WASHINGTON—Washington is barreling toward a deadline to raise the government’s borrowing cap and avert a first-ever default on U.S. payments, but there’s no sign yet on Capitol Hill of a viable solution.
Instead, the Republican-controlled House is moving ahead on tea party-blessed legislation related to the debt limit that has no chance of making it through the Senate, much less of being signed by President Barack Obama.
Credit markets are already nervous about the lack of progress as a Nov. 3 Treasury Department deadline looms. That’s when the government’s ability to use accounting steps to pay its bills for veterans, Social Security recipients, federal employees and others will run out and the government would have a dangerously small fiscal cushion.
“There is no margin for error,” Treasury Secretary Jacob Lew said Wednesday at a conference sponsored by the Center for American Progress. “After Nov. 3, we cannot borrow any more money. We will be operating on a cash basis. Some days we will have enough cash to pay our bills. Other days we won’t. Going past Nov. 3 is irresponsible.”
The House on Wednesday passed, 235-194, legislation by Rep. Tom McClintock, R-Calif., that would require the government to pay its creditors and Social Security beneficiaries first and exempt those payments from the debt limit if the government runs out of cash. The idea is to preserve the “full faith and credit” of the government, even if there is a fiscal standoff.
“If there is ever any doubt over the security and reliability of the debt owed by this government, the interest rates that lenders change would quickly rise and overwhelm us,” McClintock said.
The White House promises that Obama would veto the bill, which Democrats like Sen. Harry Reid of Nevada have dubbed the “Pay China First Act” since debt payments would get preference over other obligations like salaries for federal workers and the military, Medicare payments to providers, and medical care for veterans and the poor.
And, while Treasury says government payment systems can prioritize debt obligations over other payments, its systems are not built to allow prioritization of payments like Social Security over all others.
“Treasury’s payment systems are designed to pay our bills—they were not designed to not pay our bills,” Treasury spokesman Daniel Watson said in a blog post last week.
Meanwhile, House GOP leaders are considering scheduling a Friday vote on a debt limit bill produced by the conservative Republican Study Committee. It would establish procedures designed to force the House to vote on $3.8 trillion in spending cuts over the coming decade, to add teeth to the non-binding budget Republicans adopted this spring. It would also mandate a vote on a constitutional amendment to require a balanced budget and would impose a ban on new regulations.
In exchange, the legislation would permit an increase in the $18.1 trillion debt limit of $1.5 trillion, which is large enough to finance the government’s obligations into the next administration.
GOP leaders were canvassing the rank and file Wednesday to see if the tea party-backed debt limit bill could pass the House, which has been roiled by leadership drama with the announced resignation of House Speaker John Boehner, R-Ohio, and struggles over finding a successor. The turmoil is affecting Boehner’s ability to pull the trigger and bring a debt hike—at least one that would be signed by Obama—up for a vote.
Nothing produced so far can pass the Senate, however, where Democrats have the numbers to filibuster anything they don’t like.
But GOP leaders like Boehner are, for now, resisting Obama’s demands for a straightforward debt increase in the debt that’s free of any add-ons to make the measure more palatable to Republicans.
The White House has made it clear that any increase in the so-called debt limit must be “clean” of other policies that would make it appear that Obama is negotiating away concessions in exchange for the must-pass legislation. In 2011, before his re-election, Obama gave $2.1 trillion in spending cuts in exchange for a comparable increase in the debt cap.
Since then, Obama and his Democratic allies have been adamant that the legislation—required to avert a market-quaking default on U.S. obligations—won’t be taken hostage by Republicans demanding concessions.
“The debt ceiling is non-negotiable,” said Senate Minority Leader Harry Reid, D-Nev. “It is a straight up-or-down vote.”
Last February, Boehner and McConnell eased a debt increase through Congress by relying on almost unanimous Democratic support.
Republican gains in last fall’s midterm elections, along with a handful of retirements of leadership allies who voted to raise the borrowing cap last winter, mean that Boehner and McConnell need to find additional GOP votes to raise the cap.