This post has been updated.
With less than two weeks until the federal government is expected to reach its borrowing limit, House Republican leaders are readying a vote on legislation intended to avoid a financial meltdown should that ceiling be reached.
The House Rules Committee said Friday it will take up the Default Prevention Act once Congress returns to business next week, meaning the bill could hit the House floor as soon as Wednesday.
The Default Prevention Act, which was advanced by the Ways and Means Committee last month, would allow the federal government to keep borrowing above the statutory debt limit for the sole purpose of paying principal and interest on debt held by the public or the Social Security Trust Fund.
In other words: If Congress fails to raise the debt limit, holders of Treasury bonds would still be paid and Social Security recipients would still get their checks. That, advocates say, could help allay Wall Street anxiety as lawmakers approach the brink of default.
A similar bill passed the House ahead of a 2013 debt-limit deadline but was not taken up by the Democratic leaders in the Senate.
Treasury Secretary Jack Lew told Congress Thursday that the federal government will reach its borrowing limit on Nov. 3, heightening the pressure on outgoing Speaker John A. Boehner and House Republicans who are amid a scramble to replace him as leader ahead of his planned Oct. 30 departure.
“None of us wants to hit the limit,” Ways and Means Chairman Paul Ryan (R-Wis.) said last month at a markup for the bill. “But if the United States missed a bond payment, it would shake the confidence of the world economy. All kinds of credit would dry up: loans for small businesses, mortgages for young families. We could even go into a recession. So this bill takes default off the table.”
Democrats oppose the bill, calling it a cop-out that would pave the way for a partial government shutdown where military members and federal workers would go without paychecks, doctors and hospitals would go without Medicaid and Medicare payments, and federal contractors would be hung out to dry.
Rep. Sander M. Levin (D-Mich.), ranking member of Ways and Means, called the bill “reckless and indefensible” last month and doubted whether the bill could even be implemented under current Treasury systems and procedures.
“Even if such prioritization were possible, it would put China and other foreign bondholders before our own citizens at a time when they can least afford it,” he said.
Daniel Watson, a Treasury Department spokesman, addressed the Republican proposal in a blog post Friday, saying there are “no easy outs and no escape hatches.”
“Proponents of this legislation claim that missing payments on some of our obligations, while prioritizing principal and interest, would be acceptable,” he wrote. “On the contrary, it would be untenable for the United States to pick and choose which payments to default on, and is just another distraction from what Congress needs to do: take action to raise the debt limit as soon as possible.”
A Boehner aide said Wednesday that a debt limit increase remains on a list of potential issues he hopes to resolve before leaving office.