A growing number of Republican Senators are claiming that failure to raise the debt ceiling before the nation’s legal borrowing limit is reached sometime around August 2 would not be a bad thing, because the Treasury Department has the ability to prioritize payments from the daily tax revenue that comes in. Despite warnings from both the Treasury Department and credit rating agencies that this plan is untenable, they claim that it would do no damage to the U.S.:
“We’re not going to default even if there is no debt-ceiling increase,” Sen. Tom Coburn (R., Okla.) said in an interview. “The fact is we’ve got to cut spending and we’ve got to cut it now.”
Sen. Rob Portman (R., Ohio), a former White House budget director, said that in any given year there’s enough federal revenue to cover the government’s debt service payments. “This is not so much a question of default as whether we’re going to use this opportunity to get our fiscal house in order,” Mr. Portman said.
Sen. Ron Johnson (R., Wisc.), who wrote a separate letter to the Obama administration, said the administration was acting irresponsibly by not developing a contingency plan in case Congress fails to raise the limit. The first-term senator said that 2012 revenues would be more than enough to cover interest on the debt, as well as Social Security, and essential defense, security, health and safety spending. “It doesn’t have to be a crisis if we plan for it,” Mr. Johnson said Wednesday on Fox News.
As Treasury Secretary Tim Geithner explained in a letter yesterday to Sen. Jim DeMint (R-SC) — who is making the same argument regarding the debt ceiling — “this ‘prioritization’ proposal advocates a radical and deeply irresponsible departure from the commitment by Presidents of both parties, throughout American history, to honor all of the commitments our nation has made.” Indeed, forcing the Treasury to prioritize payments means that someone is getting stiffed, and thus U.S. creditworthiness would be undermined. While Treasury might be able to get away with only skipping payments to government contractors and vendors initially, eventually important programs will be on the chopping block.
In fact, if the borrowing limit is actually hit on August 2, Social Security could be the first casualty, as $23 billion in Social Security payments are due on August 3, while the government would collect only $12 billion in revenue that day, as a report released yesterday by the Bipartisan Policy Center found. As the BPC put it, if the debt limit isn’t increased, “handling all payments for important and popular programs (e.g., Social Security, Medicare, Medicaid, Defense, active duty pay) will quickly become impossible.”
Even House Budget Committee Chairman Paul Ryan (R-WI) admitted that short-term failure to raise the debt ceiling would mean cuts to “vital programs.” The GOP, however, is sticking its fingers in its collective ears, believing that having the U.S. miss payments to people whom it has promised to pay will have no effect on its creditworthiness or the wider economy.