The Friday target was originally imposed by the White House to allow time to pass a bill before default begins just 11 days later on Aug. 2. With economic calamity clearly in sight, markets beginning to rattle and even cynical economists getting scared, the desperate search for a plan to raise the debt limit is a 24-hour operation at the Capitol. (The right thing for Congress to do, of course, was to pass a clean raise to the limit, but the Republicans would not let that happen.)
On Tuesday, a bipartisan group of six senators released a plan to cut spending and raise tax revenues that aims to reduce the nation’s deficits by at least $3.6 trillion over the next decade. We have many questions and deep reservations about the spending cuts in the plan, which could impose hardships on some of the most vulnerable groups. It is, however, a serious attempt to grapple with growing levels of debt in the years to come. It is remarkable that three conservative Republicans have signed on to a plan that dares to use the words “tax” and “revenue” alongside cuts in spending.
By the standards that prevail in Washington, that constitutes a breakthrough. It makes the House Republicans look even more ridiculous and isolated.
Reaching agreement on a sweeping plan like the one from the “Gang of Six” is virtually impossible before Aug. 2. But the White House, which approves of the plan’s overall goals, made an important concession on Wednesday by agreeing to consider a brief increase in the debt ceiling if all parties showed some willingness to compromise on a longer-term plan structured like that of the Gang of Six. Up to now, President Obama has firmly and properly rejected brief increases in the ceiling, aware that each debate impoverishes the nation’s economic credibility.
That puts the onus squarely back on the House, the chamber that invented this crisis. Although Speaker John Boehner recently showed willingness to consider a deficit-reduction plan along the lines of the Senate gang’s, his momentary stab at reasonableness was quickly shot down by the ultraorthodox tax haters in his caucus. In their fanatical drive to cut spending below all rational levels, House Republicans have overtly courted default by passing a bill on Tuesday requiring that a balanced-budget amendment to the Constitution be sent to the states before the debt limit can go up. The bill has no chance of passage in the Senate and was designed solely to make House members appear resolute to Tea Party loyalists who are not paying close attention to reality.
The Gang of Six plan calls for at least $1 trillion in new tax revenues by eliminating and reducing tax breaks and deductions. For conservative senators like Saxby Chambliss, Lamar Alexander, Michael Crapo and Tom Coburn to accept this reality shows how willfully blind the House majority has really become.
The senators’ willingness to compromise is commendable, but the agreement they have assembled is really more a collection of talking points than a budget plan, and contains some highly dubious provisions.
The tax sections are slippery, and their size depends on whether the Bush tax cuts for the wealthiest Americans are finally allowed to expire.
It proposes to eliminate the alternative minimum tax, which was designed to collect income from the wealthy that had been sheltered in deductions and loopholes. This tax should be changed. Because it has never been adjusted to current economic reality, it has come to ensnare the incomes of Americans who are much farther down the wealth ladder, while failing to capture many of the superrich. Fairness and sound policy would also dictate eliminating tax breaks for the very rich, like the preferential rate for capital gains. But the gang’s plan says nothing specific about that.
The proposal protects some important programs for the poor, including food stamps and the earned income tax credit, but could make some significant cuts to entitlement programs, education and environmental protections. Its details are so thin that it is impossible to know where the most damaging cuts could come, and its call for an immediate $500 billion in cuts could have a devastating effect on the prospects for an economic recovery.
For all its flaws, the Gang of Six plan — unlike the ideas floating in the House — is at least a framework for further discussion. It is much more promising than the “Plan B” being cobbled together by Senate leaders to raise the debt ceiling in three increments while cutting at least $1 trillion in spending with no revenue increases.
It is hard to see how the extremist Republican caucus in the House could accept the Gang of Six plan. At the moment, at least 80 members have signed a letter objecting even to the “Plan B” proposal. But perhaps the growing prospect of a financial crash will focus a few minds. With a bit of extra time, and a good deal of extra sense, there is still a chance to avert disaster.