Deficit Plan Details Emerge

By JONATHAN WEISMAN

A bipartisan group of senators is considering legislation that would trigger new taxes and budget cuts if Congress fails to meet a set of mandatory spending targets and other fiscal goals aimed at reducing federal deficits.

The plan would break the task of deficit reduction into four pieces: a tax code overhaul; discretionary spending cuts; changes to Medicare, Medicaid and other entitlements; and changes to Social Security, aides said. The Social Security system is on firmer financial footing than other major entitlement programs and raises political sensitivities that lawmakers want to deal with separately.

The proposal builds on the work of President Barack Obama's deficit commission, according to aides working on it.

"We're getting close," said Senate Majority Whip Richard Durbin (D., Ill.), one of six senators working on the plan. "We understand that if we're going to do something that's important, it has to be timely." He said the group hopes to reach agreement "in a matter of weeks, or months."

In addition to Mr. Durbin, the second-ranking Senate Democrat, the group include Budget Committee Chairman Kent Conrad (D., N.D.), and one of the Senate's most conservative fiscal hawks, Tom Coburn (R., Okla.). Messrs. Coburn and Durbin are personally close to President Obama.

Aides working on the effort said negotiations are delicate and other options might come forward. The framework of targets and penalties is expected to be circulated to a broad group of senators by early next month.

The proposal came up in a White House meeting Wednesday among Democratic leaders. A White House spokeswoman said the President is committed to finding "an effective and balanced approach to reducing the deficit" and "beginning a conversation on entitlement reform."

The new budget the president sent to Congress on Monday envisions that spending on all the programs funded annually by Congress, including defense programs, will decline slightly over the next 10 years. Unless current trends are changed, spending on Social Security will rise 71%, spending on Medicare will rise 72% and spending on Medicaid will rise 115% over the same period, with the increases getting bigger after that.

The Senate group's working plan calls for placing separate caps on security and nonsecurity spending, and missing a budget target in one area would not trigger mandatory cuts in the other. The spending targets would follow proposals laid out by the deficit commission, which recommended cutting discretionary spending by $1.7 trillion through 2020. Lawmakers on the spending committees would draft legislation to meet the targets. But if they were not met, automatic, across-the-board cuts would go into effect.

The tax-writing committees would be given two years to overhaul both the individual and corporate tax codes, with general instructions to close tax breaks and minimize or eliminate tax deductions while lowering tax rates. The committees would be given a target for additional revenues to be raised by the new code. The deficit commission's version of tax reform would net $785 billion in additional revenues over 10 years.

If Congress failed to enact the tax code overhaul, the legislation would mandate an across-the-board tightening of tax deductions to meet the higher target.

Changes to Medicare, Medicaid and other entitlements such as agriculture subsidies and military and civil service retirement plans would also have to meet fixed targets. Social Security, however, would not incur automatic penalties if lawmakers failed to make changes.

If the Social Security effort failed, the deficit commission's plan—a mix of raising the level of wages subject to Social Security taxes, slowly increasing the retirement age and other smaller changes—would go to Congress for an up-or-down vote. But there appears to be little appetite for automatic cuts if neither option were to pass.

Other senators involved in the negotiations include Virginia Sen. Mark Warner, a Democrat, and two Republican senators, Mike Crapo of Idaho and Saxby Chambliss of Georgia. More than 40 senators have shown some interest, aides said.

A small group of House members, led by Reps. Frank Wolf (R., Va.), Jim Cooper (D., Tenn.), and Heath Shuler (D., N.C.), have been kept apprised of the effort. House Speaker John A. Boehner's staff has also been briefed, and Mr. Chambliss has kept an open channel to Mr. Boehner, a long-time personal friend.

"If the Senate effort gained momentum, John Boehner wouldn't be upset at all about getting thrown into this briar patch," said Ed Lorenzen, a staff member of the president's deficit commission, now with the Committee for a Responsible Federal Budget.

House Republican aides were leery that the Senate negotiations would coax or trap them into producing their own plan to cut Medicare and Social Security benefits, which Democrats would then use against them in the 2012 elections.

Some Democrats are wary, too. At the White House meeting Wednesday, Sen. Charles E. Schumer (D., N.Y.) said Social Security should be removed from any deficit plan, according to an aide briefed on the meeting.

Republican aides said Wednesday that for the Senate effort to win GOP support in the House, President Obama would have to publicly embrace it.

But aides involved in the negotiations said it is not clear how firmly the administration will back the effort. Treasury Secretary Timothy Geithner is encouraging the talks, as is Bruce Reed, Vice President Joe Biden's chief of staff. But the White House has stayed away from any formal role.

Before details of the Senate plan emerged, New Jersey Gov. Chris Christie accused both the White House and Republicans in Congress of irresponsibility for failing to propose fixes for Social Security, Medicare and Medicaid.

"What game is being played here is irresponsible and it's dangerous," he told a packed house at the conservative American Enterprise Institute. "We are on the path to ruin."

Write to Jonathan Weisman at jonathan.weisman@wsj.com