Obama Backs Latest Bargain

President Barack Obama, in a last-ditch bid for a bipartisan “grand bargain” on the budget, threw his weight Tuesday behind a $3.7 trillion deficit-reduction plan unveiled by six Republican and Democratic senators.

The plan, which would span a decade, has scant chance of passing
intact as the solution to the current debate over raising the
government’s borrowing limit. Some Republicans were wary of the plan’s
changes in tax rules. Democrats said it would be near impossible to
draft legislative language and pass it quickly.

Still, some elements from the so-called Gang of Six senators could be
incorporated into a final deal to shrink the deficit and raise the
government’s $14.29 trillion debt cap by Aug. 2. That’s when the
Treasury Department says the government will run out of cash to pay all
its bills without an increase in borrowing authority.

Even House Majority Leader Eric Cantor (R.,Va.), one of the party’s
most combative conservatives, didn’t dismiss the plan out of hand.
“While there are still portions that are unclear and need more detail,
this bipartisan plan does seem to include some constructive ideas to
deal with our debt.”

The developments come against a backdrop of a dramatic shift in public attitudes toward the debt ceiling. A new Wall Street Journal/NBC News poll found a plurality of Americans—38%—now say the debt ceiling should be raised, while 31% say it shouldn’t. A month ago, sentiment was the reverse, with 39% opposing the idea while just 28% said it should be raised.

The senators backing the new proposal say 74% of the deficit
reduction would come from spending cuts and 26% from new taxes. It would
impose spending cuts and caps, and make changes in Social Security to
make the program solvent over 75 years. It would direct congressional
committees to reduce the deficit by specific levels in their areas of
jurisdiction, likely including major entitlements such as Medicare and
Medicaid.

The plan also would make big changes
to the tax code. It would lower personal and corporate tax rates,
eliminate the unpopular Alternative Minimum Tax and many deductions and
tax breaks.

Comparing the Gang of Six plan to
current law, which provides that all Bush tax cuts expire in 2012, it
would cut taxes by $1.5 trillion over 10 years, making it attractive to
some Republicans.

By another commonly used Washington
yardstick—one that assumes, as the Bowles-Simpson bipartisan fiscal
commission did, that Congress was certain to extend several expiring tax
breaks—it would raise roughly an additional $1 trillion over 10 years,
which could make it attractive to some Democrats.

The pace of jockeying is quickening as several budget proposals have
arisen, only to be shot down. A conservative budget-balancing plan
passed the House late Tuesday on a 234-190 vote, but is likely to die in
the Senate. Another, far more modest back-up plan, known as Plan B, is
being crafted by Senate leaders, but is meeting stiff opposition from
House Republicans.

For Mr. Obama the sudden emergence of a
new option from the Gang of Six offered another political opportunity:
He highlighted the plan in a midday statement to the press and repeated
that he is seeking a sweeping deal that would improve the nation’s
financial picture for the next decade. The president said he would
invite senior congressional leaders to the White House for another
meeting in the coming days.

The president warned that negotiators
are in the “11th hour” for getting a deal and markets could soon begin
to react negatively if partisan wrangling goes down to the wire.

His support for the plan seems to have cheered some in the stock and
bond markets. Prices for the 30-year Treasury bond jumped, pushing
yields, which move in the opposite direction of prices, sharply lower
Tuesday. Prices for the 30-year bond have lagged behind other Treasurys
lately, which traders and analysts have interpreted as one of the first
tangible signs investors were growing concerned over the debt-ceiling
debate.

Stocks also surged, with the Dow Jones
Industrial Average posting its biggest daily increase this year,
closing up 202.26 points, or 1.6%, to 12587.42. Analysts attributed the
gains to both Mr. Obama’s praise for the debt plan and International
Business Machine Corp.’s strong earnings.

Some House Republicans reacted with
cautious interest to the Gang of Six proposal. “It’s something I would
definitely want to look at,” said Rep. Adam Kinzinger, a freshman
Republican from Illinois.

A spokesman for House Speaker John
Boehner (R., Ohio), whose private efforts to negotiate a big budget deal
with Mr. Obama collapsed more than a week ago, treated the new proposal
gingerly: “This plan shares many similarities with the framework the
speaker discussed with the president, but also appears to fall short in
some important areas.”

In the Senate, the plan picked up support from one influential member of the GOP leadership, Lamar Alexander of Tennessee.

But senior Democrats—including Sen.
Dick Durbin (D., Ill.), a member of the Gang of Six—cautioned that it
would be hard for Congress to process such complex legislation before
Aug. 2.

Still, Senate Majority Leader Harry
Reid, (D., Nev.), said he invited the bill’s supporters to suggest
elements that might be included in the Plan B framework being crafted by
him and Senate Minority Leader Mitch McConnell (R., Ky.).

In the House, conservatives laid out
their big-picture approach to the deficit by voting for a
deficit-slashing plan that would dramatically cut the federal budget,
impose stringent caps on future spending and require that Congress
approve a Constitutional amendment to balance the budget before raising
the debt ceiling.

The bill was expected to be taken up in the Senate later this week, but was given no chance of passing.

The vote on the GOP budget bill, known
as the “Cut, Cap and Balance Act,” was scheduled in part to give voice
to conservatives’ principles before any compromise is adopted.

But Mr. Boehner indicated he is
already looking for alternatives. “I’m not going to give up hope on cut,
cap and balance, but I think it’s responsible to look at what Plan B
would look like,” he said.

Many conservatives oppose that back-up
plan being devised by Sens. Reid and McConnell. It would avert default
by giving the president new power to increase the debt limit by $2.5
trillion in three installments over the next year.

It also would set up a congressional
committee to recommend a deficit reduction plan by the end of the year,
and require the House and Senate to vote on it without change. Critics
say it does too little to cut the deficit and gives too much power to
the president.

“It abdicates our congressional responsibility to lead and do
something about the debt,” said Rep. Joe Walsh (R., Ill.), who has
gathered about 70 GOP signatures on a letter opposing the McConnell
plan.