New Grand Bi-Partisan Debt Plan: Cut $500 Billion Now, Increase Taxes by $1 Trillion

WASHINGTON (AP) -- Declaring "11th hour urgency" to raise the government's borrowing limit, President Barack Obama on Tuesday hailed a plan by "Gang of Six" senators from both parties to reduce federal deficits as the kind of balanced approach that could break an economy-threatening deadlock. He said it was time for Congress as a whole to rally around such a proposal.

(Read some reaction to the proposal over on the blog)

"We don't have any more time to engage in symbolic gestures, we don't have any more time to posture. It's time to get down to the business of actually solving this problem," the president said.

Obama spoke even as House Republicans pushed toward a vote on separate legislation that would require trillions in spending cuts and agreement on a balanced-budget constitutional amendment in exchange for an increase in the debt ceiling, which the government says must be raised by Aug. 2 to avoid economic calamity. That House plan, expected to come to a vote Tuesday evening, was unlikely to get through the Senate, and Obama has said he would veto it if it ever arrived at his desk.

Facing the deadline in two weeks, Obama said he would call House Speaker John Boehner after Tuesday's vote to invite him and other leaders back to the White House for meetings in coming days.

Obama, Boehner and other top leaders met last week for five days straight without reaching agreement, leading to warnings from credit agencies about dire consequences if the U.S. defaults on its obligations for the first time, rendering it unable to pay its bills.

Obama added his own warning Tuesday, saying that while financial markets have shown confidence thus far in Washington, it won't last much longer if lawmakers fail to act.

But he found cause for optimism in the announcement Tuesday by leaders of a bipartisan "Gang of Six" senators that they're nearing agreement on a major plan to cut the deficit by more than $4 trillion over the coming decade.

"I think it's a very significant step," Obama said, calling it "broadly consistent with the approach I've urged."

The Gang of Six plan calls for an immediate $500 billion "down payment" on cutting the deficit as the starting point toward cuts of more than $4 trillion that would be finalized in a second piece of legislation. It would raise revenues by about $1 trillion over 10 years and cut popular benefit programs like Medicare and Medicaid - dealing out political pain to Republicans and Democrats.

That mixture of cuts and new revenue is the "balanced approach" Obama has urged, though it's rejected by many Republicans because it would require higher taxes for some.

Rep. Dave Camp, Republican chairman of the House Ways and Means Committee, said the spending cuts and budget mechanisms in the plan could form the basis of a deal but tax increases would be a big problem for him and fellow GOP lawmakers.

"A trillion dollars is a lot, by any measure," Camp said of the tax increases in the plan.

While praising the broader plan, Obama said it was still important to have a "Plan B" option being worked on by Senate Majority Leader Harry Reid and Senate Minority Leader Mitch McConnell as a fallback. The McConnell-Reid plan would give Obama the ability to raise the debt limit by $2.5 trillion in three installments over the next year without a separate vote by lawmakers. Instead, a panel of House and Senate members would be created to recommend cuts in benefit programs, with their work guaranteed a yes-or-no vote in the House or Senate.

While all that was going on behind the scenes, advocates of the legislation to be voted on in the House on Tuesday said it would cut spending by an estimated $111 billion in the next budget year and then by more than an additional $6 trillion over a decade - and require Congress to send a balanced budget amendment to the Constitution to the states for ratification - in exchange for raising the debt limit by $2.4 trillion.

With the measure facing a veto threat from the White House, Boehner said he was exploring other alternatives to avoid government default.

"I do think it's responsible for us to look at what Plan B would look like," he said at a news conference a few hours before the opening of debate on the legislation backed by conservative lawmakers.

Said Obama: "The problem we have now is, we're in the 11th hour, and we don't have a lot more time left."

On a day of political theater, a group of House Republicans also boarded a bus for a 16-block ride to deliver a letter asking Obama to disclose his own plan for reducing federal deficits.

No administration officials were present to meet the delegation when the bus rolled to a stop outside the White House gates, and lawmakers gave copies of the letter to reporters.

Democrats said it was urgent that the debt ceiling be raised.

In a closed-door meeting in the Capitol, House Democrats listened to an audio of Republican President Ronald Reagan urging lawmakers in 1987 to raise the debt limit. "This brinkmanship threatens the holders of government bonds and those who rely on Social Security and veterans' benefits," he said then.

Nearly a quarter of a century - and numerous trillions of dollars in debt - later, Obama needs acquiescence from the Republican-controlled House and the Democratic-controlled Senate to win another debt ceiling increase. So far, efforts to agree on a package of spending cuts - the price demanded by GOP lawmakers for their votes - have proved futile.

Barring action by Congress to raise the $14.3 trillion debt ceiling, the Treasury will be unable to pay all the government's bills that come due beginning Aug. 3. Administration officials, Federal Reserve Chairman Ben Bernanke and others say the resulting default would inflict serious harm on the economy, which is still struggling to recover from the worst recession in decades.

Reid announced Monday that the Senate would meet each day until the issue was resolved, including weekends.

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Associated Press writers Erica Werner, Stephen Ohlemacher, Darlene Superville and David Espo contributed to this article.