WASHINGTON (AP) — President Barack Obama and a startling number of Republican senators lauded a bipartisan deficit-reduction plan Tuesday that includes $1 trillion in higher taxes, raising hopes of a last-minute compromise to repair the nation's finances while averting a government default. Wall Street saluted as well.
Obama said he hoped congressional leaders would "start talking turkey" as soon as Wednesday along the lines of the Senate "Gang of Six" proposal, which quickly overshadowed a no-tax-increase alternative that conservatives spent Tuesday pushing toward an evening vote in the House.
At the White House, the president warned that financial markets could soon begin to post worrisome losses unless gridlock is broken and the nation's $14.3 trillion debt limit raised. But stocks soared for the day, propelled by the deficit plan's emergence and Obama's decision to seize on it as well as by strong earnings reports. The Dow Jones industrials rose 202 points, the biggest one-day leap this year.
In the House, the focus was on spending cuts.
"Our bloated and obese federal budget needs a healthy and balanced diet, one that trims the fat of overspending and grows the muscle of our nation's economy," said Rep. Reid Ribble of Wisconsin, one of the 87 first-term House Republicans determined to reduce the size of government.
Democrats said the measure, with its combination of cuts and spending limits, would inflict damage on millions who rely on Social Security, Medicare and other programs. "The Republicans are trying to repeal the second half of the 20th century," said Rep. Sander Levin, D-Michigan.
Obama has threatened to veto the bill, which would raise the debt limit in exchange for what supporters said was an estimated $6 trillion in spending cuts and congressional approval of a constitutional balanced budget amendment for ratification by the states.
In a recognition of the political realities, Speaker John Boehner, R-Ohio, told reporters before debate began on the bill that it also was "responsible to look at what Plan B would look like."
He did not discuss what alternatives he had in mind, although the Senate's top two leaders have been at work on one that would let the president raise the debt limit without prior approval by Congress.
Treasury officials say that without an increase in borrowing authority by Aug. 2, the government will not be able to pay all its bills, and default could result with severe consequences for the economy.
The "Gang of Six" briefed other senators on the group's plan after a seemingly quixotic quest that took months, drew disdain at times from the leaders of both parties and appeared near failure more than once.
It calls for deficit cuts of slightly less than $4 trillion over a decade and includes steps to slow the growth of Social Security payments, cut at least $500 billion from Medicare, Medicaid and other health programs and wring billions in savings from programs across the face of government.
It envisions tax changes that would reduce existing breaks for a number of popular items while reducing the top income bracket from the current 35 percent to 29 percent or less.
The tax overhaul "must be estimated to provide $1 trillion in additional revenue to meet plan targets," according to a summary that circulated in the Capitol.
The group of six includes three Democrats, Sens. Kent Conrad of North Dakota, Mark Warner of Virginia and Dick Durbin of Illinois, a member of the leadership.
The three Republicans, all conservatives, are Sens. Mike Crapo of Idaho, Tom Coburn of Oklahoma and Saxby Chambliss of Georgia, who has a particularly close relationship with Boehner dating to their days together in the House.
In recommending higher government revenues, Republicans in the group challenged party orthodoxy that has held sway for two decades, ever since President George H.W. Bush memorably broke his "no new taxes" pledge to make a deficit reduction deal with congressional Democrats.
In the years since, refusal to raise taxes has become a virtually inviolable article of faith among Republicans, and used by them and their allies in countless political campaigns against Democrats.
Recently, Republicans who voted to repeal a tax subsidy for ethanol production drew opposition from Grover Norquist, a prominent anti-tax activists who has wielded significant influence inside the party.
Even so, in the hours after the Gang of Six briefed other lawmakers on their plan, at least one member of the Republican Senate leadership, Lamar Alexander of Tennessee, signed on as a supporter. So, too, did Sen. Kay Bailey Hutchison of Texas.
"We have an opportunity to act like statesmen and avoid a debacle on Aug. 2, and it seems to me that all of our efforts should be focused on that," added Sen. Roger Wicker, R-Miss. He and others said the plan was well-received at a weekly closed-door meeting of GOP senators.
Sen. Richard Burr, R-N.C., asked about possible objections from tea party activists, said the measure "checks every box" for advocates of smaller government, including cuts in government spending and an overhaul of the tax code to eliminate special breaks.
Obama stopped well short of endorsing the plan, saying administration officials were analyzing it and not all details were known.
But he said it included "a revenue component" along with savings in Medicare and Social Security, making it the sort of balanced approach he has long advocated.
He also noted that the Senate's two top leaders have been cooperating on a measure that would allow him to raise the debt limit without a prior vote of Congress while also setting up a special committee to recommend cuts from federal programs, including Social Security and Medicare.
"That continues to be a necessary approach to put forward. In the event that we don't get an agreement, at minimum, we've got to raise the debt ceiling," he said.
Unlike Obama, Sen. Jim DeMint, R-S.C. was harshly critical, calling McConnell's approach "smoke and mirrors."
"If Republicans do not show the political will to stop the spending, and use the debt limit to make our case, the party is gone," he was quoted as saying on National Review Online.
The Gang of Six envisioned a two-stage process in which $500 billion in savings would be enacted swiftly, with the more complicated changes in programs like Medicare and Medicaid to follow.
Associated Press writers Alan Fram, Jim Abrams, Erica Werner, Stephen Ohlemacher, Darlene Superville and Andrew Taylor contributed to this story.
Copyright 2011 The Associated Press.