Gang of Six, back from the brink?

The once moribund Senate “Gang of Six” regained new life Tuesday after Oklahoma Sen. Tom Coburn unexpectedly rejoined the group — and more senators are now coalescing around a new proposal that would cut the debt by as much as $3.7 trillion over the next decade.

Other top senators are also getting behind the plan, including Sen. Lamar Alexander (R-Tenn.), the No. 3 Senate Republican, who told a group of senators Tuesday he would back the Gang of Six’s proposal, sources say. The fast-moving developments mean that elements of the proposal could influence the stalled talks to raise the debt-limit before the Aug. 2 deadline.

According to a copy of the plan, obtained by POLITICO, the group would impose a two-step legislative process that would make $500 billion worth of cuts immediately followed by a second bill to create a “fast-track process” that would propose a comprehensive bill aimed at dramatically restructuring tax and spending programs. The plan calls for changes to Social Security to move on a separate track, and establishes an elaborate procedure for considering the measures on the floor.

The $500 billion in cuts would come from a range of sources, including shifting to a new consumer price index to make cost-of-living adjustments to Social Security. The plan would impose statutory spending caps through 2015, freeze congressional pay and sell unused federal property.

To enact a comprehensive deficit plan, the group calls for congressional committees to report legislation within six months that would “deliver real deficit savings in entitlement programs over 10 years,” the plan says.

It calls on the Finance Committee to permanently reform or replace Medicare’s Sustainable Growth Rate - an outdated formula aimed at determining the amount to reimburse doctors for treating Medicare patients - by $298 billion.

The Finance Committee would be instructed to deliver “real deficit savings” through simplifying the tax code and raise as much as $1 trillion. It would do this by establishing three tax brackets with rates of 8-12 percent, 14-22 percent and 23-29 percent. It would permanently repeal the $1.7 trillion Alternative Minimum Tax. And it calls for establishing a single corporate tax rate, between 23 percent and 29 percent, and to move to a competitive territorial tax system.

Overall, the group claims it would result in a $1.5 trillion net tax decrease.

The group punts many of the specifics to other committees, which would be asked to find savings in discretionary and mandatory spending. This includes: $80 billion out of Armed Services; $70 billion out of Health, Education, Labor and Pensions; $65 billion out of Homeland Security and Government Affairs; $11 billion out of Agriculture; $11 billion out of Commerce; $6 billion out of Energy and Natural Resources. The Judiciary Committee would be asked to find savings through medical malpractice reform.

The group spent ample time proposing ways to expedite the legislative process should there be a stalemate in committee.

If any committee cannot propose cuts, it would would impose “across-the-board” cuts to programs under the panel’s jurisdiction. It would exempt programs aimed at low-income communities.

To avoid gridlock, floor amendments that upset the deficit-reduction goals would be ruled out of order. Any bill that could receive 60 votes would be held at the desk until the Senate considers the separate Social Security bill.

Once a comprehensive deficit plan has the votes, a measure aimed at ensuring 75-years of solvency of Social Security would head to the floor. The Finance Committee would be required to recommend the Social Security changes.

Senators in the Gang of Six - Kent Conrad (D-N.D.), Dick Durbin (D-Ill.), Mark Warner (D-Va.), Mike Crapo (R-Idaho) and Coburn - discussed the proposal with 43 senators Tuesday morning on the first floor of the Senate, after more than six months of struggling to broker a deal.

Coburn left the group in May but suddenly rejoined after the group added $115 billion in additional health care cuts and included the provision allowing senators to circumvent the stalled committees.

“I’m back,” Coburn told the big group Tuesday, prompting a round of applause.

Unfortunately the bonds sold in the last decade by the bankers to investors offered for a small premium per bond, or hedge funds to investors leveraged in T bills also offered loss insurance to the investor. Banks and hedge funds assumed gov T bills will never default, thus never backed the policies with sufficient cash reserves. Thus a temporary default means every bond holder who owned the insurance can exercise their insurance and demand the banks and hedge funds payments to cover the losses. Can you say Wall Street bank and hedge fund meltdown??!!! That is the link between the money in Soc Sec trust fund loaned out and our deficit spending financed by T bills sold by gov to banks/hedge funds and then to investors. Treasury officials know this, senior Senators know this, financial and corporate CEO’s know this, question is does the Tea Party know this??? Only way out is to nullify the financial products created by the Wall Street bankers and hedge funds that hold our financial system hostage.

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