|Published:||Jul 19, 2011 9:44 PM EDT|
|Updated:||Jul 19, 2011 8:44 PM EDT|
WASHINGTON (AP) - The bipartisan "Gang of Six" senators on Tuesday offered a major plan to cut the deficit by more than $4 trillion over the coming decade, but whether it can break through the budget debate will depend on whether Republican lawmakers can find a way to endorse more than $1 trillion in tax increases.
Those tax increases would be reaped as Congress overhauls the loophole-choked U.S. tax code. The plan would also repeal a new long-term care program established under last year's health overhaul and force up to $500 billion in cuts from federal health care programs over the upcoming decade, according to documents provided to senators but not publicly released.
The Gang of Six plan is separate from a politically freighted effort to lift the nation's borrowing cap and avoid a first-ever default on U.S. obligations. President Barack Obama and Capitol Hill Republicans, however, have failed to reach an accord on what kind of spending cuts to pair with any increase in the borrowing cap.
The six senators backing the deficit initiative are Tom Coburn, R-Okla., Mike Crapo, R-Idaho, Saxby Chambliss, R-Ga., Kent Conrad, D-N.D., Mark Warner, D-Va., and Dick Durbin, D-Ill.
Their plan calls for an immediate $500 billion "down payment" on cutting the deficit as the starting point toward cuts of more than $4 trillion over the coming decade that would be finalized in a second piece of legislation. Most of those savings would come from four years of caps imposed on the day-to-day budgets of Cabinet agencies set by the annual appropriations bills.
It would also curb the growth of Social Security benefits by moving to a lower inflation adjustment for annual cost-of-living updates.
The tax reform outline would set up three income tax rates - a bottom rate of 8-12 percent; a middle rate of 14-22 percent; and a top rate of 23-29 percent - to replace the current system that has a bottom rate of 10 percent, with five additional rates topping out at 35 percent.
It would reduce but not eliminate tax breaks on mortgage interest, higher-cost health plans, charitable deductions, retirement savings like individual retirement accounts and tax-free savings accounts known as 401(k)s, and tax credits for families with children.
Like the president's deficit commission, the Senate group's plan calls for a fundamental overhaul of the tax code that would slash special tax preferences and deductions as a way to lower tax rates - along the lines of the 1986 tax reform measure signed into law by President Ronald Reagan. It would skim some of the revenue to reduce the deficit and, advocates say, would spur the economy and fill federal coffers further because of growth.
The measure would ensure that both domestic programs and the Pentagon budget absorb cost cuts.
The plan wouldn't produce a balanced budget but would reduce deficits as a share of the size of the economy down to 3 percent by 2014 and down to 2 percent by 2019, levels that would stabilize the debt and ensure that it doesn't swamp the economy by forcing up interest rates and crowding out investment.
The measure also calls for overhauling programs like Medicare, Social Security and farm subsidies. The details of the changes would be left to congressional committees to draw up in a manner similar to the existing budget process.
Much of the responsibility would fall to the powerful Finance Committee, which has sweeping responsibility for tax policy and health care programs such as Medicare. The panel would be directed to find savings from other federal health care programs to cover the $300 billion cost of making sure the fees doctors receive under Medicare aren't cut under an outdated 1997 budget law. It would also have to come up with another $85 billion to $200 billion in health savings to devote to defraying the deficit.
In addition, the Armed Services Committee would be assigned $80 billion in savings, including cuts to military retirement and health care accounts, but the Agriculture Committee would only have to find $11 billion over 10 years from farm subsidies. Conrad and Chambliss are strong supporters of farm programs.
The plan also envisions overhauling laws governing medical malpractice to generate further savings from the health care system.
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