May 9 (Bloomberg) -- The House voted to exempt federal payments to creditors from the U.S. debt limit, signaling the start of the latest debate over the nation’s borrowing authority.
The 221-207 vote today, mostly along party lines, seeks to insulate Republicans from criticism that they would let the U.S. default on its debt. The bill has almost no chance of advancing in the Democratic-led Senate and faces a veto threat from President Barack Obama.
The House measure would ensure that U.S. government bondholders will continue to be paid and that Social Security benefits won’t be interrupted if a stand-off over the nation’s debt limit causes a cash crunch. The Obama administration would be left to decide which of the government’s other bills to pay using incoming tax revenue.
“This is in fact a strong help for anyone who would be for monetary and fiscal integrity,” Representative Pete Sessions, a Texas Republican, said in an interview today. “We did that to help, not just the president, but to make sure paying the bills didn’t get in the way” in the event there’s no agreement on raising the debt ceiling.
Eight Republicans voted against the measure, including Justin Amash of Michigan, Charlie Dent of Pennsylvania, Chris Gibson and Michael Grimm of New York, Walter Jones of North Carolina, Frank LoBiondo of New Jersey, Thomas Massie of Kentucky and Frank Wolf of Virginia.
Democrats opposed the legislation, saying it would be irresponsible to pay foreign creditors ahead of Americans who need their government checks.
“I call it the ‘pay-China-first’ bill, because what it really means is we’ll pay China before we’ll pay veterans, before we’ll pay seniors, before we’ll pay contractors,” Maryland Representative Steny Hoyer, the second-ranking House Democrat, told reporters this week. “We’ll pay China first.”
Senate Majority Leader Harry Reid, a Nevada Democrat, also criticized the measure.
“If that legislation were used in a model government class in eighth grade it would get an F,” Reid told reporters after the House vote today. “It would put the full faith and credit of the United States in jeopardy and they know that.”
The reason for the measure -- referred to as a debt-prioritization bill -- is simple: House Republicans won’t agree to a debt ceiling increase later this year without equal spending cuts. That could lead to a months-long standoff with Obama and Senate Democrats.
Republicans maintain they’re thinking ahead about handling the debt ceiling and the Senate would be wrong to not consider the measure.
“The Senate would be opting for another showdown, another unnecessary round of uncertainty if they weren’t to take this bill up,” said Representative Kevin Brady, a Texas Republican. “It makes sense to do this unless you want to flirt with default, which we don’t. Why not take it off the table?”
Congress voted at the end of January to suspend the nation’s $16.4 trillion debt limit until May 19, temporarily removing the risk of a default. When the ceiling is restored May 19, it will be increased to reflect the government’s borrowing during the past few months.
The Treasury Department can ward off a default for several months beyond May by shifting money among government accounts. The latest estimates are the limit would be reached in September.
“Our goal here is to not default on our debt. Our goal here is to get ourselves on a sustainable path from a fiscal standpoint,” House Speaker John Boehner, an Ohio Republican, said in a Bloomberg Television interview May 7. “Doing a debt prioritization bill makes it clear to our bondholders that we’re going to meet our obligation.”
The bill, H.R. 807, would exempt from the limit federal payments on the principal and interest owed to bondholders. That would help ensure the government wouldn’t default on those payments even if incoming tax revenue on any given day wasn’t enough to cover the obligations.
To ensure that Social Security benefit checks aren’t interrupted, the measure would exempt interest payments to the Social Security trust fund. It also would require the Treasury to provide a weekly report to Congress accounting for all the exempted payments made.
The Obama administration opposes the Republican measure, saying it masks the real issue.
Missing any of the government’s bills, regardless of who is owed, would be “another form of default -- you’re just choosing what to default on,” Treasury Secretary Jacob J. Lew told the House Budget Committee last month.
Boehner said the bill takes a fair approach.
“Those who have loaned us money, like in any other proceeding, if you will, court proceeding, the bondholders usually get paid first. Same thing,” Boehner said in the Bloomberg Television interview.
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