By Rachelle Younglai
WASHINGTON, April 9 (Reuters) – Momentum is building among
Republican lawmakers for legislation to prevent a credit default
by the United States, suggesting they will fight hard for
spending cuts when Congress debates another increase in the
nation’s debt limit this summer.
More than 60 fiscal conservatives in the House of
Representatives now support so-called “prioritization”
legislation.
Prioritization would direct the U.S. Treasury to pay the
interest and principal on U.S. bonds before making any other
payments if the government can no longer borrow additional funds
because Congress failed to raise the debt limit.
The legislation is seen as an attempt by fiscal
conservatives in the House to show they are prepared for
brinkmanship as Congress and the White House debate the debt
ceiling in the coming months. Republicans hope to use the debt
limit issue to force Democrats to cut spending and reform costly
health care programs.
“A lot of members have been wanting to pass a prioritization
bill for a long time so when we are having negotiations on the
debt ceiling, default is not an option,” Republican
Representative Steve Scalise, the head of a conservative faction
in the House, told Reuters on Tuesday.
Introduced on Feb. 25 by Representative Tom McClintock of
California, the legislation has gathered 64 co-sponsors and been
referred to the Ways and Means Committee.
Now House Republican leaders are backing the idea.
House Speaker John Boehner will support the debt
prioritization legislation that the House Ways and Means
Committee produces, a spokesman for Boehner’s office said on
Tuesday. “When it comes to the debt limit, our goal is to cut
spending to help create jobs, not to default,” he said.
Eric Cantor, the No. 2 Republican in the House, said last
week in announcing April’s legislative agenda that he expects
the House to consider prioritization legislation “in the near
future.”
A REPEAT OF 2011?
As President Barack Obama prepares to unveil a budget plan
on Wednesday that he hopes will help him reach a
deficit-reduction deal, the prioritization issue could resurrect
the brinkmanship that marked an ugly fight in 2011 over the debt
cap battle.
The idea of prioritizing payments on debt has been rejected
by the Obama administration in the past. It has said ensuring
that bond holders got paid before others would be default by
another name.
Under the Republican approach, if the U.S. Treasury reached
the debt limit – possibly by late July or early August – the
government could continue making payments to Chinese creditors
and other bondholders before making other payments such as
Social Security retirement benefits and military salaries.
The House Ways and Means subcommittee, which helps oversee
the Treasury Department, will hold a hearing on Wednesday to
explore the administration’s ability to prioritize its payments
and continue operations if the Treasury hits the debt limit.
This will happen the same day Obama is due to propose a
budget that would offer cuts to big government health care and
retiree benefits programs in exchange for increased tax
revenues.
Similar legislation has been introduced in the Senate, but
it is not expected to go anywhere with Democrats controlling
that chamber.
Still, the mounting support from House Republicans suggests
that they are serious about going to battle with the Obama
administration over the debt limit, unlike the most recent
fiscal deadlines when they worked with Democrats to keep the
government operating.
It is unclear whether the Republican plan would reassure
investors or whether the Treasury Department could make all of
its debt payments with the cash it receives. Tax revenue does
not come in at the same rate that payments are due, according to
Treasury’s cash flow statements.
“It may be that you might not have enough money to pay a
large refinancing,” said Steve Bell, a former Senate Budget
Committee staff director who is now an economic policy director
with the Bipartisan Policy Center. “It works until it doesn’t,”
he said.
The government is on track to hit the legal limit on how
much it can borrow around May 19. The Treasury is expected to
use emergency measures to stave off default, though that will
only last until around July or August.
