By Kellie Lunney
July 13, 2011This story has been updated.
House lawmakers Wednesday introduced a bill to ensure military personnel continue to receive pay if the national debt limit is not raised.
The legislation calls for emergency appropriations to pay the salaries and other allowances of active-duty service members if the government faces a funding gap because it defaults on its obligations. Rep. Steve King, R-Iowa, sponsored the bill along with Rep. Louie Gohmert, R-Texas, and Rep. Michele Bachmann, R-Minn., who is running for president in 2012.
The Payment Reliability for our Obligations to Military and Investors to Secure Essential Stability (PROMISES) Act would prioritize the pay and allowances for all active-duty military personnel, including those in the reserves, in the event of a government default.
Treasury Secretary Timothy Geithner has said the government will begin to default on Aug. 2 if Congress does not raise the debt ceiling.
When the federal government's spending outstrips its revenue, the Treasury Department can borrow money by selling bonds to the public; these bonds comprise the public debt of the United States. But when that debt increases toward the maximum allowed by current law, Congress must reduce the debt -- either by cutting spending or raising revenue -- or raise the ceiling. The government officially hit its debt ceiling of $14.3 trillion on May 16, and Geithner announced a debt issuance suspension period that runs until Aug. 2.
In a report published in June, the Bipartisan Policy Center found that unless the debt ceiling is raised, federal spending would be cut by 44 percent in August. Under several scenarios, Geithner could prioritize spending to include reductions in pay for government workers, the group said.
During congressional testimony on Wednesday, Federal Reserve Chairman Ben Bernanke outlined the potential ramifications of failing to raise the debt ceiling.
"Immediately there would have to be something on the order of a 40 percent cut in outpayments. The assumption is that, as long as possible, the Treasury would want to try to make payments on principal and interest on the government debt because the failure to do that would put the financial system into enormous disarray and have major impacts on the global economy," Bernanke said. "So just as a matter of arithmetic, fairly soon after that came there would have to be significant cuts in Social Security, Medicare, military pay, or some combination of those in order to avoid borrowing more money."
By Kellie Lunney
July 13, 2011