WASHINGTON (Reuters) - Momentum is building among Republican lawmakers for legislation to prevent a credit default by the United States, suggesting they will fight hard for spending cuts when Congress debates another increase in the nation’s debt limit this summer.
More than 60 fiscal conservatives in the House of Representatives now support so-called “prioritization” legislation.
Prioritization would direct the Treasury to pay the interest and principal on U.S. bonds before making any other payments if the government can no longer borrow additional funds because Congress failed to raise the debt limit.
The legislation is seen as an attempt by fiscal conservatives in the House to show they are prepared for brinkmanship as Congress and the White House debate the debt ceiling in the coming months. Republicans hope to use the debt limit issue to force Democrats to cut spending and reform costly health care programs.
“A lot of members have been wanting to pass a prioritization bill for a long time so when we are having negotiations on the debt ceiling, default is not an option,” Republican Representative Steve Scalise, the head of a conservative faction in the House, told Reuters on Tuesday.
Introduced on February 25 by Representative Tom McClintock of California, the legislation has gathered 64 co-sponsors and been referred to the Ways and Means Committee.
Now House Republican leaders are backing the idea.
House Speaker John Boehner will support the debt prioritization legislation that the House Ways and Means Committee produces, a spokesman for Boehner’s office said on Tuesday. “When it comes to the debt limit, our goal is to cut spending to help create jobs, not to default,” he said.
Eric Cantor, the No. 2 Republican in the House, said last week in announcing April’s legislative agenda that he expects the House to consider prioritization legislation “in the near future.”
As President Barack Obama prepares to unveil a budget plan on Wednesday that he hopes will help him reach a deficit-reduction deal, the prioritization issue could resurrect the brinkmanship that marked an ugly fight in 2011 over the debt cap battle.
The idea of prioritizing payments on debt has been rejected by the Obama administration in the past. It has said ensuring that bond holders got paid before others would be default by another name.
Under the Republican approach, if the U.S. Treasury reached the debt limit - possibly by late July or early August - the government could continue making payments to Chinese creditors and other bondholders before making other payments such as Social Security retirement benefits and military salaries.
The House Ways and Means subcommittee, which helps oversee the Treasury Department, will hold a hearing on Wednesday to explore the administration’s ability to prioritize its payments and continue operations if the Treasury hits the debt limit.
This will happen the same day Obama is due to propose a budget that would offer cuts to big government health care and retiree benefits programs in exchange for increased tax revenues.
Similar legislation has been introduced in the Senate, but it is not expected to go anywhere with Democrats controlling that chamber.
Still, the mounting support from House Republicans suggests that they are serious about going to battle with the Obama administration over the debt limit, unlike the most recent fiscal deadlines when they worked with Democrats to keep the government operating.
It is unclear whether the Republican plan would reassure investors or whether the Treasury Department could make all of its debt payments with the cash it receives. Tax revenue does not come in at the same rate that payments are due, according to Treasury’s cash flow statements.
“It may be that you might not have enough money to pay a large refinancing,” said Steve Bell, a former Senate Budget Committee staff director who is now an economic policy director with the Bipartisan Policy Center. “It works until it doesn‘t,” he said.
The government is on track to hit the legal limit on how much it can borrow around May 19. The Treasury is expected to use emergency measures to stave off default, though that will only last until around July or August.
Editing by Alistair Bell and Lisa Shumaker