Republicans ready for debt-ceiling battle
2013-01-16 16:49
Washington - Republican lawmakers are preparing to introduce
legislation to direct the US Treasury to make interest payments on American
bonds first and then prioritise other government outlays in case Congress does
not raise the debt ceiling.
Supporters of the idea see it as a politically palatable
alternative to default, which could rattle markets as occurred in the summer of
2011.
The likelihood of another market-unsettling event is
challenging Republicans to find another idea as they use the debt ceiling as
leverage to extract spending cuts from President Barack Obama.
But critics, including some Republicans, say prioritising
payments is largely unworkable and would not fool the markets.
The Treasury hit the $16.4tn debt ceiling, or the legal
amount it is allowed to borrow, on New Year's Eve and started moving funds
around so that the government can continue paying its bills.
But the department said it will run out of funds as early
as mid-February.
Among those advocating the approach is Republican Senator
Pat Toomey of Pennsylvania, who is expected to reintroduce legislation next
week to instruct the Treasury to make sure bond-holders, got paid first if
Congress does not raise the debt ceiling by the deadline.
In the House of Representatives, Arizona Republican David
Schweikert introduced legislation that would force the Treasury to prioritize
payments to bond-holders, Social Security recipients and military salaries.
"No one is talking about default except for the
president," said Patrick Tiberi, a Republican Representative from Ohio who
heads a tax-writing subcommittee.
"He doesn't need to default because he has enough
revenue, money coming in from the taxes that you guys pay to pay bills,"
Tiberi told reporters on Tuesday.
"Ninety-nine percent of my constituents would say
that sending out Social Security payments and keeping veteran hospitals open is
a bigger priority than national parks," he said.
But former advisers to Republican President George W Bush
say the idea is unworkable for a number of reasons, including the fact that tax
revenue does not come in at the same rate that payments are due.
"Prioritisation is impossible," said Tony Fratto,
who was Deputy Press Secretary for Bush and a spokesperson on economic policy
who fought through approximately seven debt limit increases with Congress.
"Is the government really going to be in the
position of withholding benefits, salaries, rent and contract payments, in
order to pay off Treasury bond-holders? That would be a political
catastrophe," Fratto said.
Increased credit risk
Keith Hennessey, Bush's National Economic Council
director, said prioritisation was a bad idea that could increase credit risk
and said it would be irresponsible.
"Payment prioritisation doesn't stop payments, it
just delays them. Then the aggrieved party sues the government, and probably
wins, and it turns into a bloody mess," Hennessey, now an economist at
Stanford, said in a blog post this week.
Even when the government was operating under a budget
surplus, as it did from 1998 through 2001 under President Bill Clinton, the
Treasury still had to borrow or issue debt to make its regular payments because
its income fluctuates month-to-month.
The department is expected to run out of ways to stave
off a default as early as mid-February, and Republican lawmakers say they will
refuse to give the Obama administration the votes needed to raise the debt cap
unless Democrats agree to spending cuts and changes to federal benefits
programs
On 15 February, the government is expected to take in
about $9bn in revenues and is required to pay bills amounting to $52bn,
according to the think tank the Bipartisan Policy Centre, which analysed
Treasury's cash flows.
The Treasury Department has said ensuring that bond
investors got paid before others would be a "default by another
name."
And in the past, Treasury officials have said the
department lacks the formal legal authority to establish priorities to pay
obligations, according to the non-partisan Congressional Research Service.
