Toomey presses for promises to cut spending in exchange for raising the debt limit

“We’re already suffering from sub-par economic recovery because of excessive spending and deficits that have a chilling effect on growth,” he said.

If President Obama agrees to “process reforms” that would create immediate cuts in spending, Toomey said he’d back an increase in the debt limit.  

“We need to have a debate without the specter of default on our debt and talk about what we’re going to do to avoid the fiscal disaster that looms ahead,” he said. 

“It’s not too late. We’ve gotten breathing room other countries don’t have and we can fix what’s broken and correct these problems.”

The freshman senator argued that making debt service the first priority ensures the Treasury can’t default. He said the nation’s debt service is only 6 percent of the budget and that is easily covered by tax revenue, which represents 70 percent of revenues going into the Treasury Department’s coffers and provides more than 10 times what’s needed to cover debt obligations. 

“Why would we default on our debt?” he said. “We’ve had four occasions when we’ve reached our debt limit and didn’t default and we’ve never had a financial crisis when that’s happened.” 

He called the White House’s argument “shrill” for suggesting Congress agree to raise the debt limit “without any strings attached” and saying the result of not raising the limit would be catastrophic to the U.S. and global economies. 

Treasury Secretary Timothy Geithner recently called Toomey’s bill “unworkable.” 

“We understand that you define default narrowly in this context to apply only to debt service payments,” Geithner wrote in a recent letter to Toomey. “But the term is equally applicable to the broad failure contemplated in your legislation to meet other important U.S. obligations. That is how it would be regarded by global markets.”

Geithner likened the process to a homeowner choosing between paying their mortgage instead of their other financial debts such as credit cards or car payments, arguing the “damage to that homeowner’s creditworthiness would be severe.”

“Similarly, while your legislation seeks to ensure that debt service payments would continue to be made after the debt limit is reached, it does not protect from non-payment the other obligations of the United States, such as military and civilian salaries, tax refunds, contractual payments to individuals and businesses for services and goods, and many others. If payment of these obligations were abruptly stopped, the world would recognize it as a first-ever failure by the United States to meet its commitments,” Geithner wrote. 

Federal Reserve Chairman Ben Bernanke offered mixed reviews of Toomey’s legislation at a recent House panel hearing. 

“Well, it would reduce the risk of the debt limit, that’s for sure,” Bernanke said, before noting it would take “some time to put systems in place” to make the prioritization work.

“You need to [have] some notice to make that practical,” he said. The Fed acts as a payment service for the Treasury, he said, and currently it does not have the computer systems in place to distinguish between bond interest payments and other payments.

The debt ceiling was last raised a year ago, and Congress agreed to raise it three times — in 2002, 2003 and 2004 — during the President George W. Bush administration. 

Toomey said the debt-ceiling debate provides lawmakers with two big opportunities to do something about spending issues and that there’s “no time to lose” between the continuing resolution in the House and some type of balanced budget amendment or spending cap bill.  

The first avenue is through the continuing resolution proposed by House Republicans currently under consideration on the House floor that would cut $61 billion from current fiscal 2010 spending. He praised conservatives for pushing for deeper cuts beyond that amount. 

He said the Republican Study Group, which has expressed support for his debt-limit legislation, is “changing the dynamic” in the lower chamber from how much spending is growing to cutting spending and reducing the size of government. 

The current stopgap measure to keep the government running expires March 4. 

“It’s really not that draconian,” he said of the House’s spending cuts, while acknowledging the upcoming budget battle setting up in the Senate. 

On Tuesday, President Obama issued a veto threat on the CR. Congress has less than two weeks to settle their differences to ensure the government doesn’t shut down. 

“I’m not sure whether Democrats in the Senate will take up the House bill, but it’s vitally important for Senate Republicans to defend, and I would not be shocked if some Senate Democrats support it,” Obama said. “I can’t tell you how it’s going to turn out but I’m encouraged.”