US debt crisis: Can a deeply divided 'Gang of Seven' make any progress?

It took a warning shot from a credit rating agency this week to jumpstart President Obama’s plan for bipartisan, bicameral talks over the nation’s debt crisis, now set to begin May 5.

A day after Standard and Poor’s slapped a “negative” long-term credit outlook on the US (along with Spain) Republican leaders on Tuesday appointed Senate minority whip Jon Kyl (R) of Arizona and House majority leader Eric Cantor (R) of Virginia, to join four Democrats and Vice President Joe Biden on the latest presidential deficit panel.

A high-level panel tasked with setting the nation on a new fiscal course would seem to be a step in the right direction as Congress nears a critical vote on raising the national debt ceiling.

However, unlike the bipartisan “Gang of Six” senators who have been trying to reach an agreement on these very same issues, the newly minted “Gang of Seven,” as some commentators are referring to the new negotiators, represents the starkest partisan views on Capitol Hill: The GOP appointees oppose tax increases, the Democrats oppose cuts to entitlements, especially Social Security.

The upside to such a partisan panel is that if they are able to come to terms on a plan, it is likely to be one that could pass mainstream votes in the House and Senate.

“It’s a test run,” says Julian Zelizer, a congressional historian at Princeton University in New Jersey. “Both parties have their partisans there, and if they can reach an agreement, that agreement might be replicated on the floor of the House and Senate, rather than a panel putting something together that would not stand a chance once it reaches Capitol Hill.”

The GOP appointees join four top Democrats: Senate Finance chair Max Baucus of Montana, Senate Appropriations chair Daniel Inouye of Hawaii, Assistant House Democratic leader James Clyburn of South Carolina, and House Budget chair Chris Van Hollen of Maryland.

Mr. Biden, who brokered a deal with Congress over extending the Bush-era tax cuts, takes on another mission improbable in brokering this effort.

The new panel is now in a race with the “Gang of Six,” which has been working since December to come up with a plan to bridge a vast partisan divide over the nation’s debt crisis. Four of those six senators were members of the president’s 2010 National Commission on Fiscal Responsibility and Reform, known as the Simpson-Bowles deficit commission, and backed its recommendations, which included spending cuts, tax increases and an overhaul of Medicare and Medicaid entitlements.

GOP leaders cautioned the White House not to expect the new panel to deliver concessions on their key demand: significant spending cuts. “We’ve said, many times, that if the president and our Democrat colleagues refuse to accept serious reforms that immediately reduce federal spending and end the culture of debt in Washington, House Republicans will not grant their debt limit increase. Period,” said majority leader Cantor, in a statement.

Senator Kyl, who has announced that he will not be running for reelection, has been one of the strongest voices in GOP ranks seeking to lower taxes as a path to growth. Not only did he oppose calls to end the Bush tax cuts for the wealthy, he also pushed to permanently end the estate tax.

“A serious and credible path forward to reduce spending is the only thing, in my judgment, that will get Republican votes in the Senate to raise the debt ceiling,” said Senate Republican leader Mitch McConnell, in a statement announcing the Kyl appointment. “Partisan speeches and promises of some future cuts after the president leaves office simply won’t suffice.”

Among the new panel’s Democrats, Senator Baucus has a long track record working across partisan lines with Sen. Charles Grassley (R) of Iowa on the Senate Finance Committee, but he voted against the final recommendations of the Simpson-Bowles commission, citing its impact on government programs for rural America. At a time when Republicans were calling for more than $60 billion in spending cuts for FY 2011, Senator Inouye’s panel proposed nearly $10 billion. On the House side, assistant leader Clyburn voted for a FY 2012 budget plan that financed nearly $4 trillion in deficit cuts over 10 years almost entirely with tax increases.

The panel begins work on a very tight deadline. The US Treasury Department estimates the nation will breach its $14.294 trillion debt limit by May 16, and could hold off default with accounting devices until around July 8. The president has asked the deficit panel to produce a plan for comprehensive debt reduction by the end of June.

“What the timing says to me is that they are just going to let the May debt limit go past, and go down to the brink in late June, allowing the pressure to build on Republicans from financial markets,” says Thomas Ferguson, a political scientist at the University of Massachusetts, Boston.