Bipartisan 'Gang of Six' in Senate developing framework for deficit reduction

Feb. 15 (Bloomberg) -- Dominic Dyer, executive director of the American European Institute, talks about President Barack Obama's $3.7 trillion budget request, which was met with demands for a bolder reshaping of the government by Republicans. He speaks with Maryam Nemazee on Bloomberg Television's "The Pulse."
Washington Post Staff Writer
Thursday, February 17, 2011; 6:02 AM

With President Obama calling for bipartisan talks to tackle the nation's budget problems, a group of influential senators from both parties is developing a framework that calls for higher taxes and caps on all categories of government spending.

The plan is still under development, but people with knowledge of the talks said the senators hope to unveil it soon after the weeklong President's Day recess so they can begin assessing the breadth of political support.

The group, known informally as the "Gang of Six," began meeting soon after Obama's fiscal commission recommended an ambitious plan for deficit reduction last year. Four sitting senators supported the commission report - Budget Committee Chairman Kent Conrad (D-N.D.), Majority Whip Richard J. Durbin (D-Ill.), Tom Coburn (R-Okla.) and Mike Crapo (R-Idaho). The four joined forces with Sens. Mark R. Warner (D-Va.) and Saxby Chambliss (R-Ga.), who had been working to build support among moderates for a bold plan to rein in the soaring national debt.

That group hopes to advance the commission's recommendations, which would reduce deficits by $4 trillion over the next decade. Doing so would require lawmakers to embrace some politically perilous policies, however, including raising the retirement age, charging wealthy seniors more for Medicare and closing cherished but expensive tax breaks that riddle the tax code.

Taking the commission's report as its template, the group is drafting legislation that would direct congressional committees to find a way to put it into effect. On taxes, for example, the legislation would direct tax-writing committees in the House and Senate to develop a tax overhaul that raises hundreds of billions of dollars in additional revenue while lowering the top tax rate, which stands at 35 percent.

The legislation would set a 2013 deadline for action. If Congress failed to approve a tax overhaul that met annual targets for new revenue by that time, a new tax regime would automatically go into effect, raising taxes across the board by reducing the value of various tax breaks, such as the deduction for home mortgage interest and the tax-free treatment of employer-paid health care.

Still to be resolved: whether the measure would explicitly set the new top tax rate at 29 percent, as the commission proposed. Republicans are arguing for the mandate, and for a provision that would automatically lower the top tax rate to 29 percent if Congress failed to act.

On Social Security, the group is also considering new standards that would be implemented through committee. Failure to act would force a vote in Congress on the commission's plan to raise the retirement age to 69 and reduce payments to wealthier retirees. However, the goals for changes to Social Security are less clear, and senior Senate Democrats said they expect the group to avoid the most unpalatable of the commission's recommendations.

In addition, the group would set explicit annual caps on discretionary and mandatory spending, forcing lawmakers to make hard choices about where to spend scarce tax dollars. If Congress failed to meet them, the caps would be enforced by sequestration, a painful process that requires the White House budget office to cut across the board until the targets are met.

The group has yet to decide whether its plan will be offered as a companion to a measure to raise the legal limit on government borrowing, a must-pass measure that will face significant political opposition unless it is coupled with a strategy to restrain borrowing.

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