By Erik Wasson - 04/20/11 10:05 PM EDT
A bipartisan think tank has circulated a proposal it believes could be a way out of the debt-ceiling standoff between the White House and Congress.
The Bipartisan Policy Center on Monday began circulating a proposal called SAVEGO to the Senate Gang of Six and other key budget players as a plan that could be linked to a hike in the debt ceiling. The administration says the ceiling must be raised by no later than July 8.
The proposal includes discretionary spending caps, as well as mandatory cuts to entitlements and tax earmarks if debt targets are not met.
The Bipartisan Policy Center was asked by the Gang of Six and other budget players in the House and Senate to come up with ideas for process reforms such as the SAVEGO plan, said the center's Steve Bell.
It is unclear to what extent the center's proposal could be woven into a proposal by the Gang of Six, but Alice Rivlin, former Clinton budget director, and former Sen. Pete Domenici (R-N.M.) have discussed the concepts with members in private meetings.
Bell expects the proposal to get a close examination as deficit talks led by Vice President Joe Biden begin in early May.
Those talks are aimed in part at convincing conservatives to agree to raise the debt ceiling.
President Obama has proposed and the Gang of Six has discussed triggers that would link the size of the national debt to gross domestic product (GDP), but Republicans complain the triggers are not binding.
The center also argues that these proposals are not firm enough, and that SAVEGO is closer to Republican demands for spending cuts of a pre-determined size.
The SAVEGO proposal includes entitlement spending and would set a firmer trigger than the Obama proposal.
It Congress adopted SAVEGO as law, it would set a goal of lowering the debt to a percentage of GDP. The center suggests that this goal be 60 percent of GDP by 2021, a threshold the group said is an international benchmark for financial stability.
The new law would then impose specific spending cuts for discretionary and mandatory spending. If Congress does not make those cuts, the law would require the Office of Management and Budget to make the cuts.
The Bipartisan Policy Center's proposal says $4.2 trillion in deficit cuts, compared to the Congressional Budget Office baseline, would be needed by 2021 to achieve the goal of reducing debt to 60 percent of GDP by 2021.
This is deeper than the cuts Obama has proposed. The president is seeking $4 trillion in deficit cuts by 2023 from an “adjusted” CBO baseline that assumes the middle-class tax rates signed by President George W. Bush are extended. The CBO baseline used by the Center assumes all the Bush-era tax rates are ended in 2013.
SAVEGO would require $118 billion in discretionary spending cuts in 2013 and increasing cuts until a total of $2.1 trillion in discretionary cuts is achieved by 2021.
On Medicare and Medicaid, if targeted healthcare savings are not achieved, an automatic process would be put into place to reduce the shortfall.
The center proposes increases in Medicare Part B premiums, rebates for pharmaceutical companies and co-insurance. It also proposes reducing payments to states for Medicaid and imposing taxes on employer-sponsored health insurance.
Obama last week proposed that if the debt is not declining as a percentage of GDP after 2014, non-entitlement spending or tax breaks would have to be cut automatically.
Last week, House Budget Committee Chairman Paul Ryan (R-Wis.) said he could see a limited deal this year on spending caps. He has suggested Democrats and Republicans are too far apart on issues like Medicare to agree to fundamental reforms of the program.
On Wednesday, House Majority Leader Eric Cantor (R-Va.) said he needs to see “binding” spending reforms if House Republicans are going to raise the $14.3 trillion debt ceiling.
Bob Bixby, of the Concord Coalition, said that attaching targets to the debt-ceiling vote is a good idea.
“This group is not going to solve all the problems by June,” he said.
He said the reform process would allow discussions of a comprehensive fix to go forward.
“What they need to do is keep the process going. I see this group as being the mechanism for avoiding a debt limit crisis,” he said.
Bixby pointed out that including tax credits as spending that is automatically reduced could give Republicans the wiggle room to agree to possible revenue increases without violating the Americans for Tax Reform Taxpayer Protection Pledge not to raise taxes.
He also said it would make sense to remove the statutory debt ceiling from law, since other developed nations do not have separate debt-ceiling votes, and replace them with the debt trigger.
Bixby acknowledged that this would be politically difficult since Congress would be ceding a favored tool it can use to force action by the administration.
—This story was updated at 6:40 p.m.