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House passes GOP debt measure; Obama praises compromise plan

By Alan Silverleib and Tom Cohen, CNN
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Obama: Closer to a debt deal
  • NEW: The House votes 234-190 to approve the "cut, cap and balance" plan
  • Sen. Reid says there isn't time to pass the Gang of Six plan by August 2
  • President Obama, some conservative Republicans back the Gang of Six plan
  • The United States must raise its $14.3 trillion debt ceiling by August 2 or risk a default

Washington (CNN) -- The U.S. House on Tuesday night passed the "cut, cap and balance" deficit reduction plan backed by tea party conservatives but dismissed by President Barack Obama, who offered strong praise for another proposal put together by a bipartisan group of senators.

The so-called Gang of Six plan -- drafted by three Democratic and three Republican senators -- presents a possible compromise to Obama and congressional leaders as they approach a deadline for a deal on cutting federal deficits in order to gain Republican support for raising the federal debt ceiling to avoid an unprecedented default.

It would cut the nation's debt by about $3.7 trillion over the next 10 years -- similar to the president's call for roughly $4 trillion in savings.

Obama called the plan by the Gang of Six senators "broadly consistent" with his own approach to the current debt ceiling crisis because it mixes tax changes, entitlement reforms and spending reductions.

However, the top two Democrats in the Senate said they don't think there is enough time before the government needs to borrow more money on August 2 to pass the comprehensive Gang of Six plan.

Meanwhile, the Republican-led House of Representatives voted 234-190 to pass the "cut, cap and balance" plan that would impose strict caps on all future federal spending while making it significantly tougher to raise taxes -- the solution favored by hard-line conservatives.

The vote was almost completely on party lines for the measure that included the requirement that Congress pass a balanced budget amendment to the U.S. Constitution before agreeing to extend the federal debt ceiling.

"While President Obama simply talks tough about cutting spending, House Republicans are taking action," House Speaker John Boehner, R-Ohio, said in a statement after the vote.

Boehner called the House measure "exactly the kind of 'balanced' approach the White House has asked for -- it provides President Obama with the debt limit increase he's requested while making real spending cuts now and restraining future government spending and debt that are hurting job growth."

Obama has said he would veto such a measure, and Senate Democrats are expected to kill it. On Tuesday, the president said legislators "don't have any more time to engage in symbolic gestures" with time running out to raise the debt ceiling in order to avoid default.

"We have a Democratic president and administration that is prepared to sign a tough package that includes both spending cuts (and) modifications to Social Security, Medicaid and Medicare that would strengthen those systems and allow them to move forward, and would include a revenue component," Obama added. "We now have a bipartisan group of senators who agree with that balanced approach. And we've got the American people who agree with that balanced approach."

Obama also refused to rule out the fallback plan proposed by Senate Minority Leader Mitch McConnell, R-Kentucky, that would raise the debt ceiling up to $2.5 trillion through the 2012 election.

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Debt ceiling: What does it mean?

If Congress fails to raise the current $14.3 trillion debt ceiling by August 2, Americans could face rising interest rates, a declining dollar and increasingly jittery financial markets, among other things.

The seriousness of the overall situation was reinforced last week when a major credit rating agency, Standard and Poor's, said it was placing the United States' sovereign rating on "CreditWatch with negative implications." Another major agency -- Moody's Investors Services -- said it would put America's bond rating on review for a possible downgrade.

Under the Gang of Six plan, $500 billion in budget savings would be immediately imposed, with marginal income tax rates reduced and the controversial alternative minimum tax ultimately abolished.

The plan would create three tax brackets with rates from 8% to 12%, 14% to 22%, and 23% to 29% -- part of a new structure designed to generate an additional $1 trillion in revenue. It would require cost changes to Medicare's growth rate formula, as well as $80 billion in Pentagon cuts.

"We've gone from a Gang of Six to a Mob of 50," an upbeat Sen. Joe Manchin, D-West Virginia, told reporters as he left a meeting on Capitol Hill where other senators were briefed on the blueprint.

Sen. Tom Coburn, R-Oklahoma, announced that he had decided to rejoin the group. Coburn had recently withdrawn from the Gang of Six due to a dispute over entitlement cuts, but declared Tuesday that the plan, which now includes $116 billion in entitlement health care cost savings, has "moved significantly, and (is) where we need to be."

A Democratic congressional source said on condition of not being identified that the private meeting with senators to unveil the plan erupted in applause when Coburn, a conservative deficit hawk, announced he had rejoined the Gang of Six.

Other legislators supporting the plan included two conservative Republicans -- Sen. Lamar Alexander of Tennessee and Rep. Roger Wicker of Mississippi, while another GOP conservative, Sen. Jeff Sessions of Alabama, raised questions about whether it achieves necessary spending cuts and raises taxes.

A spokesman for Boehner said it was similar in concept to what Boehner and Obama had discussed in their negotiations so far, "but also appears to fall short in some important areas." Other House Republican leaders, including Majority Leader Eric Cantor of Virginia and Budget Committee Chairman Rep. Paul Ryan of Wisconsin, also questioned the Gang of Six plan's call for increased tax revenue and commitment to reducing future costs.

Reid, meanwhile, noted that the Constitution requires revenue bills to originate in the House, while his assistant majority leader, Sen. Dick Durbin of Illinois, pointed out that the plan still must be drafted into legislative language and analyzed by the Congressional Budget Office before it can be considered.

