Senate Finance will hold hearing on deficit caps

The meeting will include testimony from former Sen. Phil Gramm (R-Texas), who served on the Senate Budget Committee and helped write the Gramm-Rudman-Hollings budget plan that required across-the-board spending cuts if deficit-reduction targets weren’t met. 

Other witnesses include Susan Irving, director for Federal Budget Analysis within Strategic Issues at the Government Accountability Office, and Paul Van de Water, senior fellow at the Center on Budget and Policy Priorities, where he specializes in Medicare, Medicaid and health coverage issues.

Baucus and Senate Majority Leader Harry Reid (D-Nev.) have said they back the idea of a deficit cap as part of a plan to increase the federal debt ceiling, a top priority on the congressional agenda with the nation expected to reach the debt limit — $14.3 trillion — by mid-May. 

“If we’re able to cap deficits, it automatically brings down the debt,” Reid said Wednesday. “That’s the key to all of this.”

While some Democrats are pressing for a clean debit-limit increase, most Republicans and a few Democrats are pushing for a package of spending caps and possibly a balanced-budget amendment to the Constitution. 

Several proposals on Capitol Hill would trigger automatic spending cuts or tax increases if Congress can’t meet spending or deficit targets.

Reid’s deficit cap proposal could force an automatic stop in spending on a certain date if the deficit isn’t reduced to outlined levels by a certain time. President Obama has proposed a similar idea as part of a budget-reduction plan that could affect spending cuts and tax increases if the deficit isn’t reduced. 

Republicans have been clear they want to focus on spending cuts, quickly dismissing Reid’s plan as unworkable, with spokesman Brian Patrick with the office of House Majority Leader Eric Cantor (R-Va.) saying Thursday that the option lets lawmakers avoid hard decisions and capping deficits won’t achieve immediate cuts in spending. 

Sens. Joe Manchin (D-W.Va.) and Joe Lieberman (I-Conn.) have recently signed on to spending-cap legislation authored by Sens. Bob Corker (R-Tenn.) and Claire McCaskill (D-Mo.). 

The latest government report on the gross domestic product, released Thursday, showed that spending in the first quarter declined by the most since 1983.

But in offering up the deficit-cap, Reid is sending a signal he’s open to negotiations to avoid default, saying he “would draw no lines in the sand” in negotiating a deal that will allow the nation to continue borrowing. 

“If we’re not able to do this, it will affect us for generations to come,” Reid said.

Although the parties differ widely on how to reduce the deficit, a majority of proposals are hawking a reduction of about $4 trillion over 10 years. President Obama calls for that amount in 12 years. 

In addition, the Gang of Six also could release a proposal to put triggers in place to make that $4 trillion in deficit cuts over the next decade.

A bipartisan group led by Vice President Biden will take up the debt limit and other budget issues. A so-called trigger is likely to be included in those talks.