The House on Thursday passed legislation that would allow the Treasury Department to borrow money above the debt limit only to make payments on the debt and Social Security if the government hits its ceiling.
The Full Faith and Credit Act (H.R. 807) would require the government to pay the principal and interest on public debt and the Social Security trust funds before paying its other bills if it hits the debt ceiling. The government only could borrow money above the debt limit for those payments.
Under the bill, payments to the debt and Social Security trusts funds would take priority over troops’ pay, veterans’ benefits, contractors and Medicare, for example. The chamber also approved an amendment that would prohibit the Treasury Department from using the legislation’s authority to borrow money above the debt limit to pay lawmakers’ salaries. Rep. Sander Levin, D-Mich., criticized that amendment as disingenuous during remarks on the House floor Thursday. “It’s an effort to give some kind of fig leaf, or whatever it is, for a terrible, terrible bill.”
The White House said on Tuesday that President Obama would veto the legislation if it reached him, and that he would not negotiate on whether to uphold the full faith and credit of the United States. “Congress must pay the bills it has already racked up; failure to do so would put the nation into default,” the statement said. The Democratic Senate is unlikely to move on the bill.
President Obama in February enacted the No Budget, No Pay Act, which authorized a temporary suspension of the current $16.4 trillion debt limit through May 18, allowing the government to continue borrowing to pay its bills until then. After that date, the debt limit will be somewhere between $16.6 and $16.7 trillion; Treasury can implement “extraordinary measures” for a few months to avoid a default, which the Bipartisan Policy Center estimates would happen by mid-October, unless Congress approves a new debt ceiling increase above the amount accumulated through May 18.
One of the extraordinary measures that the government often has used to avoid a default is tapping into and suspending investments into the Civil Service Retirement and Disability Fund and halting the daily reinvestment of the G Fund, the most stable offering in the Thrift Savings Plan's portfolio. The law requires the Treasury secretary to refill the coffers of the G Fund and the Civil Service Retirement Fund once the issue of the debt ceiling is resolved, and in addition, to make up for any interest lost on those investments during the suspension.
House Republicans argued that H.R. 807 was necessary to avoid a default that could hinder the country’s economic recovery. “The legislation removes the risk of default by providing a mechanism to ensure that principal and interest on debt obligations are paid. Furthermore, it defines interest so Treasury can and must make the interest payments necessary to ensure that Social Security benefits can be paid in full,” said the House Ways and Means Committee report accompanying the bill.
Democrats on the Ways and Means Committee, all of whom oppose the bill, said it was “reckless and indefensible” to prioritize the government’s payments in such a way. “We are further concerned that just by entertaining the idea that the United States will no longer pay all of its bills on time and in full, the majority is damaging our reputation and our economic recovery,” they wrote in a dissenting view included in the committee report.