WASHINGTON – Get ready for another debt showdown this summer. House Republicans are preparing for one.
The House Ways and Means Committee passed a bill Wednesday to protect Social Security recipients and investors in Treasury bonds if the government hits the limit of its borrowing authority.
The bill would exempt interest and principal payments on Treasury bonds from the statutory debt limit. It would also exempt interest payments to the Social Security trust funds.
Republicans say the bill would avoid an unprecedented default, even if Congress and President Barack Obama can't agree on a plan to increase the government's ability to borrow.
"The whole purpose of this bill is to take default off the table," said Rep. Paul Ryan, R-Wis. "Regardless of the political hysterics in Washington, we will not default."
The committee passed the bill 22 to 14 in a straight party line vote, with Republicans in favor and Democrats opposed. The full House is expected to take up the bill sometime after Congress returns from next week's vacation. Democrats, however, are expected to block the bill in the Senate.
Democrats call the bill the "Pay China First Act," saying it prioritizes payments to foreign investors over funding important domestic programs, including benefits for veterans, soldiers, students and the elderly.
"Where in the bill are the benefits for veterans protected? Is there language protecting Medicare payments and seniors in this bill? Do they get top billing over foreign banks?" asked Rep. Joseph Crowley, D-N.Y. "This bill will do nothing to lower our debt but it will make sure that foreign banks in Switzerland and China are paid."
The federal government is scheduled reach the limit of its borrowing authority May 18, though Treasury officials are expected to take actions to delay a default until later this summer, perhaps in August.
If Congress can't agree on a plan to increase the debt limit, Washington could be headed for another showdown over government spending and borrowing. In 2011, Congress took the federal government to the brink of default, and major rating agencies downgraded the federal government's credit rating for the first time.
Since then, the issue has been politically toxic. In last year's congressional elections, both Democratic and Republican challengers gleefully reported the number of times their incumbent opponents had voted to increase the debt limit, a vote that used to be routine.
"The debt ceiling tactic is something that both parties have used in the past to grandstand but the new Republican majority is actually willing to pull the trigger," said Rep. Peter Welch, D-Vt. "And Democrats know that we just can't negotiate when you're holding America's reputation hostage."
The national debt stands at $16.8 trillion. That includes $4.9 trillion owed to government trust funds, including the Social Security trust funds. Of the debt sold on public debt markets, about half is owned by foreign entities. China has the most, about $1.2 trillion as of the end of February, according to the Treasury Department.
Congress must periodically increase the debt limit because, other than four years in the late 1990s and early 2000s, the federal government has long spent more money than it collects in taxes.
Economists warn that a default could be catastrophic for the global economy, shaking confidence in U.S. Treasuries, long seen as one of the safest investments in the world.
Just as they did in 2011, Republicans are demanding spending cuts in exchange for increasing the debt limit again. Republicans say it's the only way to get Democrats to agree to significant spending cuts, and they point to the 2011 debt showdown as proof.
That showdown resulted in more than $2 trillion in spending cuts over the next decade, including automatic spending cuts that politicians in both parties are now complaining about.
"With Washington again about to hit the debt limit, we are still faced with the same old problem — getting Washington's spending finally under control," said Rep. Dave Camp, R-Mich., chairmen of the Ways and Means Committee. "While Americans want Washington to start living within its means, they also know the full faith and credit of this country must never be questioned."
Camp said the bill is designed to protect the federal government's credit rating and Social Security payments while Congress and the White House negotiate a budget deal.
Democrats say it won't work. They say if the federal government starts reneging on its obligations — even if it pays bondholders — financial markets will lose faith and the economy will tank.
"What essentially this legislation is saying is we will pay some debts but not others," said Rep. Sander Levin of Michigan, the top Democrat on the Ways and Means Committee. "It plays with fire with the economy of this country in an effort to try to position the Republicans to have more leverage as we face the debt ceiling. That is reckless; it is irresponsible."
Obama and Democrats in Congress say they are willing to negotiate spending cuts, but only if Republicans agree to raise more tax revenue, a position that most GOP lawmakers oppose. If the debate sounds familiar, it's the same one Democrats and Republicans have been having for years.