WASHINGTON – A bipartisan group of senators offered an ambitious plan yesterday that could revive stalled debt talks and the prospect of a long-term deficit reduction deal to avert a threatened US default.
President Barack Obama seized on the plan from the so-called “Gang of Six” with just two weeks left until the United States runs out of money to pay its bills. Mr Obama called it a “very significant step” and urged congressional leaders to start discussing it.
“My hope . . . is that they tomorrow are prepared to start talking turkey and actually getting down to the hard business of crafting a plan that can move this forward in time for the August 2nd deadline,” the president said.
The United States would default on its financial obligations by that date if Congress does not allow the Treasury to sell more debt. That could force the US economy back into recession and could wreak havoc on global markets.
Senate budget committee chairman Kent Conrad, one of the Gang of Six Democratic and Republican senators who have been working since December on a deficit-reduction plan, said the proposed $3.75 trillion in savings over 10 years contained $1.2 trillion in new revenues.
White House talks on a comprehensive deficit-reduction deal have stalled over tax increases, which Republicans oppose. Mr Obama said he hoped the proposal, which would require each party to ease back from entrenched positions, could help form the basis of an agreement.
Mr Obama’s decision to speak to reporters about the Gang of Six plan even before he had fully read it showed the sense of crisis that is enveloping Washington as the clock ticks toward the deadline.
“The problem we have now is we’re in the 11th hour and we don’t have a lot more time left,” he said.
The stalemate on debt talks has shaken global financial markets and credit rating agencies have warned they might downgrade the country’s AAA rating if politicians do not agree on a broad-based deficit reduction plan.
However, a $3.75 trillion budget cut plan would exceed market expectations, said RBS Securities Treasury strategist John Briggs in Stamford, Connecticut.
The plan quickly won support from senators, including some conservative Republicans, and was rapidly gaining traction despite the fact that it includes tax increases. Republican senator Roger Wicker said it could pass the US senate with a healthy majority of 60 or 70 votes.
Some aides on Capitol Hill urged caution though, saying that even if the plan proves popular in the Senate, there may not be time to craft it into detailed legislative language and then have it assessed by the congressional budget office – a necessary step – on time.
Mr Obama’s announcement came as White House and congressional negotiators worked on the premise that the only viable political solution to avoid default might be a “back-up” plan proposed by Senate Republican leader Mitch McConnell.
That plan would give Mr Obama the authority – and the blame – for raising the $14.3 trillion debt ceiling. Democratic Senate leader Harry Reid has proposed changes to make it attractive to Democrats, including up to $1.5 trillion in spending cuts.
Mr Obama said this approach was an important fall-back in case Republicans and Democrats could not agree on a broad deficit-reduction plan. – (Reuters)