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House prioritizes bills to pay if US hits debt ceiling. Is default averted?

The bill would allow the federal government to pay interest on the nation’s debts, even if the US does not raise the debt ceiling. But some say the effect would be different from what is envisioned.

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As such, Mr. Akabas says, the bill could add several weeks’ time for budget negotiators to hammer out their differences.

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On the House floor Thursday, Camp called such an analysis “categorically false” on technical grounds.

A libertarian-minded House Republican, Rep. Thomas Massie (R) of Kentucky, agreed broadly with the BPC.

The bill “is a debt limit increase, and I think many do not realize that,” said Representative Massie in a statement after the vote. “While I support the idea of debt prioritization, this bill does not do that.”

While allowing the US government to forestall a potential debilitating shock to its financial system for several weeks might not be so bad, a bipartisan chorus of voices has criticized plans like the one by House Republicans because they amount to “default by another name,” as the White House put it in a statement promising to veto the bill.

“If the U.S. government legally commits to paying someone a benefit, or agrees to pay a firm for a good or a service, the U.S. government should fulfill that agreement in a timely fashion,” wrote Keith Hennessey, a former economic adviser to President George W. Bush, on an idea similar to the House GOP bill back in January. “To do otherwise is taking the first step to becoming a banana republic. The fiscally responsible policy is to pay your bills on time and cut future spending commitments.”

Mr. Hennessey continued, “Also note that payment prioritization doesn’t stop payments, it just delays them. Then the aggrieved party sues the government, and probably wins, and it turns into a bloody mess.”

Camp has cited on many occasions that a US failure to meet some of its other obligations – say, the salaries of federal government workers, payments to military contractors, or food support for the poor – would not necessarily generate a debt downgrade. But others point out that doing so would constitute a less formal form of default on the nation’s fiscal promises – a circumstance many believe is potentially nearly as perilous to America’s financial future.

“The bill is an under-the radar way to increase the federal debt ceiling without actually voting to do that,” wrote Stan Collender, a former veteran of the House Budget Committee’s Democratic staff, earlier this week. “Add to that the fact that the bill would mean that the government would be in technical default on contracts and other non-bond obligations if Treasuries were made first in line and the extent of the abuse being perpetrated becomes larger and more obvious.”


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