Both House and Senate Republicans have signaled their unwillingness to increase the nation’s debt limit, which the U.S. is projected to reach in mid-May, without deep spending cuts and changes to entitlements, setting up another fight like the one that brought the country to the brink of a debt default in the summer of 2011. The GOP attempted to extract cuts for a debt ceiling increase in January of this year before acceding to a three-month increase, but not before they came up with a plan to stave off default by allowing Treasury to prioritize the payments it made so as not to add any more debt.
That plan, which bipartisan analysts called “essentially impossible,” is now again en vogue with Republicans, who are working on legislation to force Treasury to prioritize payments ahead of the May debt ceiling deadline, the Wall Street Journal reports:
The legislation would direct the Treasury to pay holders of U.S. debt and interest on the debt at the expense of funding operations of the federal government if Congress fails to reach an agreement to increase the statutory borrowing limit.
In a memo to rank and file GOP lawmakers, House Majority Leader Eric Cantor (R. Va.) said the House would consider the bill in the near future, ensuring that while the need to increase the debt ceiling could be some months off, the issue will remain prominent in Congress.
The prioritization of payments aims to force Treasury to make payments toward the debt instead of to fund government operations, entitlements, and other programs. That plan is problematic for several reasons, including that Treasury’s computer system isn’t capable of prioritizing payments in this manner. But even if it could, prioritization would only allow Treasury to make payments as revenues came in — and while it makes the bulk of its payments at the beginning of the month, it doesn’t receive revenues until the middle or later parts. And it wouldn’t even avoid default, since the U.S. would manage to miss payments to at least some of the people and programs to which it owes money.
The conservative American Enterprise Institute has called the prioritization scheme unworkable, as have Bush-era Treasury officials. Federal Reserve Chairman Ben Bernanke, meanwhile, has warned Republicans not to mess with the debt ceiling, given that the 2011 fight increased the nation’s borrowing costs and suppressed job and economic growth for months after it ended.