"It's not ready for prime time," said Durbin, one of the Gang of Six negotiators.

Reid said he's open to incorporating some elements of the proposal into a separate bill that he and McConnell are drafting as a fallback option to prevent the U.S. government from defaulting on its debt.

In contrast, the GOP's "cut, cap and balance" plan was widely acknowledged to have virtually no chance of clearing the Democratic-controlled Senate or overcoming a promised presidential veto. Tuesday's vote allowed Republicans to clearly demonstrate their preference for steps favored by many in the tea party movement even as their leadership seeks a middle ground with Democrats.

The GOP plan would allow an increase in the debt ceiling only after Congress passes a balanced budget amendment to the Constitution and imposes both major spending cuts and caps on future spending as a percentage of the country's gross domestic product.

Tax increases could be approved only by a two-thirds vote of both chambers of Congress.

The measure would require $111 billion in cuts in fiscal year 2012, while exempting Pentagon spending and popular entitlement programs such as Medicare and Social Security. Federal spending would be capped at less than 20% of gross domestic product by 2021, as opposed to the current 24%.

White House Press Secretary Jay Carney called the proposal "classic Washington posturing and kabuki theater," but Boehner insisted Tuesday that "the president said he wanted a balanced plan (and) that's what this is -- a balanced plan."

"It's pretty clear" to Republicans that this plan is "the most responsible thing that we can do to address our problems," Boehner said. It will ensure the debt crisis "never, ever happens again."

McConnell also praised the "cut, cap and balance" plan, calling it "the kind of tough legislation Washington needs and that Americans want."

However, new public opinion polls showed a majority of Americans wanted legislators to compromise on a deficit reduction deal instead of refusing to yield from their starting positions, such as Republican opposition to any kind of increase in tax revenue.

A CBS News poll released Monday indicates that two-thirds of Americans say any agreement should include spending reductions and tax hikes, with 28% saying a deal should only include spending cuts and 3% saying it should only include tax increases.

According to the survey, there is little partisan divide on the question. More than seven out of 10 Democrats and more than two-thirds of independent voters support a balanced approach, as do 55% of Republicans and 53% of self-described tea party movement supporters.

A Quinnipiac University poll released last week had similar findings. The survey indicated that two-thirds of the public supported a deal that included spending cuts as well as tax increases for wealthy Americans and corporations. Nearly nine out of 10 Democrats and two-thirds of independents questioned supported the inclusion of tax increases, with Republicans divided on the issue.

The GOP initiative stands in sharp contrast to Obama's stated preference for a package of roughly $4 trillion in savings over the next decade composed of tax increases on the wealthy and spending reforms in Medicare, Social Security and elsewhere.

Hopes for such a so-called "grand bargain," however, appear to have faded in recent days partly because Republicans continue to insist that any tax increases could derail an already shaky economic recovery. It was not immediately clear whether the Gang of Six proposal would be able to revive those hopes.

At the heart of the tax dispute has been Obama's call for more revenue by allowing tax cuts from the Bush presidency to expire at the end of 2012 for families making more than $250,000. The president's ideal plan would keep the lower tax rates for Americans who earn less.

Obama noted last week he is not looking to raise any taxes until 2013 or later. In exchange, the president said, he wants to ensure that the current progressive nature of the tax code is maintained, with higher-income Americans assessed higher tax rates.

But resistance to higher taxes is now a bedrock principle for most Republicans, enforced by conservative crusaders such as political activist Grover Norquist. His group, Americans for Tax Reform, has sponsored a high-profile pledge to oppose any tax increase.

The pledge has been signed by more than 230 House members and 40 senators, almost all of them Republicans.

Despite their differences, leaders from both parties insist they are committed to reaching an agreement that will allow them to raise the debt ceiling before August 2. McConnell's fallback proposal would give Obama the power to raise the borrowing limit by a total of $2.5 trillion, but also require three congressional votes on the issue before the 2012 general election.

Specifically, Obama would be required to submit three requests for debt ceiling hikes -- a $700 billion increase and two $900 billion increases. Along with each request, the president would have to submit a list of recommended spending cuts exceeding the debt ceiling increase. The cuts would not need to be enacted in order for the ceiling to rise.

Congress would vote on -- and presumably pass -- "resolutions of disapproval" for each request. Obama would likely veto each resolution. Unless Congress manages to override the president's vetoes -- considered highly unlikely -- the debt ceiling would increase.

The unusual scheme would allow most Republicans and some more conservative Democrats to vote against any debt ceiling hike while still allowing it to clear.

McConnell and Reid are also working on two critical additions to the plan, according to congressional aides in both parties. One would add up to roughly $1.5 trillion in spending cuts agreed to in earlier talks led by Vice President Joe Biden; the other would create a commission meant to find more major spending cuts, tax increases and entitlement reforms.

Changes agreed to by the commission -- composed of an equal number of House and Senate Democrats and Republicans -- would be subject to a strict up-or-down vote by Congress. No amendments would be allowed.

Sources say the panel would be modeled after the Base Closing and Realignment Commission, which managed to close hundreds of military bases that Congress could not otherwise bring itself to shut down.

CNN's Ted Barrett, Kate Bolduan, Candy Crowley, Lisa Desjardins, Paul Steinhauser, Deirdre Walsh, Xuan Thai and Jessica Yellin contributed to this report.