After Sen. Tom Coburn (R-OK) departed the Gang of Six last week, the remaining five Senators (Dick Durbin (D-IL), Kent Conrad (D-ND), Mark Warner (D-VA), Mike Crapo (R-ID) and Saxby Chambliss (R-GA)) met this past Tuesday to discuss the potential release of a deficit-reduction proposal to which the group almost agreed prior to Coburn’s exit. Durbin urged the two GOP members to issue the proposal, which, if adopted, would cut the deficit by $4 trillion over the next decade. The proposal is based roughly on the Simpson-Bowles plan that was issued by the President’s bipartisan deficit commission in 2010. Durbin argued that more people should see the plan, which would serve as a starting point for debate and remain open to amendment.  

The release remains uncertain, with Crapo and Chambliss unwilling to stick out their necks (politically) to support a plan without the backing of their colleague Coburn. Many GOP members similarly feel that a deficit reduction plan not endorsed by Coburn stands little chance of moving forward. Durbin has stated that Coburn will not be replaced in the Gang of Six, and is shifting his efforts to encourage Senators from both parties to push the current Gang to release the proposal. Previously, 64 Senators, led by Michael Bennet (D-CO) and Mike Johanns (R-NE), sent a letter to President Obama in March, urging him to support the efforts of the Gang. Durbin appears to be seeking more examples of this kind of support, but in all likelihood, Republicans are not likely to be supportive of the Gang of Six as they have in the past, because unlike Biden’s group, there is a growing concern that the lack of an official White House nexus to the group would allow Obama to ultimately distance himself from the more controversial recommendations in the 2012 election.  

That, among other reasons is why the group lead by Vice President Joe Biden and key members of Congress from both parties has taken center stage. His group met twice last week, and Biden reported progress on Tuesday with a “down payment” plan that would start off with over $1 trillion in deficit reduction right off the bat. The hope is that this preliminary plan could calm markets and set the stage for a larger compromise plan later on. The group has also agreed on $200 billion in spending cuts, including agriculture subsidies.

The group is taking its confidentiality quite seriously, but reportedly spoke about mechanisms that would make automatic cuts unless certain goals are met. Biden’s goal is to formulate a plan that would reduce U.S. debt by $4 trillion. Biden has emphasized that tax revenues have to be a part of any deal, and Democrats in the meeting refused to make any compromises on Medicare until Republicans agreed to put raising tax revenue on the table. However, House Majority Leader Eric Cantor (R-VA) has already stated that “tax increases cannot pass the House.”  

We continue to expect a deal on the debt ceiling this summer, and that any deal will include some spending cuts. It is worth noting that experts estimate that raising the debt ceiling by $2.4 trillion is the amount of debt from President Obama’s budget through 2012, so that may become the de facto target number for a deal. As indicated above, despite the assertion of Senator McConnell and others, the markets are beginning to get skittish about the possibility of real default, and it will be very interested to see how the markets react to the vote in the House next week. Our sense is that it will take a real event to knock McConnell and others off their talking points.