House Republicans muscled through legislation on Thursday that they believe would take a potential default on the national debt off the table – if (or more likely, when) the parties engage in another debt-ceiling showdown later this year.
But what House GOP leaders say the bill achieves and what it might actually do is a matter of debate. Nonpartisan analysts argue that although it could be a tool for pushing off a potential default on some of America’s obligations for several weeks, it still leaves a harrowing trip into the financial unknown at the end of that time.
The bill, which eked through the House 221 to 207 on a largely party-line vote, would allow the federal government to pay interest on the nation’s debts and prop up Social Security payments, even if the United States fails to increase its federal borrowing limit. Such an event could occur in September or October.
Republicans say the legislation prioritizes payments, ensuring that there won’t be the kind of missed obligations that could precipitate a formal default. At the same time, the bill politically insulates them from charges by Democrats that forcing negotiations over the debt ceiling puts payments to seniors in jeopardy.
“Clearly, we cannot default on our debt,” said Rep. Dave Camp (R) of Michigan, chairman of the House Ways and Means Committee, which brought forth the bill. “The consequences of doing so could be very serious. A default would at the very least hinder an already stagnant economic recovery, and, in a worst-case scenario, lead the country back into a recession.... If signed into law, this legislation would prevent such an unacceptable situation.”
Nonpartisan analysts say the measure – which will not get a hearing from the Democrat-led Senate and faces a veto threat at the White House – would actually have an effect different from that envisioned by Representative Camp.
Were the bill adopted, argues Shai Akabas, a budget analyst with the Bipartisan Policy Center (BPC), interest payments on the debt and some interest payments needed for processing Social Security payments would be pushed outside the formal debt limit – in effect increasing the debt limit.
This would allow the US Treasury’s “extraordinary measures” – the financial trickeration used by the federal government to finance its operations for several weeks after reaching the formal debt ceiling – to go on even longer than possible today.
As such, Mr. Akabas says, the bill could add several weeks’ time for budget negotiators to hammer out their differences.
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.”