Senate tables 'cut, cap and balance'
STORY HIGHLIGHTS
- The Senate rejects the House GOP's "cut, cap, and balance" deficit reduction plan
- Sources say a $3 trillion deficit-reduction plan is under discussion
- Party leaders are still considering a fallback plan proposed by Sen. McConnell
- The United States must raise its $14.3 trillion debt ceiling by August 2 or risk a default
"Cut, cap, and balance," which passed the Republican-controlled House earlier in the week, would have tied a debt ceiling increase to sweeping reductions in federal spending, caps on future expenditures, and a balanced budget amendment to the Constitution. While the measure was never expected to become law, holding votes on it allowed Republicans to demonstrate their preference for steps favored by many in the conservative tea party movement.
Senate Majority Leader Harry Reid, D-Nevada, dismissed the vote Friday morning as a waste of time.
"There is simply no more time to waste debating and voting on measures that have no hopes of becoming law," Reid said. There is "no more time to waste playing partisan games."
Republicans argued Democrats are obstructing sorely needed spending reforms.
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With the GOP plan defeated, top administration and congressional officials are expected to continue talks on a potential deal tying roughly $3 trillion in new savings over the next decade to an increase in the debt ceiling.
The negotiations -- necessary to stave off an unprecedented national default that could prove economically devastating -- are testing the ability of leaders on both sides of the aisle to legislate effectively in an era of increasingly shrill and unyielding partisanship.
Republicans, who have railed against the growth of government, remain staunchly opposed to any tax increases. Democrats are desperately trying to protect some of their party's primary legacies -- entitlements such as Social Security and Medicare, programs forged at the height of the New Deal and Great Society.
What, if anything, either side is prepared to yield remains an open question.
The talks, meanwhile, have become a race against the clock. If Congress fails to raise the $14.3 trillion limit by August 2, Americans could face rising interest rates, a declining dollar and increasingly jittery financial markets, among other problems.
"Neither party is blameless for the decisions that led to this debt, but both parties have a responsibility to come together and solve the problem," President Barack Obama wrote in an op-ed appearing in Friday's USA Today. "That's what the American people expect of us."
Some congressional Democrats appeared to be on the verge of open revolt against their own president Thursday night after hearing some of the details in the $3 trillion plan -- a package many of them contend does not do nearly enough to ensure wealthier Americans share in the burden of stemming the tide of Washington's red ink.
Obama echoed their concerns Friday during a town hall meeting at the University of Maryland.
"If we're going to reduce our deficits, the wealthiest Americans and the biggest corporations should do their part as well," Obama said. ""This isn't some wild-eyed socialist position. ... This isn't about punishing wealth. This is about asking people who have benefited the most over the last decade to share in the sacrifice."
For his part, Boehner met behind closed doors Friday with House Republicans. The speaker told reporters Thursday that while some members of his caucus wouldn't compromise, he didn't believe they "would be anywhere close the majority."
Both the White House and Boehner's office have denied that any deal is imminent.
We are "not close to an agreement," Boehner told reporters Friday morning. "And so I would just suggest that it's going to be a hot weekend here in Washington, D.C."
Regardless, attention continues to swirl around the prospects of the $3 trillion compromise. The possible deal remains in limbo over a disagreement on whether to extend Bush-era tax cuts for families earning more than $250,000 a year, according to congressional aides who spoke on condition of not being identified.
If enacted, the deal would include spending cuts expected to total $1 trillion or more agreed to in earlier negotiations led by Vice President Joe Biden, the sources said. It would reform entitlement programs by changing the eligibility age for Medicare over time, and using a more restrictive inflation index for Social Security benefits, according to the sources.
On taxes, it would permanently extend the Bush tax cuts for families earning less than $250,000 while allowing the cuts to expire at the end of 2012 for those with income above that, the aides said. At the same time, the deal would include a commitment to reform the tax code next year, which is expected to lower all tax rates and eliminate loopholes and subsidies, the sources said.
Boehner, however, wants the deal to make all of the Bush tax cuts permanent while keeping the commitment to tax reform, the sources said. Republicans oppose any tax increases, and their resistance has been a major obstacle to any deal in the negotiations so far.
Some sources said the deal would work in two stages, with spending cuts and a debt ceiling increase occurring right away while entitlement reforms and tax reforms would occur later.
It is unclear -- even if a deal is reached -- that any sweeping package can be approved by the August 2 deadline.
White House Press Secretary Jay Carney signaled to reporters earlier in the week that the president may now be willing to sign a short-term debt limit extension if Democratic and Republican leaders are close to agreement on a broad plan that includes both tax hikes and spending reforms.
Obama previously indicated he would veto any short-term extension.
Meanwhile, lawmakers are also continuing discussions focused on the $3.7 trillion debt reduction blueprint put forward by the "Gang of Six," a group of three Democratic and three Republican senators.
Under the group's proposal, $500 billion in budget savings would be immediately imposed, with marginal income tax rates reduced and the controversial alternative minimum tax ultimately abolished.
The plan would create three tax brackets with rates from 8% to 12%, 14% to 22%, and 23% to 29% -- part of a new structure designed to generate an additional $1 trillion in revenue. It would require cost changes to Medicare's growth rate formula as well as $80 billion in Pentagon cuts.
Obama has praised the plan, calling it "broadly consistent" with his approach to debt reduction because it mixes tax changes, entitlement reforms and spending reductions.
The proposal, however, has been hit with a barrage of criticism from both the right and the left. Conservatives have complained about some of the plan's tax changes, while liberals have warned it would cut entitlement benefits too deeply.
If all else fails, party leaders could still turn to a fallback plan initially put forward by Senate Minority Leader Mitch McConnell, R-Kentucky. The measure would give Obama the power to raise the borrowing limit by a total of $2.5 trillion, but also require three congressional votes on the issue before the 2012 general election.
Specifically, Obama would be required to submit three requests for debt ceiling hikes -- a $700 billion increase and two $900 billion increases. Along with each request, the president would have to submit a list of recommended spending cuts exceeding the debt ceiling increase. The cuts would not need to be enacted in order for the ceiling to rise.
Congress would vote on -- and presumably pass -- "resolutions of disapproval" for each request. Obama would likely veto each resolution. Unless Congress manages to override the president's vetoes -- considered highly unlikely -- the debt ceiling would increase.
The unusual scheme would allow most Republicans and some more conservative Democrats to vote against any debt ceiling hike while still allowing it to clear.
McConnell and Reid are also working on two critical additions to the plan, according to congressional aides in both parties. One would add up to roughly $1.5 trillion in spending cuts agreed to in earlier talks led by Vice President Joe Biden; the other would create a commission meant to find more major spending cuts, tax increases and entitlement reforms.
Changes agreed to by the commission -- composed of an equal number of House and Senate Democrats and Republicans -- would be subject to a strict up-or-down vote by Congress. No amendments would be allowed.
Sources say the panel would be modeled after the Base Closing and Realignment Commission, which managed to close hundreds of military bases that Congress could not otherwise bring itself to shut down.
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