As part of the Republicans’ debt ceiling plot, the party recently come up with one of the worst ideas in the history of bad ideas: a debt prioritization scheme. As Axios reported, Treasury Secretary Janet Yellen has already rejected the GOP’s unfortunate pitch.
Treasury Secretary Janet Yellen is ruling out a potential proposal from House Republicans that calls for triaging payments after the exhaustion of “extraordinary measures” to avoid default on the federal debt. ... The draft GOP proposal, reported by The Washington Post, would buy time on the debt limit. But the debt prioritization it leans on would essentially be picking winners and losers on who gets paid, pitting Social Security recipients against, say, U.S. military personnel.
Speaking briefly to reporters during a diplomatic visit to Senegal, the cabinet secretary, explained, “Treasury systems have all been built to pay our bills, to pay all of our bills when they are due and on time and not to prioritize one form of spending over another.”
For those who might’ve forgotten what this is all about, let’s revisit our coverage from last week.
The whole point of raising the debt ceiling is to do precisely one thing: allow the United States to pay its bills and meet its financial obligations. That’s it. That’s why this has to happen. Republicans are preparing a hostage crisis in which GOP lawmakers will only allow the United States to pay its bills if Democrats agree to a series of unspecified demands set out by Republican leaders.
If Democrats refuse to go along with the extortion scheme, the U.S. government will default on its obligations for the first time and an economic catastrophe will ensue.
The Washington Post was first to report that House Speaker Kevin McCarthy, as part of his desperate bid to receive the gavel, reached a “private deal” with his members to push an "emergency" plan related to the party’s debt ceiling crisis.
Under the scheme, GOP officials would direct the Treasury Department to prioritize some obligations above others. In other words, Republicans would effectively tell Yellen, “If we refuse to do our jobs, you won’t be able to pay all of the nation’s bills, but you will still be able to pay some of the nation’s bills, so you should first pay for Social Security, Medicare, veterans benefits, the military, and interest on the national debt.”
The first reason this is stark raving mad is that the Treasury Department would be under no obligation to follow such instructions, since the plan would have no force of law. It would represent little more than a suggestion from the hostage takers about what they’d like to see happen after they shoot their hostage.
The second reason this is stark raving mad is that it would create an obvious political nightmare for the Republicans who support such an approach. As the Post explained, “A hypothetical proposal that protects Social Security, Medicare, veterans benefits and the military would still leave out huge swaths of critical federal expenditures on things such as Medicaid, food safety inspections, border control and air traffic control, to name just a handful of thousands of programs. Democrats are also likely to accuse Republicans of prioritizing payments to U.S. bondholders — which include Chinese banks — over American citizens.”
The article quoted a senior Democratic aide who said, “Any plan to pay bondholders but not fund school lunches or the FAA or food safety or XYZ is just target practice for us.”
The third reason this is stark raving mad is that even if the Treasury Department were to take the GOP’s suggestion seriously, it wouldn’t prevent the dire economic consequences: Republicans would still cause a crash.
But even if we put all of these concerns aside, the point the Treasury secretary emphasized was that such a plan literally cannot work: Our government simply doesn’t have the mechanisms to execute a plan in which some bills are paid, while others are put aside.
When Tea Party Republicans helped create the first debt ceiling crisis 12 years ago, there was similar talk about “partial” default and “debt prioritization” schemes in which the country would only discard some of its bills. The Obama administration explained that it lacked the wherewithal to do anything of the kind, even if it wanted to, which it didn’t.
More than a decade later, McCarthy and his cohorts apparently forgot the lesson, so Yellen is reminding them of how the system works.