Economy

GOP-led ‘debt prioritization’ push to help prevent default draws mixed reviews

A GOP-backed push to lay out a plan for the government to prioritize certain payments if the Treasury runs out of emergency measures to prevent a default is picking up some traction as both parties dig in their heels on the debt ceiling battle.

But while the idea of so-called debt prioritization is gaining legs among some Republicans in both chambers, it’s getting a lukewarm reception from others and has some experts scratching their heads.

A bill recently passed out of the GOP-led House Ways and Means Committee would require the Treasury Department to prioritize payments for principal and interest on debt held by the public, as well as benefits for Social Security and Medicare, among a few other obligations, if the debt limit is breached. 

Some House Republicans are urging swift passage in the House for the bill, known as the Default Prevention Act, as the party draws red lines around working with Democrats to raise the ceiling without steep cuts or significant fiscal reforms.

“Our house is burning down. I think we’re waiting too long to call the fire department,” Rep. Mike Kelly (R-Pa.), who serves on the House’s chief tax-writing committee, told The Hill last week.


He said the House should “absolutely” move quickly on the measure.

A group of Republican senators also revived a legislative effort earlier this year outlining obligations for the Treasury to prioritize the national debt in a similar scenario, though the bill faces tougher odds getting past the Democratic-led Senate. But that doesn’t mean all Republicans are thrilled about the prospect. 

Pressed about the concept on Thursday, Sen. Lisa Murkowski (R-Alaska) said she understood the “need to have things in your back pocket to understand that, if in the event we had to, we were in this situation, how would you proceed in a manner that, perhaps, least disruptive.”

“But again, I don’t think we should be planning for defeat, or planning for default,” she added. “Let’s plan for success. Let’s address this, while there’s still time on the clock.”

While Sen. John Kennedy (R-La.) said he hadn’t seen the House bill, he told The Hill on Thursday that he didn’t “see the advantage” of a debt prioritization plan. 

“I need to just study it some, but we’re gonna raise the debt limit or we’re not,” he said, “and can prioritize your debt in a way that delays the decision, but sooner or later, you have to make it.”

Backers of the House bill argue the idea could remove the threat of a national default — an outcome experts say would be catastrophic for the country — by seeking to require the government to stay on top of principal and interest payments, while also prioritizing payments on entitlements, defense and veterans programs. 

But Democrats and some experts have panned the approach as dangerous, saying such a move would put at risk other important programs not mentioned in the text.

“We are saying here China, which has about 1 trillion of America’s debt, will be paid first,” Rep. Richard Neal (Mass.), top Democrat on the House Ways and Means Committee, said during a markup hearing on the bill last week. 

Neal is referring to the multitiered system for payment outlined in the bill. The first tier outlined refers to payments on principal and interest on debt held by the public, in addition to trusts funds for Social Security and Medicare. The second tier applies to obligations for the Department of Defense and “benefits under laws administered by the Secretary of Veterans Affairs.” 

Programs that fit outside the classification would fall into subsequent tiers, including pay for members of Congress, the president and the vice president, which is ranked in the last two tiers.

“That means that the nursing homes will go under in your respective congressional districts, while this legislation pays China first. That issue is not in dispute,” Neal said during the hearing, while taking issue with where programs like Medicaid would fall on the list. 

The pitch for debt prioritization has also been met with pushback from Treasury Secretary Janet Yellen, who cast the effort to senators on Thursday as “an exceptionally risky, untested, and radical departure from normal payment practices of agencies across the federal government.”

“Prioritization is effectively a default by just another name,” she argued. She also doubted the plan’s feasibility, noting the government makes millions of payments daily and the agencies’ systems “are built to pay all of our bills on time and not to pick and choose which ones to pay.”

The secretary’s assessment has drawn mixed opinions from experts. Some say the agency could have the capacity to make applicable changes to its systems, if need be. But there is agreement among experts that such a path could pose dangerous risks. 

“Instead of defaulting on the bondholders you’re defaulting on SNAP [Supplemental Nutrition Assistance Program] recipients,” George Hall, economics professor at Brandeis University, said Friday. “The government has lots and lots of contracts out there, lots of employees and things like that. Pick any department.”

Bill Gale, a senior economic studies fellow at Brookings Institution, also argued the bill “can’t prevent” a default, saying.

“If the government promises you money, and doesn’t pay it, in economic terms, it’s a default, whether you’re a bond holder, or a Social Security beneficiary, or a Medicaid beneficiary or TANF [Temporary Assistance for Needy Families] beneficiary,” he added.