The plan, which was not previously reported, was part of the private agreement reached this month to resolve the disagreement between House conservatives and Speaker Kevin McCarthy (R-Calif.) over the election of House speaker. Rep. Chip Roy (R-Tex.), a key conservative who helped broker the deal, told The Washington Post that McCarthy agreed to pass a priority payment plan by the end of the first quarter of the year.
The emerging contingency plan shows how Republicans are preparing to face the threat of not raising the nation’s debt ceiling without major spending cuts from the Biden administration. Congress must pass a law that raises the current limit of $31.4 trillion or the Treasury Department cannot borrow more, even to pay for spending already authorized by lawmakers. Economists warn that the United States could default if the debt limit is not raised, which would trigger a major panic on Wall Street and lead to the loss of millions of jobs.
Treasury Secretary Janet L. Yellen said Friday that the Treasury Department will begin “extraordinary measures” next week to ensure the federal government will be able to meet its payment obligations but that it cannot guarantee states will. United it longer than early June without fail. White House press secretary Karine Jean-Pierre reiterated on Friday that the administration will not negotiate on the debt ceiling.
Treasury Department aides declined to comment on the GOP plan, and a spokesman for McCarthy did not return requests for comment.
USA to start ‘extraordinary measures’ to stay under debt limit
In the early stages of drafting, the GOP proposal would have asked the Biden administration to make only the most important federal payments if the Treasury Department runs afoul of the statutory limit on how much it can legally borrow. For example, the plan almost certainly calls for the department to continue making interest payments on the debt, according to four people familiar with the internal discussions who spoke on condition of anonymity to describe private conversations. . House Republicans’ priority payment plan may also dictate that the Treasury Department should continue making payments for Social Security, Medicare and veterans benefits, as well as funding the military, two of the people said.
Such a move would be unprecedented and highly controversial, and even if the plan is dropped it could be a major political liability for the GOP. A hypothetical proposal that protects Social Security, Medicare, veterans benefits and the military would leave a huge chunk of critical federal spending on things like Medicaid, food safety inspections, border control and air traffic control, to name just a few of the thousands. programs. Democrats are also likely to accuse Republicans of prioritizing payments to US bondholders – including Chinese banks – over American citizens.
“No plan to pay bondholders but not fund school lunches or the FAA or food safety or XYZ is just a target practice for us,” said a senior Democratic aide, speaking on condition of anonymity to discuss a proposal that has not yet been released. in public.
McCarthy and House conservatives intentionally left the details of the priority plan undecided in their initial agreement, with the understanding that it could take weeks for Republicans to decide which federal spending programs must be protected, the two said. aware of the discussions, and in the midst of uncertainty. about the best way to draft the legislation.
The idea adds logistical obstacles too. In 2011 and 2013, when similar debt ceiling crises arose, Treasury Department officials stepped in the Obama administration said prioritizing payments was technically not 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 Democratic-controlled Senate, and President Biden would have to sign it into law.
Even if enacted, a debt priority plan could threaten the confidence of the US government, according to some experts. The proposal would ask the government to stop paying up to 20 percent of the money it has already pledged to spend.
Still, many Republican lawmakers have long favored exploring these types of measures as a way to mitigate the worst economic consequences of breaching the debt ceiling. Two of the people with knowledge of internal GOP planning said the priority plan would force Democrats to admit that it is technically possible for the Treasury Department to continue paying bondholders even if Congress does not. raising the debt limit. One of those people noted that the interest payments are about $500 billion a year, which can easily be met through federal revenue without additional borrowing.
Republicans have explored various ways to push priority debt payments over the years. Rep. Tom McClintock (R-Calif.) released a bill in 2011, known as the Default Prevention Act, that would have forced the Treasury Department to borrow above the debt limit to ensure interest is paid on the debt no matter what. That version of the plan, however, might not find universal support even among Republicans, some of whom consider it to be circumventing the intent of the debt limit. McClintock reintroduced the bill this week. More than half a dozen House Republicans voted against his legislation in 2015.
“We agreed to advance a debt priority bill by regular order by the end of the first quarter of 2023,” Roy said in a text message to The Post. “Now, those contours were not specified (there are different versions).”
Grover Norquist, founder and president of Americans for Tax Reform, a conservative advocacy group, said the GOP has stepped up discussions in recent days about a debt priority plan. Then-Sen. Patrick J. Toomey (R-Pa.) proposed a similar idea during the debt ceiling with the Obama administration in 2011 and 2013. At the time, Treasury Secretary Jack Lew said that the government’s computer systems could not be updated to the thousands to try. payments, arguing that “priority is but default under another name.” Republicans said those claims were exaggerated to backtrack on their debt limit threats.
“The reason you do this is to say, ‘We gave you a bill that prioritized things, and this is what we’re getting instead of that,'” Norquist said. “The leadership is talking about how to be prepared. If you get into a confrontation, you want to stand back up.”
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 opposes prioritizing payments.
“Priority doesn’t work. We had this discussion ten years ago,” Bradley said. “If the US government skips its payments to America’s seniors or skips its payments to bondholders, both of those things call into question the entire faith and credit of the United States government and our commitment to pay our bills. And both have dire economic consequences.”
Some Republican policy experts are convinced that such efforts would fail. Brian Riedl, a policy analyst at the Manhattan Institute, studied priority plans at length while a staffer in the offices of Sen. Rob Portman (R-Ohio). Riedl said such a plan would immediately cover about 20 percent of federal spending, or about $1 trillion, because revenues cover only about 80 percent of the $5 trillion the government spends each year. A large number of people could be hurt at once, he said, with no good way to choose between options such as forcing hospitals to stop dealing with Medicare payments or defunding the Defense Department.
“When we studied this in 2011, it convinced us that this would be a bad idea and something we didn’t want to happen,” Riedl said. “We didn’t end the exercise by saying, ‘This is possible and smart.’ We said, ‘Avoid this at all costs because it will be a disaster.'”
Michael Strain, an economist at the American Enterprise Institute, a conservative think tank, said the preferred plan is a “live option” among some GOP officials and is being quietly discussed. Strain acknowledged that financial markets may not be used because the government only meets some of its spending obligations but said that could be better than defaulting on US interest payments.
“If we have a 10 percent budget deficit, we should be able to cover 90 percent of our spending obligations,” Strain said. “If the National Park Service or the FBI doesn’t make the cut before signing an agreement, that would obviously be better than not paying any bills.”
Other longtime hands of GOP policy are more worrisome.
“We’re going to see millions of ads about this,” said Doug Holtz-Eakin, an economic adviser to President George W. Bush.