House Republicans Are Preparing To Trash The U.S. Economy

The following is part of an article in The Washington Post: 

House Republicans are preparing a plan telling the Treasury Department what to do if Congress and the White House don’t agree to lift the nation’s debt limit later this year, underscoring the brinkmanship newly empowered conservatives will bring to the high-stakes negotiations over averting a U.S. default, according to six people aware of the internal discussions.

The plan, which was previously unreported, was part of the private deal reached this month to resolve the standoff between House conservatives and Rep. Kevin McCarthy (R-Calif.) over the election of a House speaker. Rep. Chip Roy (R-Tex.), a leading conservative who helped broker the deal, told The Washington Post that McCarthy agreed to pass a payment prioritization plan by the end of the first quarter of the year.

The emerging contingency plan shows how Republicans are preparing to threaten to not lift the nation’s debt ceiling without major spending cuts from the Biden administration. Congress must pass a law raising the current limit of $31.4 trillion or the Treasury Department can’t borrow anymore, even to pay for spending lawmakers have already authorized. Economists warn that not raising the debt limit could cause the United States to default, sparking a major panic on Wall Street and leading to millions of job losses.

Treasury Secretary Janet L. Yellen said Friday said that the Treasury Department will begin “extraordinary measures” next week to ensure the federal government is able to meet its payment obligations but that it cannot guarantee the United States will make it beyond early June without defaulting. White House press secretary Karine Jean-Pierre reiterated Friday that the administration will not negotiate over the debt ceiling.

Treasury Department aides declined to comment on the GOP plan, and a spokesman for McCarthy did not return requests for comment.

In the preliminary stages of being drafted, the GOP proposal would call on the Biden administration to make only the most critical federal payments if the Treasury Department comes up against the statutory limit on what it can legally borrow. For instance, the plan is almost certain to call on the department to keep making interest payments on the debt, according to four people familiar with the internal deliberations who spoke on the condition of anonymity to describe private conversations. House Republicans’ payment prioritization plan may also stipulate that the Treasury Department should continue making payments on Social Security, Medicare and veterans benefits, as well as funding the military, two of the people said.

Such a move would be unprecedented and hugely controversial, and even releasing the plan could turn into a major political liability for the GOP. A hypothetical proposal that protects Social Security, Medicare, veterans benefits and the military would still leave out huge swaths of critical federal expenditures on things such as Medicaid, food safety inspections, border control and air traffic control, to name just a handful of thousands of programs. Democrats are also likely to accuse Republicans of prioritizing payments to U.S. bondholders — which include Chinese banks — over American citizens. . . .

The idea poses logistical hurdles as well. In 2011 and 2013, when similar debt ceiling crises loomed, Treasury Department officials in the Obama administration said prioritizing payments was not technically possible, given the complexity of the millions of payments the federal government makes each day.

For the plan to be binding on the Treasury Department, it would have to pass not only the House but also the Democratic-controlled Senate, and President Biden would have to sign it into law.

Even if it were enacted, a debt prioritization plan could still jeopardize the trustworthiness of the U.S. government, some experts say. The proposal would call for the government to halt payment for as much as 20 percent of money that it has already promised to spend. . . .

These efforts are expected to prove controversial even among some GOP allies. Neil Bradley, executive vice president of the U.S. Chamber of Commerce, said the business group opposes prioritizing payments.

“Prioritization doesn’t work. We had this discussion a decade ago,” Bradley said. “If the U.S. government skips its payments to America’s seniors or skips its payments to bondholders, both of those things call into question the full faith and credit of the United States government and our commitment to paying our bills. And both of them have pretty catastrophic economic consequences.”

Some Republican policy experts have been convinced such efforts would fail. Brian Riedl, a policy analyst at the Manhattan Institute, studied prioritization plans at length while he was a staffer in the offices of then-Sen. Rob Portman (R-Ohio). Riedl said such a plan would involve lopping off about 20 percent of federal spending immediately, or about $1 trillion, because revenue covers only roughly 80 percent of the $5 trillion the government spends each year. Huge numbers of people could be hurt immediately, he said, with no good way to pick between options such as forcing hospitals to deal with the cessation of Medicare payments or depriving the Defense Department of funding.

“Studying this in 2011 convinced us this would be a really bad idea and something we really did not want to happen,” Riedl said. “We didn’t end the exercise saying, ‘This is feasible and smart.’ We said, ‘Let’s avoid this at all costs because it’s going to be a disaster.'”