Debt ceiling negotiations stagnate as Bachmann downplays default risks; McConnell offers ‘Plan B’

July 13, 2011

Negotiations on legislation to raise the debt ceiling and address deficit reduction between Democratic and Republican leaders seemed to stagnate over the weekend. However, on Tuesday Senate Minority Leader Mitch McConnell offered an alternative plan should negotiations fail.As Lori Montogmery and Paul Kane reported:

Senate Minority Leader Mitch McConnell moved Tuesday to head off a potentially disastrous U.S. default by offering President Obama new authority to raise the federal debt limit without cutting government spending.

With debt-reduction talks between the White House and GOP leaders stalled, McConnell (R-Ky.) said his proposal offers a “last-choice option” for meeting an Aug. 2 deadline to raise the legal limit on the national debt. Senior Democrats privately embraced the idea, saying it could offer a detour around the looming crisis.

The proposal would transform the political dynamics of the debate, placing the entire burden for raising the $14.3 trillion debt limit on Obama. Republican lawmakers would be spared from voting to raise the limit and could shift their campaign for unprecedented spending cuts to the congressional appropriations process, where the risk of stalemate is shutting down the government instead of capsizing the U.S. economy. However, they would lose the approaching deadline as leverage to pursue their cost-cutting agenda.

The proposal is “not my first choice,” McConnell told reporters. But with a bipartisan agreement looking increasingly doubtful, he said, “we’re certainly not going to send a signal to the markets and to the American people that default is an option.”

McConnell’s proposal came as Obama warned that Social Security and disability checks could be delayed next month if the two sides fail to reach an agreement, piling fresh hardship on millions of families and putting new pressure on the sputtering recovery.

Obama’s warning of possible disruption in Social Security payments should the government pass the debt ceiling deadline has experts divided over its veracity. As Glenn Kessler explained:

The president’s language has evolved on whether $23 billion Social Security checks will get paid on Aug. 3, the day after the administration says the U.S. government will reach the debt limit.

 Last week, at a news conference, he suggested the Treasury could not make Social Security payments if it wanted to keep paying interest to bond holders and not default on the debt. Tuesday, in an interview with CBS News, he added some caveats — that there was no “guarantee” or that there “may” not be enough money.

But what if there is a way to keep paying Social Security benefits, despite hitting the debt ceiling?

The answer to this question is highly technical. The Bipartisan Policy Center report, which looked closely at the problem, is silent on this issue. We queried the administration about this when Obama made his statement last week, and got a confusing answer. In effect, we were told, the answer is complex but as a practical matter is no, because there would not be enough cash to pay benefits.

But others, including Jason J. Fichtner, a former deputy Social Security administrator during the Bush administration now at George Mason University, believes this explanation is unsatisfactory. He notes that Social Security holds $2.6 trillion in special-issue Treasury securities. Those bonds are part of the $14.3 trillion debt amassed by the U.S. government, and benefits are paid out of those securities.

 So, the theory goes, if Treasury redeemed the needed Social Security bonds, and issued new marketable Treasury bonds to make good on the Social Security bonds, it would be a one for one swap and the debt ceiling would not be increased.

A trio of GOP lawmakers, including Michele Bachmann, have argued that President Obama cannot be trusted in his statements. As Felicia Somnez reported:

A trio of conservative Republicans said Wednesday that House Speaker John Boehner (R-Ohio) should not believe President Obama on whether the country will default if Congress does not vote to raise the country’s debt ceiling by Aug. 2.

“I would encourage the speaker not to believe the president anymore, because the fact is that if he does his homework, he will find that there is such as thing as the Social Security Trust Fund,” Rep. Louie Gohmert (R-Texas) said at a news conference with Reps. Steve King (R-Iowa) and Michele Bachmann (R-Minn.), who is running for president.

King charged that the president was making a “veiled threat” by saying Tuesday that he cannot guarantee that seniors would receive their Social Security checks if the debt limit is not raised.

“We don’t believe that for a moment,” Bachmann said. “There are sufficient funds in the Social Security Trust Fund right now to ensure that they get checks.”

More from The Washington Post

Grover Norquist, the anti-tax enforcer behind the scenes of the debt debate

Congress hears outcry from business lobby on debt ceiling and deficit

Should Obama back McConnell’s debt ceiling proposal?

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