USA Senate Offers $3.75 Trillion Deficit Cuts

A bipartisan group of U.S. senators on Tuesday revived an ambitious budget plan that could provide new ideas for breaking the impasse in Congress over raising the nation's credit limit by August 2.

President Barack Obama threw his support behind the proposal by the "Gang of Six" senators, saying it was broadly consistent with his approach on reducing debt and deficits.

Obama urged Senate Majority Leader Harry Reid, a fellow Democrat, and Senate Republican leader Mitch McConnell to start "talking turkey" about it.

Senate Budget Committee Chairman Kent Conrad, one of the six Democratic and Republican senators who have been working since December on a deficit-reduction plan, said the proposed $3.75 trillion in savings over 10 years contains $1.2 trillion in new revenues.

The group briefed about half of the 100-member Senate and "the response was very favorable," Conrad told reporters.

He said the group asked fellow senators to take 24 hours to look at the proposal and "report back to us."

According to an executive summary of the plan, it would immediately impose $500 billion in deficit cuts, cut security and non-security spending over 10 years with spending caps, make the Medicare and Medicaid healthcare programs operate more efficiently and abolish the Alternative Minimum Tax.

Asked whether the plan could become part of urgent negotiations that link deficit reduction to raising the U.S. government's borrowing authority by August 2, Conrad said: "Could the two get married? Could they get combined at some point? I'm sure that's possible."

But leaders must first find out whether the proposal has enough support in the Senate, he said.

But a senior Senate Democratic aide said, for now, "there are no discussions" on incorporating Gang of Six ideas into legislation to raise the debt limit beyond $14.3 trillion.

TAXES AT ISSUE

Conrad was quick to say that while there are $1.2 trillion in new revenues, the overall plan envisions a $1.5 trillion tax cut that would be achieved through broad tax reforms.

Most Republicans, especially Tea Party members in the House of Representatives, have vowed to block any revenue increases.

The Senate group's hope has been that if the three conservative Republican members embrace revenue increases, the idea could catch fire among other Republicans in the Senate and House -- especially if popular but expensive entitlement programs such as Medicare also shoulder some cuts.

In another politically risky move, the Gang of Six plan would achieve significant savings in healthcare programs, Conrad said. The specific spending cuts would be decided later by congressional committees.

Conrad said a separate measure would reform the Social Security retirement program to stabilize its finances for the next 75 years.

The effort got a boost as conservative Republican Senator Tom Coburn rejoined the group after taking a "sabbatical" in mid-May amid heavy disagreement over Medicare spending cuts. It was not yet clear how Coburn's concerns have since been addressed.

On Monday, Coburn unveiled his own plan to cut $9 trillion in deficits over a decade, including nearly $1 trillion in revenue increases.

Revenue proposals are not likely to include income tax rate increases. Instead, they could center on repealing or rolling back special tax favors such as those for ethanol blenders and companies that operate corporate jets, as well as preferential tax treatment for fund managers.

Those specific decisions likely would be up to House and Senate tax-writing committees, along with broader tax reform questions.

California Budger with Deep Cuts

California lawmakers approved a $86 billion budget late Tuesday that imposes deep spending cuts but does not extend tax hikes.

The budget is a disappointment for Governor Jerry Brown, a Democrat who spent months trying to convince Republican legislators to put an extension of personal income and sales tax increases before the voters.

Unable to do so, Brown and Democratic legislative leaders cobbled together a plan that calls for a total of $14.6 billion in cuts.

"Putting our state on a sound and sustainable fiscal footing still requires much work, but we have now taken a huge step forward," Brown said in a statement.

Much of the bloodletting was agreed to in March, but this week's deal would add at least $2.5 billion in additional reductions.

Overall the Department of Health and Human Services would be slashed by $5 billion, while the Department of Corrections and Rehabilitation would see a cut of $1 billion. The state's two university systems would each lose $650 million in funding.

The budget hinges on the state bringing in $4 billion in more in tax revenues in the coming year than was initially expected. The improving economy has pushed the state's tax collections billions of dollars above estimates in recent months. Brown expects the windfall to continue into fiscal 2012, which starts Friday.

If tax revenue comes in lower than expected, the budget also would impose an additional $2.6 billion in cuts to higher education, corrections and in-home support services for the elderly and disabled.

The proposal would slash billions in spending for children, the sick, and the elderly, said Senate President pro Tem Darrell Steinberg. And it would hurt the state's economy, he said.

"This budget is the most austere fiscal blueprint California has seen in a generation," Steinberg said.

Since the budget does not call for tax increases, it requires only a majority of the Democratic-led legislature to approve it. However, Governor Brown and his fellow Democrats said they plan to put a tax measure on the ballot in November 2012 through a voter initiative -- bypassing the requirement for Republican consent.

Though they fended off Brown's tax extensions, Republicans immediately attacked the proposal, saying California needs a budget that will revitalize the economy and create jobs.

"This latest budget is based on the hope that $4 billion in new revenues will miraculously materialize, but does absolutely nothing to change government as usual," said Senate Republican Leader Bob Dutton.

The proposal is a major shift for Brown, who has said for months that the state's $26 billion budget's gap should be addressed with a mix of spending cuts and tax extensions. He also was determined to fulfill his pledge to put the extension of personal income and sales taxes before the voters.

However, he could not convince four Republicans to join him so he could get the measure on the ballot. A budget containing a tax hike needs the support of two-thirds of lawmakers.

Republicans have refused to go along unless the budget also contained a spending cap, as well as pension and regulatory reform.

The latest proposal was put together less than two weeks after Brown vetoed a budget approved by the legislature, saying it was chock full of gimmicks and contained legally questionable maneuvers.

California lawmakers lose pay until they pass balanced budget

Lawmakers had raced to pass a spending plan by June 15 to meet a voter-imposed deadline that required the legislature to pass a balanced budget or forfeit their pay.

However, state controller John Chiang determined that the budget was actually unbalanced. So lawmakers, who earn $95,291 a year and $142 per diem for each day they are in session, have gone without pay since mid-month.