This week, Sen. Pat Toomey introduced S.163, an irresponsible bill regarding the debt ceiling that he previewed in a Wall Street Journal op-ed last week. In the House, a companion bill is being touted by the Republican Study Committee, the same group of House Republicans that earlier this month proposed draconian budget cuts that would devastate middle-class families and put more than one million jobs at risk. The Republican Study Committee represents more than 2/3 of House Republican lawmakers, including Majority Leader Eric Cantor and Budget Chairman Paul Ryan.
MISPLACED PRIORITIES: PAY THE CHINESE FIRST
Under This Plan, Republicans Would Have Government Pay China Before They Provide Earned Benefits to American Veterans & Seniors. “Senate Budget Committee Chairman Kent Conrad, D-N.D., and House Budget Committee ranking member Chris Van Hollen, D-Md., came out strongly against the legislation on Wednesday, saying it jeopardizes not only the credit system but potentially basic government services. ‘I think it is a dreadful idea,’ Conrad said. ‘Basically what they are saying is, pay China first. Are we going to forget about the American public and the things that they need? Somehow they are secondary? And paying the Chinese and the Japanese is the first priority of this country? I don’t even know how to describe that idea; it’s just a very, very bad one.’ ‘What they are saying essentially is that the full faith and credit of the American government extends to a lot of foreign countries, but it doesn’t extend to the American people themselves,’ Van Hollen said.” [National Journal, 1/26/11; The Hill, 1/26/11]
- Sen. Toomey has introduced a bill that the Treasury Department says will allow the Republicans to evade responsibility for their failure to honor America’s legal payment obligations.
- Sen. Toomey and his colleagues claim that by prioritizing payment of principal and interest on our public debt, we can avoid default. But in reality Toomey’s bill is not only “unworkable”, according to the Treasury Department, but it would do nothing to protect the creditworthiness of the United States government.
- The Treasury Department says that the public debt is not our only legal obligation – we also need to make Social Security and Medicare payments, to pay our service men and women and military contractors, and distribute Americans’ tax refunds. The government would have to stop or delay making payments on these other obligations in order to ensure that it could make payments on the debt. In basic terms, these Republicans would rather insist that payments to China, Russia and Venezuela be made ahead of payments for benefits to veterans and seniors.
- The Treasury Department says that failure to make those payments will be considered a default by the U.S. government every bit as much as the failure to pay interest on Treasury bonds – it would be a statement to the financial markets and everybody who does business with the U.S. government that we aren’t willing to honor our legal obligations.
- In short, the Treasury Department says that Sen. Toomey’s bill would not avoid any of the disastrous consequences that failing to raise the debt ceiling in the first place would lead to. These include: a massive tax on all households as a result of skyrocketing interest rates, a potentially massive devaluation of the U.S. Dollar and drastic cuts to benefits that middle-class families, veterans and seniors rely on.
- Even by Sen. Toomey’s own estimate, his bill would force the U.S. to default on one-third of its legal obligations, and in reality the number is far higher.
For more information, please see the Treasury Department’s statement on Sen. Toomey’s proposal here: http://www.treasury.gov/connect/blog/Pages/Proposals-to-Prioritize-Payments-on-US-Debt-Not-Workable-Would-Not-Prevent-Default.aspx
In addition, please see Secretary Geithner’s letter to Congress regarding the debt ceiling: http://www.treasury.gov/connect/blog/Pages/letter.aspx