GOP Tees Up 'Default Prevention' Bill In Case Congress Fails To Raise Debt Ceiling

Democrats say the bill actually makes a government shutdown more likely.

WASHINGTON -- A Republican-backed bill that would ensure America's creditors get paid before its citizens do if the nation reaches its debt limit passed a key committee Thursday, prompting Democrats to accuse the GOP of paving the way for default and, possibly, a government shutdown.

The measure, dubbed the "Default Prevention Act," says that if the U.S. hits its debt ceiling of $18.1 trillion later this year, the Treasury Department shall issue new obligations "solely for the purpose of paying" principal and interest on existing debts, and for financing Social Security payments.

The bill, which passed the House Ways and Means Committee on Thursday, does not tell Treasury officials how to pay for anything else.

Committee chair Paul Ryan (R-Wis.) said the point of the bill is to prevent a historic default, should Congress find itself unable to raise the debt ceiling.

"All this does is say that the federal government is not going to default on its bonds," Ryan said.

Ryan defined "default" as only the failure to make a bond payment, and said his bill -- which passed the committee on a party-line vote of 24 to 15 -- was a sensible backstop, given Congress' historic difficulty with increasing the debt limit. The U.S. nearly defaulted in 2011, resulting in the first credit downgrade in the nation's history.

However, Democrats argue that the government's obligations extend to more than just creditors and Social Security recipients, and hammered the measure for prioritizing debt-holders such as China over other responsibilities, such as paying U.S. service members or funding government programs. Failing to pay any bill, they argued, would also count as a default, and would put the full faith and credit of the United States at risk.

"You're trying to squirm out of it by some sort of technical definition of default," Rep. Sander Levin (D-Mich.) told Ryan. "It doesn't work."

The Treasury Department has said that while the U.S. has technically already hit the debt limit, the government should be able to keep meeting obligations until around November by using "extraordinary measures." Treasury Secretary Jack Lew confirmed a deadline of early November in a letter later on Thursday.

Once that ability is exhausted, the department would have to stop paying some bills, but likely would be unable to pick and choose which payments to make and which to skip, leading to some sort of default.

In an average month, the Treasury takes in only about two-thirds to three-quarters of the revenue it needs to meet expenses. About 10 percent of its payments go toward the debt, and about 30 percent go to Social Security. Prioritizing those payments, as the GOP-backed bill effectively does, would leave even less for other obligations, which could spark a series of dire economic consequences.

Democrats also said that passing a fig-leaf measure that allows Republicans to claim they have forestalled a possible default actually makes such an event -- as well as a government shutdown -- much more likely.

"This legislation is a marker. Republicans are getting ready to default," said Rep. Jim McDermott (D-Wash.).

Several Democrats noted that Republicans on the committee did not have much to say during debate over the measure. They argued that their GOP colleagues were remaining silent because the bill is more political than practical, designed to give Republicans a face-saving talking point that appeases the tea party.

The reasoning is that raising the debt limit does not authorize new spending -- it merely authorizes the Treasury Department to pay the bills that Congress has already incurred. Republicans are well aware of that, Democrats say, but still cannot convince their members to vote to raise the limit.

"Republicans are simply unable to stand up to their 'shutdown caucus,' and that's where we're headed," said Rep. Lloyd Doggett (D-Texas).

Rep. Joe Crowley (D-N.Y.) offered up a list of several alternate names for the bill that he said would be more accurate, including the "Pay China First Act" and the "Government Shutdown Preparation Act." He also suggested the "Preparing For A Trump Presidency Act," noting that the GOP's 2016 presidential front-runner is well-acquainted with bankruptcies.

The bill is likely to advance to the House floor, but its fate in the Senate is less certain.

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