WASHINGTON (AP) — Republicans controlling the House are grappling with the hot-potato issue of raising the government’s borrowing limit later this year. But it seems clear the solution will not include an approach that was advancing in the chamber Thursday to put U.S. bondholders and people on Social Security at the front of the line to be paid if the government hits its borrowing limit.
The idea behind the legislation is to lessen the consequences of a U.S. default on its obligations if Congress and President Barack Obama can’t find a way to lift the government’s so-called debt limit later this year, in hopes of salvaging the government’s credit rating and ability to borrow to pay its bills.
“It is imperative that credit markets are supremely confident that their loans are secure,” said the bill’s sponsor, Rep. Tom McClintock, R-Calif.
But Democrats said the legislation would guarantee a downgrade of the debt by suggesting the nation would be willing to pay some of its bills and not others. They’ve dubbed it the “Pay China First Act,” saying it prioritizes payments to foreign investors over funding important domestic programs, including benefits for veterans and soldiers, Medicare and companies that do business with the government.
The White House has promised to veto the measure in the unlikely event that the Democratic-led Senate approves it. Some senior Republicans are only lukewarm supporters at best and shunned the measure in two prior debt showdowns with Obama.
“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,” said former Bush administration economic adviser Keith Hennessey. “To do otherwise is taking the first step to becoming a banana republic.”
In promising a veto, the White House said in a statement: “This bill would threaten the full faith and credit of the United States, cost American jobs, hurt businesses of all sizes, and do damage to the economy. It would cause the nation to default on payments for Medicare, veterans, national security and many other critical priorities. This legislation is unwise, unworkable and unacceptably risky.”
The measure comes as Washington looks ahead to another showdown over must-pass legislation to increase the government’s borrowing cap. The government has reached its current debt limit of $16.4 trillion, but Congress moved in January to allow the Treasury Department to borrow enough money to meet its obligations. That unique authority expires May 18, but the government retains the ability to juggle its books to buy several more months’ worth of time before facing default.
GOP leaders had hoped to spark a debt confrontation in July. However, the government’s finances are doing better than expected, and the debt limit may not have to be raised until September or early October.
The new legislation directs the Treasury Department to borrow money to pay bondholders and make sure Social Security is solvent. This additional borrowing authority would give Treasury the capacity to issue enough new debt to stave off the default date for another month or two, according to calculations by the Bipartisan Policy center think tank in Washington.
The GOP legislation is most strongly supported by rigidly conservative House Republicans like McClintock, Steve Scalise of Louisiana and Scott Garrett of New Jersey. The idea for such GOP conservatives is that it’s more important to make sure the government doesn’t default on the “sovereign debt” owed to creditors than make payments on other obligations.
“Paying sovereign debt is not the same thing as borrowing money so that this institution and this town can continue to spend money,” said Rep. Jeb Hensarling, R-Texas.
“Our constituents don’t have the luxury of waking up one morning and saying, ‘You know what? I’m only going to make my mortgage payment. I’m not going to make my car payment. I’m not going to make my credit card payments,’” said Rep. Chris Van Hollen, D-Md. “If they did that, what would happen? They would lose their creditworthiness. For the United States of America to say, ‘We’re going to pay some bills but not all’ would have hugely damaging impacts on the economy.”
Democrats jumped on an interview with House Speaker John Boehner, R-Ohio, likening the measure to a bankruptcy proceeding.
“Those who have loaned us money, like in any other proceeding, if you will, court proceeding, the bond holders usually get paid first. Same thing here,” Boehner told Bloomberg Television.
“This bill means that the United States of America will voluntarily act like a bankrupt corporation and pay China before we pay our troops. How sad,” said No. 2 House Democrat Steny Hoyer of Maryland.