July 19, 2011

THE GANG OF SIX may have turned, belatedly, into a mob. That is good news with a dangerous twist. It’s good news that a significant number of senators, from both parties, appear poised to sign on to a 10-year, $3.7 trillion deficit reduction framework released Tuesday and hailed by President Obama as “broadly consistent” with the grand bargain on spending cuts and tax increases that he had been trying to broker. Dangerous in that, unfortunately, this potential breaking of the Senate logjam comes with so little time remaining to lift the debt ceiling. The challenge in the next few days will be to build on the newfound momentum of the gang, until recently moribund, without jeopardizing whatever immediate arrangements need to be made to raise the debt limit.

The structure of the gang’s proposal mirrors that of the debt reduction commission headed by former White House chief of staff Erskine Bowles and Republican former senator Alan Simpson. It would stabilize the debt by 2014 and reduce it to the still-troubling level of 70 percent of the economy by 2021. It would raise a $1 trillion more in revenue than if the Bush tax cuts were allowed to expire for households earning over $250,000 annually. This money would be generated by overhauling the tax code to reduce deductions while lowering rates, all while maintaining or improving the progressivity of the tax code. This is the sort of pro-growth tax reform that could help energize the economy.

The remainder of the deficit reduction would come from spending cuts and other changes. Caps would be imposed to limit both domestic and security discretionary spending. A more accurate measure would be used to calculate cost-of-living increases for Social Security and other programs and to adjust tax brackets. But the most vulnerable beneficiaries would be shielded from some of the impact of the change by exempting the Supplemental Security Income program for the poorest seniors for five years and setting a minimum benefit equivalent to 125 percent of the poverty level. Most details are left unresolved, including some important questions of how to wring more savings out of Medicare and Medicaid. But the thrust follows the lead of Simpson-Bowles to enact cuts while protecting programs for the neediest Americans. For example, the agriculture committees would be directed to find $11 billion in savings but would be instructed that the food stamps program be shielded.

Meanwhile, the ticking time bomb of the debt ceiling looms. Even if the Senate could muster a speedy majority for the gang’s framework, it will be harder to sell in the House. Maybe the best approach now is a short-term increase in the debt ceiling to provide a few months breathing space for additional negotiations; maybe the gang’s framework can be somehow linked to the approach being crafted by Democratic and Republican Senate leaders, allowing a debt-ceiling increase plus a mechanism for a new commission on how to reduce deficits. This much is sure: Given how hard it’s been to get to this moment of bipartisan progress, it would be terrible to see it go to waste.