By Erik Wasson - 05/04/11 03:01 PM EDT
The chairman of the Senate Finance Committee on Wednesday offered support for a White House proposal that would allow tax increases or spending cuts to lower future deficits as a way to get Republicans to raise the debt ceiling.
Sen. Max Baucus (D-Mont.) voiced support for a “debt failsafe trigger” proposed by the White House, which he suggested would offer more tools to deal with future deficits than the strict spending cap favored by Republicans.
The trigger would allow spending cuts or tax increases to be introduced if the nation misses targets for reducing deficits.
The cap has been suggested as a spending reform that could be combined with legislation to raise the nation’s $14.3 trillion debt ceiling.
Congress must raise the debt ceiling by Aug. 2 under a revised timeline announced this week by Treasury Secretary Timothy Geithner. The administration wants “clean legislation” raising the limit, but Republicans want significant spending cuts and reforms as a concession.
Members of both parties are reluctant to vote for raising the nation’s debt ceiling without corresponding spending cuts, given polls showing voters oppose raising the limit.
Baucus said it is time to craft legislation that “stabilizes” the debt by 2014 or 2015 and decreases it thereafter. Stabilizing the debt would not balance the budget, but would lower annual deficits so that revenues are equal to spending minus interest payments.
Baucus said a proposal to cap spending at 20.6 percent of gross domestic product by the end of the decade, put forth by Sens. Bob Corker (R-Tenn.) and Claire McCaskill (D-Mo.), is flawed for several reasons.
The Montana Democrat said it would encourage Congress to offer more and more tax breaks in order to advance social policy without spending. This could vastly complicate the tax code, he said.
He also said it would hurt seniors and the disabled by cutting Medicare and Medicaid. On the other hand, if these programs are exempted, discretionary spending cuts would be far too large to be acceptable.
Baucus argued that a debt failsafe, by requiring either cuts or tax increases, is preferable. He said that President Reagan accepted the possibility of an automatic tax increase in his 1984 budget, which had a “contingency tax.”
Sen. Jon Kyl (R-Ariz.), who will represent Senate Republicans in the Thursday talks, said he favors attaching Corker-McCaskill to the debt ceiling.
He said the White House trigger option was “the worst possible outcome” because it opens the door to automatic tax increases.
Sen. Orrin Hatch (Utah), the ranking Republican on the committee, argued at the hearing that the debt-ceiling bill should be attached to “spending-based fiscal reforms.”
Hatch said after the hearing that he is "skeptical" of using a debt trigger instead of a spending cap in exchange for raising the debt ceiling, but did not rule it out. He said the compromise is going to be unpleasant to both sides and that Republicans are not going to be enthusiastic about possible tax increases.
Baucus made his comments at a hearing on budget enforcement mechanisms that featured the first appearance before the panel by former Sen. Phil Gramm (R-Texas) since he retired from the Senate.
Gramm was the sponsor of the budget-cutting 1985 Gramm-Rudman act.
Gramm argued against any trigger that could automatically result in tax increases because it is a “non-starter” with the public. He said such a trigger could induce some legislators to “do nothing” in order to allow a tax increase to go into effect.
He also outlined the flaws of Gramm-Rudman, which failed to balance the budget. He said its greatest weakness was emergency exemptions, by which Congress was able to avoid the deficit-reduction targets in the bill. Recessions and wars allowed Congress to avoid the reduction targets.
“The process was completely perverted,” Gramm said. “It did produce bipartisanship, and that was in cheating the system.”
He said Congress should approve rules requiring a supermajority 60 percent vote in both chambers to allow spending to exceed pre-set targets.
He also said that the triggers should be used to spur action on a bipartisan budget-cutting agreement that reforms entitlements. Gramm said that the debt ceiling must be raised but that a deficit-reduction deal must also be enacted.
Susan Irving of the Government Accountability Office and Paul Van de Water of the Center on Budget and Policy Priorities testified that revenue increases should be part of any trigger.
Van de Water spoke in favor of a save-go proposal, which has a debt-to-GDP trigger, proposed by the Bipartisan Policy Center. That trigger lays out a framework of spending cuts and tax increases if targets are not met. The proposal has been circulating in Congress since last month.