If the United States government defaults on a debt payment, it would do serious harm to the U.S. economy—and, worst case scenario, could possibly put us back in a recession. That’s why on Thursday, the House Ways and Means Committee is marking up H.R. 692, the Default Prevention Act, a bill that will take away the threat of default, as well as developing a plan for fiscal responsibility with H.R. 3442, the Debt Management and Fiscal Responsibility Act, a bill sponsored by Ways and Means member Rep. Kenny Marchant (R-TX).
Introduced by Rep. Tom McClintock (R-CA), the Default Prevention Act would put the necessary measures in place to ensure the Treasury Department makes good on its debt payments in the unlikely event that the statutory debt ceiling is breached. In simpler terms: It’s an important safeguard for our economy that takes default off the table. Here’s why:
We must make it clear that the U.S. will not default.
Missing a debt payment, or defaulting, would warrant a credit rating review, weaken the economy, and tarnish our economic standing in the world. This is an unacceptable outcome.
So, this bill will eliminate that threat.
To avoid default, this bill requires Treasury to roll over any principal and interest due on our current debt in case the debt limit is not raised. It allows Treasury to issue debt outside the limit solely to pay principal and interest on our current debt, as well as obligations to the Social Security trust funds.
Social Security, did you say?
Yes, this bill protects our seniors and people with disabilities. H.R. 692 gives Treasury all the authority it needs to ensure the U.S. never misses a debt payment and that Social Security benefits are paid in full and on time. This means the president can continue making all Social Security payments, in the event the debt limit is not raised before it’s reached. The bill simply allows Treasury to access the debt already credited to the Social Security trust funds because this debt counts against the limit.
Is this essentially another way of raising the debt limit?
No. Let us be clear: This legislation does not increase the debt limit. To avoid default, H.R. 692 requires Treasury to roll over principal and interest payments by issuing debt outside the limit. But this legislation prevents Treasury from issuing new debt to pay for any new spending—unless Congress passes a law to increase the debt limit.
Hmm . . . sounds like Washington is spending too much money.
Indeed. Though the Congressional Budget Office estimates federal revenues will rise by $230 billion (or 7.6 percent)—about twice the rate of economic growth—this year alone, our national debt will still surpass the current $18.1 trillion debt limit. If we really want to bring our debt under control, we must reform important federal programs and rein in wasteful Washington spending.
This is also why the committee will consider the Debt Management and Fiscal Responsibility Act. Rep. Marchant’s bill aims to establish a new debt limit communication framework that enhances accountability, reduces disruptive risk, and returns the focus to finding debt reduction solutions. The legislation requires the administration to appear before Congress prior to each potential debt limit increase and provide testimony and detailed reports on: the national debt and its key drivers; explicit short-, medium-, and long- term debt reduction proposals; and progress on debt reduction.
Both of these bills demonstrate that Republicans want a debt limit process with more stability and less risk. And so while the Ways and Means Committee continues to provide solutions to our spending problem, we can also provide certainty for our economy and financial markets by taking the threat of default off the table. And that’s just what we’ll be tackling on Thursday.