If Congress doesn’t raise debt limit, can government choose bills to pay?

WASHINGTON – As the standoff between President Barack Obama and congressional Republicans over a government funding bill and raising the nation’s borrowing limit deepens, Republicans, including 2nd District U.S. Rep. John Kline, have begun to argue that the U.S. Treasury will be able pay interest on the debt even if it can’t pay other bills.

These fiscal fights have been buried in an blizzard of Beltway buzzwords. So to be clear, raising the so-called debt ceiling does not entail allowing the government to necessarily spend more money.  Raising the limit is required because past decisions by Congress and the president on spending and taxation require additional amounts of new borrowing above the current $16.7 trillion dollar debt limit.

Kline and others in GOP (including 6th District Rep. Michele Bachmann during the last debt ceiling standoff in 2011) say in effect that if the debt ceiling isn’t raised, the nation wouldn’t be considered in default so long as holders of government debt get paid, even if that means that other portions of the government don’t get funded because the the Treasury lacks the funds.

In the course of an interview last week for a story about the fiscal fights currently underway, Kline made a specific claim about the Treasury’s abilities, reproduced in transcript form below with my italics added:

NEELY: Do you think it’s dangerous though if we breach the debt ceiling? Do you think there will be economic damage?

KLINE: I think it’s not a good thing, but you’ve got a lot more flexibility with the debt limit than you do with a continuing resolution because the government has the authority to spend money, it simply doesn’t have enough. But the Secretary of the Treasury has the ability to pay different parts of the obligation where with a [a government funding bill] or failure to have an appropriation, they don’t.

While acknowledging that breaching the debt ceiling is “not a good thing” (most economists believe a breach would cause interest rates and unemployment to spike while sending global markets into chaos), Kline minimizes the potential chaos that such an outcome could produce.

To be clear — many budget experts disagree with Kline’s conclusion.

Prioritizing government payments in the event the debt limit isn’t raised is “impossible to do,” said Tony Fratto, a former Treasury official during the George W. Bush administration. “The only thing I can say is that [Kline is] not aware that what he thinks is possible is impossible.

Prioritization won’t work, Fratto said,  because the Treasury receives millions of requests for payments every month that come in varying sizes and at all times while revenues arrive “lumpy” with large amounts coming in some months (such as the end of a quarter when many businesses make regular tax payments) rather than smoothly throughout the year.

“My only answer for why people think they can do it is that it’s people who have never, ever looked at a daily Treasury statement,” said Fratto.

For example, the Treasury’s statement for Sept. 18 shows incoming revenues of $19.4 billion and expenditures of $20.9 billion.  In the event of a debt ceiling breach, Fratto says there’s no system for the Treasury to prioritize who would get paid and who wouldn’t.

Fratto, who’s now a partner with the Washington public affairs firm, Hamilton Place Strategies, has been openly frustrated with his political party’s insistence on using the debt ceiling to negotiate policy with the executive branch.

“It’s worse than problematic, it’s stupid. It’s self-defeating.  It’s stupid.  There’s no likelihood of success. There’s no good outcome to using the debt ceiling this way,” said Fratto. “This is crazy. It’s completely irresponsible and wrong.”

While Obama points to the 2011 debt limit negotiations with Congress as an unprecedented event, Fratto says there were negotiations between Congress and the administration in the past. It’s just that “the ask wasn’t as big.” Fratto cites Congress asking for particular nominees or pet projects to be accelerated rather than the broad demands to slash spending like the ones congressional Republicans succeeded in enacting in 2011.

Given the destructive potential for both the American and world economies, Fratto believes it’s time to scrap the borrowing limit, in part because Congress has established and voted on the tax and spending policies that are the ultimate drivers of government debt.

“It’s almost like an abdication, they’re literally begging the president to do something he really shouldn’t have to do,” said Fratto.

  • Trutherator

    Can’t prioritize? Baloney a thousand times over Baloney.

  • Fred Garvin

    So, when the Obama regime bailed GM out, and in the process screwed over hundreds of public pensions holding GM stocks & bonds in favor of the union thugs to the tune of BILLIONS, it was just fine.
    Obama doesn’t care about a default–he cares about Obama’s legacy of nothing but hope.
    Obama’s chicken lttile routine is getting old–just check out his sequester predictions for the rerun.