House approves plan to pay creditors, Social Security if U.S. overshoots debt limit

The Republican-controlled House narrowly approved a plan Thursday to protect U.S. bondholders and Social Security recipients if the nation breaches the federal debt limit later this year.

With every Democrat and eight Republicans voting no, the measure passed 221 to 207 and headed to the Democrat-controlled Senate, where it faces certain death. President Obama has threatened to veto the measure, which Democrats have dubbed the “Pay China First” bill.

Republicans argued that the bill would spare the nation from the worst consequences of default if Congress is unable to reach agreement on a plan to raise the federal debt limit. The measure would permit the Treasury to continue borrowing to pay interest to creditors in the United States and abroad and to write Social Security checks.

The White House and congressional Democrats countered that the proposal would prioritize payments to foreign governments ahead of deserving Americans, including active-duty soldiers, retired veterans and victims of disaster.

“This bill would threaten the full faith and credit of the United States, cost American jobs, hurt businesses of all sizes, and do damage to the economy,” the White House said. “It would cause the nation to default on payments for Medicare, veterans, national security and many other critical priorities. This legislation is unwise, unworkable and unacceptably risky.”

The vote comes as House leaders are grappling for a strategy to deal with the debt limit, which has been suspended since Feb. 4 but will kick back into effect on May 19. Independent forecasts suggest the U.S. Treasury Department will be able to pay the nation’s bills until Oct. 1, when Congress would either need to approve additional borrowing authority or face the risk of default.

GOP leaders have threatened to block an increase unless Democrats agree to “cuts and reforms” they deem sufficient to put the nation on a path to a balanced budget. Obama has offered a compromise to replace spending cuts known as the sequester and raise taxes on the wealthy that would reduce borrowing by roughly $600 billion over the next decade — well short of the GOP’s goal.

Republicans have offered no plan other than its austere House budget, which Democrats first rejected two years ago. Republicans are refusing to enter into formal negotiations with Democrats over the budget, conceding that they will not have the leverage to shape the talks until the debt-limit deadline draws closer.

“Instead of working with us to avoid another manufactured crisis, House Republicans now seem like they are actively working to drive us toward one,” said Senate Budget Committee Chairman Patty Murray (D-Wash.).

Lori Montgomery covers U.S. economic policy and the federal budget, focusing on efforts to tame the national debt.
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