for the Senate to approve the measure in time to raise the debt ceiling by the August 2 deadline.

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The “grand bargain” budget deal that Obama and Republican Speaker of the House John Boehner have been working on falls somewhere right of the “Gang of Six” plan and left of the “Cut, Cap and Balance” plan. It would overhaul the tax code by lowering personal and corporate income taxes while offsetting decreased revenue in those areas by eliminating or reducing tax breaks that largely benefit the wealthy.

The Obama-Boehner plan does not include a tax rewrite, which would be put off until 2012. The plan combines both Democratic and Republican agendas but would require each party to make concessions, with Democrats needing to concede to cuts to Social Security and Medicare benefits and Republicans giving in to tax hikes. However, at this point, neither party is too pleased with the plan. While many Democrats insist the plan needs to actually increase tax revenue, not just change its source, most Republicans are opposed to both the latter and the former.

At the moment, both sides are reportedly nowhere near reaching an agreement, but they are working on a two-part package that would raise the debt limit through 2013 and institute budget cuts for government agencies through 2021. The plan could also include small tax and entitlement changes such as ending tax breaks for corporate jet owners and increasing the age of eligibility for Medicare, but larger tax and entitlement changes would be put off until next year.

While raising the debt ceiling does not require that a new budget plan be in place, both parties are reluctant to raise the $14.3 billion debt ceiling without some deficit-reduction plan. While both parties are holding up negotiations, the GOP is getting the majority of blame from the public for their complete intransigence, whereas the Democrats have made significant concessions but are holding out until the GOP at least makes an effort to do the same, even if to a much lesser extent.