With just two weeks left until the federal government runs out of money to pay all of its bills, President Barack Obama seized on the "Gang of Six" plan as a "very significant step" and urged congressional leaders to start discussing it.
"My hope ... is that they tomorrow are prepared to start talking turkey and actually getting down to the hard business of crafting a plan that can move this forward in time for the August 2nd deadline," Obama said.
The U.S. government will default on its obligations by that date if Congress does not allow the Treasury to sell more debt. That could force the U.S. economy back into recession and wreak havoc on global financial markets.
White House talks on a comprehensive deficit reduction deal have stalled over tax increases, which Republicans oppose. Obama, a Democrat, said he hoped the "Gang of Six" proposal -- which would require each party to ease back from entrenched positions -- could help form the basis of an agreement.
A broad deficit reduction package would clear the way for Congress to approve an increase in the $14.3 trillion federal debt ceiling. A backup plan by Senate Republican leader Mitch McConnell has gained momentum as a way to raise the ceiling and may end up incorporating parts of the "Gang of Six" proposal.
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.
'11TH HOUR'
Obama's decision to speak to reporters about the "Gang of Six" plan even before he had fully read it showed the sense of crisis that is enveloping Washington as the clock ticks toward the August deadline.
"The problem we have now is we're in the 11th hour and we don't have a lot more time left," the president said.
The stalemate on debt talks has shaken global markets and credit rating agencies have warned they might downgrade the U.S. top-notch AAA rating if lawmakers do not agree on a broad-based deficit reduction plan.
A $3.75 trillion budget cut plan would exceed market expectations, said RBS Securities Treasury strategist John Briggs in Stamford, Connecticut.
News of the "Gang of Six" plan sent prices of 30-year U.S. bonds sharply higher and helped push U.S. stocks to their best day since March.
The plan quickly won support from many senators, including some conservative Republicans, and was rapidly gaining traction despite the fact it includes tax increases. Republican Senator Roger Wicker said it could pass the 100-seat Senate with a healthy majority of 60 or 70 votes.
But some aides urged caution, saying even if the plan proves popular in the Senate, there may not be time to craft it into detailed legislative language and then have it assessed by the Congressional Budget Office -- a necessary step -- before August 2.
Speaker of the House of Representatives John Boehner, the top Republican in Congress, has some concerns with the "Gang of Six" proposal, his spokesman Michael Steel said, adding the plan falls short in "some important areas."
BACKUP PLAN STILL BEING CONSIDERED
The "Gang of Six" plan came as White House and congressional negotiators worked on the premise that the only viable political solution to avoid default might be the backup plan proposed by McConnell.
His plan would hand Obama the authority -- and the blame -- for raising the $14.3 trillion debt ceiling. Democratic Senate Leader Harry Reid has proposed changes to make it attractive to Democrats, including up to $1.5 trillion in spending cuts.
"If there ... we can improve upon the legislation that we are doing, I am happy to take elements of the Gang of Six and work with them to get that done," Reid said.
Reid said he would like to begin consideration of the backup plan as soon as possible. Aides said that likely would not be until Saturday due to procedural hurdles.
The No. 2 Republican in the Senate, Jon Kyl, said he expects the McConnell plan to be approved in the Senate.
Obama said the backup plan was an important fallback in case lawmakers cannot agree on a broad deficit reduction plan.
Moody's Investors Service analyst Steven Hess said the McConnell/Reid plan would avoid any immediate downgrade of the coveted AAA rating.
But he said the plan did not offer a big enough deficit reduction and could result in a negative outlook on the rating, a sign of a possible downgrade in 12 to 18 months.
In the Republican-controlled House, a vote was expected on Tuesday on a deficit-reduction plan that would drastically cut and cap spending and require an amendment to the Constitution requiring a balanced budget. Obama said he would veto it.
The vote is largely symbolic as the measure is unlikely to pass the Democratic-controlled Senate. But it gives Republicans a chance to argue the need for deep spending cuts.
That could give Boehner, loathe to see Republicans blamed for a debt default, political cover to pursue a deal including less dramatic spending cuts than his party has so far sought.
