Wed, Jul 20 2011 - (Reuters) - A group of U.S. senators has offered an ambitious budget plan that could help Congress find a way to raise the $14.3 trillion debt ceiling before an Aug. 2 default.

Here are the elements of the so-called Gang of Six plan, which still lacks many specifics:

Goals

• Slash $3.7 trillion from budget deficits over 10 years, close to the $4 trillion figure that economists generally say is needed to keep debt at a manageable level
• Stabilize the amount of debt held by investors by 2014
• Reduce debt held by investors to roughly 70% of U.S. gross domestic product by 2021. Currently, publicly held debt is projected to rise from 69% of the economy to 77% of the economy in 2021
• Set up safeguards to make sure these goals are met

Immediate cuts

The plan calls for a $500 billion "down payment" to be passed immediately as lawmakers work on more complex, farther-reaching reforms. This bill would:

• Cap annual discretionary spending, which covers everything from the military to food inspection, through 2015
• Gradually phase in a new inflation index that would slow the growth of Social Security retirement benefits. Social Security would guarantee a minimum payment equal to 125% of the poverty line for five years
• Repeal a voluntary insurance program that helps pay for home services for the disabled. The so-called CLASS Act was included in last year's sweeping health care reforms.
• Freeze lawmakers' pay and sell unused federal property
• Examine ways to make unemployment insurance more effective

Broader Reforms

After the first bill is passed, Congress would have six months to come up with broader reforms that would bring deficits down to a sustainable level over the medium term.

Among these:

Tax-code rewrite

• Eliminate or reduce tax breaks that add up to $1.1 trillion per year, including those that benefit homeowners, charitable donations and employer-provided health coverage
• Lower income tax rates and simplify them into three brackets. The top bracket would fall from 35% to somewhere between 23% and 29%. The middle tax bracket would be between 14% and 22%, and the lowest rate would fall between 8% and 12%
•  Increase the government's total tax haul by $1 trillion
•  Permanently repeal the Alternative Minimum Tax
• Establish a single corporate tax rate of between 23% and 29%
• Retain tax breaks that help parents and low-income workers

Overhaul of benefit programs

Lawmakers would overhaul benefit programs and other entitlements that are normally beyond the reach of the annual budget process, and automatic cuts would be imposed if Congress does not act. Benefit programs that help poor people would be protected from these cuts.

• The Finance Committee would have six months to cut roughly $500 billion from health programs for the poor and retirees in a way that would not compromise their essential services and ensure that hospitals and doctors continue to get paid at reasonable rates.
• Other committees would have to cut entitlement programs under their jurisdiction by a total of $243 billion. Military benefit programs, such as health plans for soldiers and veterans, would be cut by $80 billion, while crop subsidies and other agricultural entitlements would be cut by $11 billion.
• Medical malpractice lawsuits would be curbed.

Enforcement mechanisms

The Senate Budget Committee would ensure that Congress will maintain fiscal discipline in coming years. The plan would:

• Require Congress to trim budget deficits if the debt-to-GDP ratio continues to rise after 2015
• Set caps on discretionary spending through 2021, along with a mechanism to ensure they are met
• Aim to hold federal health spending levels to one percentage point above GDP growth starting in 2020

Getting it passed

• Senate leaders would be allowed to streamline the chamber's byzantine rules to prevent a small group of lawmakers from blocking progress
• If a committee fails to come up with legislation that finds the mandated cuts, a group of at least five senators could introduce legislation of their own
• Once a comprehensive bill gets the 60 votes needed to advance in the Senate, it would be placed on hold until the Senate considers Social Security reforms

Social Security

• Congress could consider changes to the popular Social Security retirement program only if the broader deficit-reduction bill has enough votes to pass the Senate
• The reforms would have to ensure the program remains solvent over 75 years
• Any savings would have to be used to strengthen the program, not fund other government activities
• If the Social Security bill doesn't get 60 votes, the entire deficit-reduction bill would be invalidated

(Reporting by Andy Sullivan; Editing by Cynthia Osterman)

© 2010 Thomson Reuters. Click for Restrictions.