Today the House Ways and Means Committee is considering a version of the “Full Faith and Credit Act” that addresses the threat of default when the statutory debt ceiling is reached by prioritizing payments of principal and interest to the nation’s creditors.
Readers will recall in July 2011, in order to force House Republicans to vote in favor of increasing the government’s borrowing limit by $2.1 trillion, the Obama Administration threatened to default on the national debt by withholding payments to creditors. Why?
A recent Inspector General’s report on the Aug. 2011 debt ceiling debacle found the Treasury itself views that it lacks the statutory authority to prioritize those payments.
“While Congress enacted these expenditures, it did not prioritize them, nor did it direct the President or the Treasury to pay some expenses and not pay others,” the report states. “As a result, Treasury officials determined that there is no fair or sensible way to pick and choose among the many bills that come due every day. Furthermore, because Congress has never provided guidance to the contrary, Treasury’s systems are designed to make each payment in the order it comes due.”
Critically, Treasury officials “organizationally they viewed the option of delaying payments as the least harmful among the options under review,” according to the report. Or in other words, “no payments would be made until they could all be made on a day-by-day basis.”
So, if the debt ceiling is reached, per the Inspector General report, the White House would effectively hold our creditors hostage and default. That is, until Congress capitulates on the issue and raises the debt limit once more.
The “Full Faith and Credit Act” addresses this, and certainly the House Ways and Means Committee chaired by Rep. David Camp is to be praised for this effort.
However, the bill, because it limits its scope to only addressing default, leaves open the possibility that the White House will withhold payments on other things like Social Security, Medicare, the military, and other vital government functions despite there being ample revenue to pay for them.
In its latest budget, the White House expects $2.7 trillion of revenue in 2013, more than enough to fund $812 billion for Social Security, $504 billion for Medicare, and $652 billion for defense. $744 billion would be left over for other programs, such as air traffic control, the Nuclear Regulatory Agency, and other items deemed essential.
It must be noted that the White House does currently have the authority to prioritize payments, if a then-Government Accounting Office (GAO) report from 1985 is to be believed.
Back then, the GAO found that “The Secretary of the Treasury does have the authority to choose the order in which to pay obligations of the United States.” And, to wit, “Treasury is free to liquidate obligations in any order it finds will best serve the interests of the United States.”
We can already see the shenanigans resulting from the abuse of the current level of authority in the implementation of sequestration.
Which, under the debt ceiling being reached scenario, because “no payments would be made until they could all be made on a day-by-day basis,” even if principal and interest on the debt were covered the Obama Administration would likely still use the threat of withholding payments on other things until Congress caves on the issue.
You can almost count on Democrats making the specious but politically powerful claims of wanting to starve Grandma and not pay our armed forces overseas defending our freedom, meanwhile creditors like China and big banks would get paid on time and in full.
Since this is a political fight — and we can see how sequester prioritization is currently being handled — it would be foolish in our estimation to not protect the House’s political flank.
While protecting the full faith and credit of the U.S. is good policy, expecting honest discourse on the broader fiscal issues facing our nation from this administration is naïve. Trusting Obama to do the right thing leaves those supporting fiscal sanity in a politically untenable position.
They will be accused of supporting payments on the $16.8 trillion national debt to foreign governments and banks while threatening to leave seniors and our military unpaid — even though under the law the Treasury could prioritize those payments and shockingly, already has a plan to let the system fail and place blame on their political opponents.
Based upon experience, this charge will undoubtedly be made by the opposition in attempting to submarine this well-meaning legislation.
So, if the intent of the currently considered “Full Faith and Credit Act” is to take Obama’s threat of default off the table in future debt ceiling negotiations, it would partly succeed in that regard. But if it is to strengthen House Republicans political hand in those negotiations, it sadly falls short.
The predictable political theatrics of pushing Grandma off the fiscal cliff needs to be taken off the table just as much default.
Instead, to succeed in the stated goal to create a real dialogue and solution for our nation’s spending problem, the legislation should be amended to include a full prioritization of payments plan. Then, attach it to an upcoming vote on increasing the debt ceiling, which will come into effect again on May 19 after its brief suspension.
Instead of always playing defense, Republicans should let Barack Obama and Harry Reid explain why they would prefer to default on the nation’s obligations.
With $16.8 trillion in national debt and future interest payments threatening to overwhelm the Treasury, the nation deserves better than dishonest campaign-style attacks. Including payments prioritization of other key spending issues will force Obama and Reid to come to grips with putting our nation on a path toward fiscal sanity.
If nothing else, passage of even a limited “Full Faith and Credit Act” shows who is really serious about avoiding default and getting our budget balanced.
Robert Romano is the Senior Editor of Americans for Limited Government.