WASHINGTON – The House is scheduled to vote Wednesday on a bill that would prevent the United States from defaulting on Treasury securities held by investors in the event the federal debt limit is reached.
The vote on the Default Prevention Act (H.R. 692) comes just days before the Nov. 3 deadline for raising the debt limit.
Treasury Secretary Jack Lew said that his department will exhaust the extraordinary measures it has been using to preserve its borrowing capacity by Nov. 3. One of the extraordinary measures is the suspension of sales of State and Local Government Series securities (SLGS), which municipal issuers often purchase for their advance refunding escrows.
Under the bill, Treasury can issue new debt when the debt limit is reached solely to pay principal and interest on obligations held by the public and the Social Security Trust Funds. This new debt would be exempt from the debt limit and could not be used to compensate members of Congress. Congress would still have to raise the debt limit for Treasury to issue bonds to pay for new spending.
The House passed similar legislation in 2013. The Default Prevention Act was introduced in February by Rep. Tom McClintock, R-Calif., and it was approved by the House Ways and Means Committee in September on a party-line vote.
“This bill would do one big thing: It would guarantee that the United States will never default on its debt,” House Ways and Means Committee Chairman Paul Ryan, R-Wis., said ahead of the committee’s vote. He added that “if the United States missed a bond payment, it would shake the confidence of the world economy.”
But in the committee’s report of the bill, the panel’s Democratic members said that the legislation is effectively “a plan for an unprecedented default on the full faith and credit of the United States.” The committee Democrats said they are concerned the bill will prioritize paying debts to foreign bondholders over obligations to American veterans, troops, seniors and students.
Treasury also opposes this bill. Department spokesperson Daniel Watson wrote in a blog post last week that “it would be untenable for the United States to pick and choose which payments to default on, and is just another distraction from what Congress needs to do: take action to raise the debt limit as soon as possible.”
The Republican Study Committee, a conservative caucus of House Republicans, is supportive of the Default Prevention Act, an aide to the committee said. The RSC also released a proposal Tuesday that would increase the debt limit by about $1.5 trillion to $19.6 trillion, which is projected to be sufficient through March 2017, according to a summary of the plan.
The plan, called the Terms of Credit Act, would also create a new procedure to force action in the House to implement savings laid out by the House- and Senate-passed Budget Resolution. The House would also be required to vote on a balanced budget amendment by Dec. 31.
Under the proposal, neither chamber of Congress would be allowed to adjourn after Sept. 1 if the following fiscal year’s appropriation bills haven’t yet been passed. After the start of a fiscal year on Oct. 1, the Senate would not be able to filibuster at the start of debate on any of the appropriations bill for that year, according to the summary.
The Terms of Credit Act would also prohibit significant federal regulatory actions through July 1, 2017, with waivers allowed for health, safety and national security.
