Gang of Six plan gets nod from Obama

There was a breakthrough of sorts yesterday with the Gang of Six, a bipartisan group of Senators, that agreed to $3.7 trillion deficit reduction plan that they believe can break a filibuster in the chamber. The proposal was viewed favorably by President Barack Obama. Even Larry Kudlow, host of CNBC’s The Kudlow Report, had nice things to say about it.

This plan is being pushed after Moody’s warned the idea pitched by Sen. Mitch McConnell (R-KY), who has upset conservatives and tea partyers and led Sen. Jim DeMint (R-SC) to question his leadership, wouldn’t do anything to deal with the fiscal problems the nation faces and would likely result in a downgrade of our credit rating. But the plan pushed by the Gang of Six devil is in the details. They are saying that it’ll reducing spending, but it has already been pointed out that only $500 billion of the spending cuts are immediate, the rest may never even happen. It’s also being sold as a net tax cut. However, some question whether that is true; as Conn Carroll notes:

The Gang of Six “Bipartisan Plan to Reduce Our Nation’s Deficits” claims their tax reforms would be scored by the Congressional Budget Office as a $1.5 trillion net cut. But no details are provided on how they arrive at this number other than saying they will abolish the Alternative Minimum tax. So how can this plan claim to be a “balanced approach” (which means higher revenues), yet also claim to be a $1.5 trillion tax cut?

This probably means they are using a CBO baseline that assumes the AMT continues as written today and that the current Bush rates expire. Last August, the CBO said those policies would amount to a $4.8 trillion tax hike. Which means the the Gang of Six plan probably raises taxes by about $3+ trillion over current rates.

Dan Mitchell points out that the spending caps backed by the group don’t apply to entitlements and that there are no reforms being implemented to Medicare or Medicaid. For what it’s worth, the GOP’s “Cap, Cut and Balace” plan didn’t address these areas either. Mitchell also notes that the plan is “based on dishonest Washington budget math. Spending increases under the plan, but the politicians claim to be cutting spending because the budget didn’t grow even faster.”

It shouldn’t come as a surprise that Obama would give some verbal support to the Gang of Six’s plan. It raises taxes, which seems to be an obsession of Obama. We’re not going to get anywhere in controlling spending until we have some sort of a Balanced Budget Amendment (not necessarily what has been pushed by House Republicans) and a willingness from both sides -  especially Democrats on entitlements reform and Republicans on defense spending - that these issues can’t be resolved by budgetary math that has become so famous in Washington.

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