The Republican-controlled House is moving to put U.S. bondholders and people on Social Security at the front of the line to be paid if the government hits its borrowing limit and is unable to meet all of its obligations.
The idea is to lessen the consequences of a U.S. default on its obligations if Congress and President Barack Obama can't find a way to lift the government's so-called debt limit later this year, in hopes of salvaging the government's credit rating and ability to borrow to pay its bills.
"It is imperative that credit markets are supremely confident that their loans are secure," said bill sponsor Rep. Tom McClintock, R-Calif.
But Democrats said the legislation would guarantee a downgrade of the debt by suggesting the nation would be willing to pay some of its bills and not others. They've dubbed it the "Pay China First Act," saying it prioritizes payments to foreign investors over funding important domestic programs, including benefits for veterans and soldiers, Medicare and companies that do business with the government.
The White House has promised to veto the measure in the unlikely event that the Democratic-led Senate approves it.
"This bill would threaten the full faith and credit of the United States, cost American jobs, hurt businesses of all sizes, and do damage to the economy," the White House said Tuesday in promising a veto. "It would cause the nation to default on payments for Medicare, veterans, national security and many other critical priorities. This legislation is unwise, unworkable and unacceptably risky."
The measure comes as Washington looks ahead to another showdown over must-pass legislation to increase the government's borrowing cap. The government has reached its current debt limit of $16.4 trillion, but Congress moved in January to allow the Treasury Department to borrow enough money to meet its obligations. That unique authority expires May 18, but the government retains the ability to juggle its books to buy several more months' worth of time before facing default.
GOP leaders had hoped to spark a debt confrontation in July. However, the government's finances are doing better than expected and the debt limit may not have to be raised until September or early October.
The new legislation directs the Treasury Department to borrow money to pay bondholders and make sure Social Security is solvent.
The GOP legislation is most strongly supported by rigidly conservative House Republicans like McClintock, Steve Scalise of Louisiana and Scott Garrett of New Jersey. The idea for such GOP conservatives is that it's more important to make sure the government doesn't default on the "sovereign debt" owed to creditors than make payments on other obligations.
"Paying sovereign debt is not the same thing as borrowing money so that this institution and this town can continue to spend money," said Rep. Jeb Hensarling, R-Texas.
Rep. Earl Perlmutter, D-Colo., suggested that the legislation flies in the face of precedent as old as the republic.
"The United States of America for 235 years has treated all its creditors equally — if you're the landlord, if you get a salary, if you mow the lawn on the National Mall, you get paid at the same time that somebody who loans money to the United States gets paid," Perlmutter said. "Everybody gets paid. That's how we treat it. We don't treat it that China or Wall Street or Saudi Arabia because they've loaned us money gets paid before the nurse working at one of our VA hospitals. That's not America."
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