House conservatives are pressing their leaders to adopt a politically disastrous idea to lessen the impact of a U.S. default on its debt.
The GOP plan, which is unlikely to pass the Senate, if it does get to the House Floor, is intended to reduce global economic fallout in the event Congress fails to raise the nation’s borrowing cap by the deadline to avoid default. The Treasury Department would be allowed to exceed the amount that is required to pay principal and interest for all U.S. debtholders. This includes foreign countries such as Japan and China.
Their leaders have yet to present a proposal despite Republicans refusing to lift the $31 trillion debt limit without significant federal spending cuts. Some of the House GOP’s right-leaning players who stopped Kevin McCarthy from becoming the speaker are now pushing their own strategy to reduce fiscal calamity in the event that the ceiling is broken.
Republican supporters bill the measure as a way to reduce blowback. However, Democratic leaders argue it fuels a risky theory that it is possible to avoid irreparable economic harm without increasing the debt limit. Despite GOP legislators promoting it, Democrats love to take advantage of the complicated politics of the proposal.
“As a Democrat I look forward to them voting for foreign investors ahead American families for payment,” stated Sheldon Whitehouse , Chair of the Senate Budget Committee (D-R.I.). “I don’t think that’s the message they want the public to hear in 2024. But God bless them if it is.”
It might appear that Democrats are giving away political gifts by allowing the GOP bill to prioritize foreign obligations over domestic, such as paying military expenses or food stamps. However, President Joe Biden’s party is more concerned about the effort because it would prioritize foreign obligations over domestic bills. They warn that this is a tactic to get the public more comfortable with the idea of taking the country to the debt-limit brink, for the first time ever in history.
Democrats warn that this attitude could spell trouble for the economy as investors assess Congress’ willingness to take on risk.
Whitehouse stated, “They are creating an imaginary world in that the debt limit is breached but there is no catastrophe.” This bill normalizes it. It’s very dangerous.
After receiving committee approval earlier in the month from the chamber’s tax panel, the House bill is now ready for floor action. McCarthy has promised that a vote would be held, although it has not been scheduled.
Whitehouse stated that supporters of the bill want the same last-ditch, closed door concessions on the debt limit. He accused Republicans of using the issue to “force Biden into an back room where they could make some deal without the public being aware of what they want.”
GOP leaders added additional exceptions to their plan. This gives the Biden administration authority to distribute Social Security and Medicare benefits to those who borrow beyond the debt limit.
“I’m surprised that my colleagues on both sides aren’t supportive,” House Ways and Means Committee Chair Jason Smith (R. Mo.). Before his panel approved the measure, Smith stated that he was surprised by their opposition to it. “After all, the bill states that we will never default in our debt and that seniors will always be covered.”
According to the bill, Treasury Secretary Janet Yellen would be required to prioritise payments to veterans and the Pentagon. The secretary could not borrow additional money to accomplish this. Payments for items such as government travel or salaries of lawmakers would be made last.
Yellen, like many Treasury secretaries before she, said that government systems aren’t capable of executing an elaborate prioritization system and that it would be logistically impossible to adjust millions of federal payments each day. The bill’s opponents claim that freezing payments to government contractors, federal workers, retirees with government pensions, state, and local governments, and all other than Social Security and U.S. debt holder, would be economically disastrous.
Democrats argue that arguments that the bill wouldn’t be passed and wouldn’t work are minor compared to its main point, which is the message it sends the public.
“It’s admitting that a default is okay. This is completely ridiculous and dangerous,” stated Sen. Ben Cardin (D, MD). Chair of the Small Business Committee.
Cardin said, “If we don’t pay our bills on-time to anyone it’s a default.” The credit cost of the United States rises immediately. Our bond ratings change. It’s a terrible course.”
In debt-limit negotiations, Democrats’ doomsday forecasts play in their favor. The past history shows that every time the parties had to agree on a solution right up until the deadline, they reached a last-minute bipartisan agreement to avoid economic chaos as Wall Street investors became increasingly cautious.
“A responsible president would say that the United States will not default on its debt under any circumstances.” Biden won’t say that because he doesn’t want the markets to be scared by his threat of default,” stated Sen. Ted Cruz (R.Texas).
Cruz was an outsider for the past decade as his GOP co-workers helped Democrats raise the debt limit at last minute. This alienated the most fiscally conservative lawmakers from both chambers, who weren’t willing to make deals until they were satisfied.
When he was a first-term senator in 2013, the Texan demanded that Obamacare be defunded to raise the nation’s borrowing limit. This demand caused a 16-day government shut down that led to the country being taken over within one day of defaulting.
Cruz claims that the House Republicans’ bill to limit default’s effects would make sure Democrats don’t have to fear economic calamity in order to negotiate fiscal changes.
Cruz stated that Democrats oppose this compromise because they prefer to scaremonger rather than reach a fair compromise on debt and spending.
The Republicans’ strategy is all too familiar to lawmakers who were present 12 years ago, when the debt-limit dispute led to a downgrade in the U.S. credit rating. This was the first time in American History. Back then, Republicans also supported debt prioritization bills.
“What we are seeing is a rewind 2011 on steroids,” stated Sen. Chris Van Hollen (D.Md. He was then a House member. “They need to get off the edge, or they’ll ruin the American economy.
If revenue is lower than normal this tax season, the U.S. could exhaust its borrowing authority in three months. The Treasury Department will only be able to scrape by through the summer and possibly into fall with the cash-conservation strategies the government calls “extraordinary.”
“Nobody knows how long these extraordinary measures will last. “What if it doesn’t last as long?” asked a Republican lawmaker. He spoke on condition of anonymity in order to avoid being linked with concerns about defaulting.
“I don’t believe we should be playing around with it.”
Olivia Beavers, Caitlin Emma and Caitlin Emerson contributed to this report.
