A Last-Minute Bipartisan Debt Deal?

With default on the debt looming over Washington, a bipartisan group of six senators has come forth with a plan to cut spending and deficits, reports John Solomon.

07.19.11 6:54 PM ET

In an 11th-hour surprise, President Barack Obama and a bipartisan group of senators reached agreement Tuesday on a framework for a possible budget deal that would raise the nation’s debt limit, cut $500 billion in spending immediately, and work toward a goal of trimming as much as $3.7 trillion in deficits over the next decade, according to a copy of the emerging plan obtained by THE DAILY BEAST.

The proposal was crafted by a group of senators known as the Gang of Six and discussed with Obama on Tuesday morning. Both sides are beginning an effort to sell the plan to fellow lawmakers in both the House and Senate.

Obama said he embraced the plan because it was consistent with the goals he set out weeks ago and he urged Senate leaders Harry Reid and Mitch McConnell to begin to “talk turkey” to get a final deal done. The deal emerged as the House voted on a separate Republican proposal that Obama opposes and does not appear to have enough votes to pass the Senate.

The Gang of Six plan would achieve its savings through three-quarters spending cuts and about one-quarter increases in revenues and taxes. Its authors hoped it would be able to get past House Republicans who have demanded no new tax increases because it eliminates the alternative minimum tax, essentially creating a $1.7 trillion tax cut for Americans, according to the draft. The senators hoped the Congressional Budget Office would conclude the plan amounted to a net tax cut when all factors are considered, essentially giving cover to Republicans and Tea Party-backed lawmakers who have signed no-new-taxes pledges.

“If CBO scored this plan, it would find net tax relief of approximately $1.5 trillion,” the draft plan said.

The plan aims to “stabilize our publicly held debt by 2014” and reduce the nation’s debt to 70 percent of the nation’s economy by 2021, the draft stated. The sweeping plan would touch every aspect of U.S. government including Medicare and Social Security, the draft shows.

The president praises the bipartisan group for its ideas. “For Republican senators to acknowledge that revenues will have to be part of a balanced package, that’s a very significant step,” Obama said. "It’s broadly consistent with what we’re working on here at the White House.”

The key elements of the plan include:

  • $500 billion in immediate spending cuts.
  • additional reduction of deficits of between $3.6 trillion and $3.7 trillion over the next 10 years.
  • significant new efficiencies for Medicare and Medicaid.
  • a reduction in marginal income tax rates and abolition of the $1.7 trillion Alternative Minimum Tax.
  • spending caps proposed by House Republicans that could only be overridden by a 67-vote majority in the Senate.
  • a reform of Social Security to ensure 75 years of solvency.

The Gang of Six included Senate Majority Whip Dick Durbin of Illinois and Democratic Sens. Kent Conrad of North Dakota and Mark Warner of Virginia, as well as Republican Sens. Tom Coburn of Oklahoma, Saxby Chambliss of Georgia, and and Mike Crapo of Idaho.