President Obama has pledged not to negotiate over the raising of the debt limit. Republicans in the House and Senate have promised not to raise it without extracting more spending cuts. The nation reached the debt limit on December 31 — it is only avoiding it now thanks to “extraordinary measures” from Treasury — and the result of not increasing the limit is almost certainly default. The Treasury will no longer have the authority to pay the bills Congress has already incurred, and by the end of February, the United States will not have enough money to make debt payments, pay Social Security benefits, and keep the government running.
The response to that doomsday scenario from Republicans, however, has been to ignore the perils of not raising the debt ceiling. Members of both the House and the Senate are introducing legislation that will call on the government to prioritize its debt payments to avoid default, as Reuters reports:
Among those advocating the approach is Republican Senator Pat Toomey of Pennsylvania, who is expected to reintroduce legislation next week to instruct the Treasury to make sure bondholders got paid first if Congress does not raise the debt ceiling by the deadline.
In the House of Representatives, Arizona Republican David Schweikert introduced legislation that would force the Treasury to prioritize payments to bondholders, Social Security recipients and military salaries.
Toomey has introduced similar legislation before, but prioritization, however nice it sounds to him and other Republicans, is simply not a workable option. As Tony Fratto, a former White House and Treasury official for George W. Bush, explained on Twitter last night, most of the government’s bills come due at the beginning of each month. That’s when Social Security and an assortment of other benefits are paid. Most of its tax revenue, however, comes in toward the middle of the month. Failure to raise the debt ceiling would force it to wait until it had enough money from tax revenue to make payments of any sort — a strategy that, thanks to its accounting methods, would be virtually impossible, Fratto said.
Keith Hennessy, another former Bush official, agreed, outlining the problems with prioritization on his blog and saying that the government should fulfill the spending agreements it has already made. “To do otherwise is taking the first step to becoming a banana republic,” he said, adding that refusing to raise the debt ceiling doesn’t cancel the payments the government legally owes. It just delays them.
Independent reports agree. The Bipartisan Policy Center found that between 40 and 45 percent of the government’s 80 million monthly payments would go unpaid, and even if payments could be prioritized, popular and necessary programs would be among those forced to go unfunded. The government, the report said, could afford to pay interest on government debt, Social Security payments, Medicare and Medicaid, unemployment insurance, and defense contractors. But that would leave it unable to pay troops and other government workers, and it would leave the criminal justice and education systems totally unfunded. And even then, it could afford those payments only as revenue came in, not at the beginning of the month, meaning the payments would face significant delays. In short, BPC concluded, a prioritization scheme would be “essentially impossible.”