The plan, which had not been previously disclosed, was part of the private agreement reached this month to resolve the impasse between House conservatives and Representative Kevin McCarthy (R-California) over the election of a House speaker. Rep. Chip Roy (R-Tex.), a conservative leader who helped broker the deal, told The Washington Post that McCarthy agreed to pass a pay-prioritization plan by the end of the first quarter of the year.
The emerging contingency plan shows how Republicans are preparing to threaten not to raise the country’s debt ceiling without major spending cuts from the Biden administration. Congress must pass a law raising the current $31.4 trillion limit or the Treasury Department can no longer borrow, even to pay for spending lawmakers have already authorized. Economists warn that not raising the debt limit could push the United States into default, triggering a massive panic on Wall Street and leading to the loss of millions of jobs.
Treasury Secretary Janet L. Yellen said on Friday that the Treasury Department will initiate “extraordinary measures” next week to ensure the federal government is able to meet its payment obligations, but that it cannot guarantee that United States will pass from the beginning of June without default. White House Press Secretary Karine Jean-Pierre reiterated on Friday that the administration will not negotiate the debt ceiling.
Treasury Department aides declined to comment on the GOP plan, and a spokesman for McCarthy did not return requests for comment.
US to initiate ‘extraordinary measures’ to stay below debt limit
In the preliminary stages of writing, the GOP proposal would require the Biden administration to make only the most critical federal payments if the Treasury Department runs into the legal limit of what it can legally borrow. For example, the plan almost certainly requires the department to continue paying interest on the debt, according to four people familiar with internal deliberations who spoke on condition of anonymity to describe private conversations. The House Republicans’ pay-prioritization plan may also stipulate that the Treasury Department continue making payments for Social Security, Medicare and veterans benefits, in addition to funding the military, two of the people said.
Such a move would be unprecedented and extremely controversial, and even releasing the plan could turn into a major political liability for the GOP. A hypothetical proposal that protects Social Security, Medicare, veterans’ benefits, and the military would still leave out major critical federal spending on things like Medicaid, food safety inspections, border control, and air traffic control, to name just a few. thousands of programs. Democrats are also expected to accuse Republicans of prioritizing payments to US bondholders – which include Chinese banks – over US citizens.
“Any plan to pay bondholders but not fund school lunches, FAA, food safety or XYZ is just target practice for us,” said a top Democratic aide, speaking on condition of anonymity to discuss a proposal that has yet to be discussed. was not disclosed. publicly.
McCarthy and House conservatives intentionally left the details of the prioritization plan unclear in their initial agreement, with the understanding that it could take weeks for Republicans to decide which federal spending programs should be protected, the two people familiar with the talks said. , and amid uncertainty about the best way to draft legislation.
the idea poses logistical obstacles as well. In 2011 and 2013, when similar debt ceiling crises emerged, Treasury Department officials in the Obama administration said that prioritizing payments was not technically possible, given the complexity of the millions of payments the federal government makes every day.
For the plan to be binding on the Treasury Department, it would have to pass not only the House but also the Democrat-controlled Senate, and President Biden would have to sign it into law.
Even if enacted, a debt prioritization plan could still compromise the US government’s trustworthiness, some experts say. The proposal would require the government to withhold payment of up to 20% of the money it has already pledged to spend.
Still, many Republican lawmakers have long favored exploring this type of measure as a way to mitigate the worst economic consequences of breaching the debt ceiling. Two of the people with knowledge of the GOP’s internal planning said the prioritization plan would force Democrats to acknowledge that it is technically possible for the Treasury Department to continue paying bondholders even if Congress fails to do so. raise your debt limit. One such person noted that interest payments total about $500 billion a year, which can easily be paid through the IRS without additional borrowing.
Republicans have explored various ways to promote prioritized debt payments over the years. Representative Tom McClintock (R-California) introduced a bill in 2011 called the Default Prevention Act that would require the Treasury Department to borrow above the debt limit to ensure that the interest on the debt is paid no matter what. happen. That version of the plan, however, may not win universal support even among Republicans, some of whom see it as an attempt to circumvent the debt cap’s intent. McClintock reintroduced the project this week. More than half a dozen House Republicans voted against his legislation in 2015.
“We have agreed to advance a debt prioritization bill through regular order by the end of Q1 2023,” Roy said in a text message to The Post. “Now the outlines of this have not been specified (there are different versions).”
Grover Norquist, founder and chairman of Americans for Tax Reform, a conservative advocacy group, said Republican lawmakers have intensified discussions in recent days about a debt-prioritization plan. So-Sen. Patrick J. Toomey (R-Pa.) proposed a similar idea during the debt ceiling clashes with the Obama administration in 2011 and 2013. At the time, Treasury Secretary Jack Lew said the government’s computer systems could be upgraded to screen tens of millions of payments, arguing that “prioritization is just bad debt by another name.” Republicans said those claims were exaggerated to make them back off their debt limit threats.
“The reason you do this is to say, ‘We offered you a bill that prioritizes things, and this is what we’re getting instead,’” Norquist said. “It is being talked about by the leaders because it is necessary to be prepared. If you reach an impasse, you want a fallback position.”
These efforts are expected to be controversial even among some GOP allies. Neil Bradley, executive vice president of the US Chamber of Commerce, said the business group is opposed to prioritizing payments.
“Prioritization doesn’t work. We had this discussion a decade ago,” Bradley said. “If the US government defaults on its payments to America’s seniors or defaults on its payments to bondholders, both of these call into question the full faith and credit of the US government and our commitment to pay our bills. And both have pretty catastrophic economic consequences.”
Some Republican policy experts are convinced that such efforts will fail. Brian Riedl, a policy analyst at the Manhattan Institute, studied prioritization plans at length while working in the then-senator’s offices. Rob Portman (R-Ohio). Riedl said such a plan would involve cutting about 20% of federal spending immediately, or about $1 trillion, because revenue only covers about 80% of the $5 trillion the government spends each year. Huge numbers of people could be hurt right away, he said, without a good way to choose between options like forcing hospitals to deal with ceasing Medicare payments or depriving the Department of Defense of funding.
“Studying this in 2011 convinced us that this was a really bad idea and something we really didn’t want to happen,” Riedl said. “We didn’t end the exercise by saying, ‘This is doable and smart.’ We said, ‘Let’s avoid this at all costs because it’s going to be a disaster.’”
Michael Strain, an economist at the American Enterprise Institute, a conservative think tank, said the prioritization plan is a “live option” among some GOP officials and is being quietly discussed. Strain acknowledged that financial markets might not be appeased by the government meeting only some of its spending obligations, but said that might be better than the alternative of a default on US interest payments.
“If we have a 10% budget deficit, we should be able to cover 90% of our spending obligations,” Strain said. “If the National Park Service or the FBI doesn’t cut it before an agreement is signed, that would obviously be better than not paying bills.”
Other veterans of GOP politics are more apprehensive.
“We’re going to see zillions of announcements about this,” said Doug Holtz-Eakin, economic adviser to President George W. Bush.
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