As Republicans gear up for a fight with President Joe Biden over raising the debt limit, some lawmakers want to prepare the federal government for how it should proceed in the event of a debt default.
The House Ways and Means Committee on Thursday will consider a bill that would empower the U.S. Treasury to prioritize payments if it runs low on cash and can’t sell bonds due to the debt limit. The Treasury could reach that point as soon as June, though most projections put the so-called X Date later in the summer, with Moody’s economist Mark Zandi citing August 18 as a possible crisis moment in congressional testimony earlier this week.
The provision, introduced by Rep. Tom McClintock (R-CA) and dubbed the “Default Prevention Act,” would allow the Treasury to continue to issue debt in order to make payments on interest and for Social Security. It would also set up a prioritization system for other types of payments, including for defense and veterans’ benefits. And it would deny pay to members of Congress for the duration of the fiscal crisis.
Rep. Jodey Arrington (R-TX), chair of the House Budget Committee, explained the reasoning behind the bill. “You got to pay your creditors first,” he told Semafor. “That’s the principle our grandfathers taught us. We pay the people that you owe.”
Critics, though, say the untested proposal faces serious questions, including whether it would prevent the kind of global financial crisis that economists have warned could happen if there is an interruption in federal payments. “It just seems silly and stupid,” Rep. Don Beyer (D-VA) said. “Why would we prioritize Chinese bondholders over American military, Social Security, seniors, children? It’s going to drive up costs for American citizens when we put bondholders first.”
Some have questioned whether the theoretical plan is even doable. Brian Riedl of the conservative Manhattan Institute told The Washington Post that the Treasury lacks the necessary infrastructure to run a prioritization program. “Unless they can build a new system in the next four months, it doesn’t matter,” he said.
The White House called on lawmakers to avoid creating the crisis in the first place. “The only way to avoid this kind of economic disaster is for Congress to do its job and prevent default,” Biden spokesperson Michael Kikukawa said in a statement. “Not to put forward half-baked schemes that hurt the American people.”
