The Trump administration is rejecting a push from some conservatives to stop paying certain bills on time, instead adopting the Obama administration's argument that the U.S. government failing to make payments of any kind would risk a global financial crisis.
At issue is the country's looming collision with the debt ceiling, a legal limit on how much the Treasury Department is allowed to borrow to keep paying the country's bills. Some conservatives are more comfortable with the United States bumping up against the debt limit. They say that the inability to borrow more would force the government to prioritize the payments that matter most and that financial uncertainty would be avoided as long as the country continued making payments to its creditors.
But the Trump administration on Thursday rejected that line of argument, and some in the administration are pushing Congress to raise the debt ceiling quickly.
“Prioritizing might be technically possible, but it’s not actually feasible or even desirable,” said a senior White House official who requested anonymity to comment on internal discussions.
The comments come after a week of discordant statements from top Trump administration officials about the debt ceiling, which Treasury Secretary Steven Mnuchin says must be raised by August to ensure the government can continue paying its bills.
Mnuchin told lawmakers last week that his “preference” would be for the debt ceiling to be increased without any spending cuts. Many Democrats have said they will not support a debt-ceiling increase if spending cuts are attached.
But White House Office of Management and Budget Director Mick Mulvaney, in an interview Wednesday with the Washington Examiner, said he would “like to see things attached to [a debt-ceiling increase] that drive certain spending reforms and debt reforms in the future.”
On Thursday, however, White House officials stressed that Mulvaney was not endorsing a specific White House position and was simply referring to the principle he followed when he was in the House.
“We’ve consistently said that the debt ceiling needs to be raised and have urged Congress to act before the August recess,” OMB spokesman John Czwartacki said. “Clearly, doing so allows us to meet our payment commitments.”
The divergence between the perspectives of Mnuchin and Mulvaney represent different factions within the White House, and it feeds into different views within the Republican Party over how to handle the looming debt-ceiling issue.
“To me, that’s striking,” said Phil Swagel, a former top Treasury Department official during the George W. Bush administration. “Even though they sit together and discus the same thing, they emerged not on the same page.”
Illustrating the divide, House Speaker Paul Ryan (R-Wis.) has said he will work to raise the debt ceiling but the House Freedom Caucus, which controls enough votes to prevent Republicans from advancing any bill along party lines, has said any increase must be accompanied with spending cuts.
Mnuchin’s perspective more closely tracks with past treasury secretaries — Democrats and Republicans — who have said there should be no drama associated with raising the debt ceiling. But now the White House is more forcefully asserting itself in the debt-ceiling discussions, in part because Congress often looks to administration officials for direction on how to proceed.
“The administration’s position is that the debt limit must be increased,” White House spokeswoman Natalie Strom said. “The vehicle for increasing the debt limit is ultimately up to Congress. Even under the president’s balanced budget the debt limit will need to be increased. However, the administration will work with Congress to ensure that the debt limit is increased.”
The government spends more money than it brings in through revenue, and it borrows money to cover the difference by issuing debt. It can issue debt only up to a certain limit, however, and this threshold is known as the debt ceiling. Only Congress can raise the debt ceiling, and the U.S. government is bumping up against it now. The Treasury Department is taking some steps to delay pension contributions and other payments, but those emergency steps will expire soon, prompting Mnuchin’s call for Congress to act.
The U.S. government makes millions of payments each month, for example for government salaries, Social Security benefits and ammunition for the military. The U.S. government spent $393 billion in March, and $30 billion of that went to interest payments on the debt. It’s those interest payments that are considered the most vital by financial markets, as missing an interest payment would put the United States in default of its debt.
But it has remained unclear what would happen if the U.S. government prioritized the debt payments but postponed others. The Obama administration rejected questions about what it would do if the debt ceiling wasn’t raised, but the transcript from a 2011 conference call by Federal Reserve officials revealed that the Treasury Department had in fact planned to prioritize debt payments above others in the case of an emergency.
Moody’s Investor Service, a firm that closely tracks government debt, said in March that if the United States prioritized principal and interest payments in a way that attempted to avoid default, the government would have to cut total spending by around $500 billion over the course of a year, or 12 percent of its budget.
While Democratic leaders in the House and Senate fear the consequences of a default, they are in no mood to offer Republicans a lifeline as they struggle with their internal divisions.
Each of the past three debt-limit increases, under a Republican Congress and a Democratic president, passed with significant numbers of Democratic votes. Only 28 House Republicans voted to raise the ceiling in 2014, while 79 — about a third of the GOP conference — voted for a 2015 increase.
A Senate Democratic aide said “the onus is on Republicans” to pass an increase, while a senior House Democratic aide echoed the point and said the party’s lawmakers would be wise to step back while Republicans quarrel among themselves.
“When you’re in the majority and your president is the president who is racking up the debt, it becomes your responsibility,” said the House aide, who spoke on the condition of anonymity to describe internal deliberations. “It is not the obligation of House and Senate Democrats to solve this problem.”
The Obama administration and Congress agreed in 2015 to suspend the debt ceiling until mid-March 2017. Senior Treasury Department officials thought they would have more time to avoid falling behind on payments, but tax revenue has come in more slowly than expected this year.
Federal data and anecdotes from tax advisers reveal that a significant number of taxpayers are postponing cashing out on investments and other financial decisions, hoping to pay less later if the White House and congressional Republicans pass a huge reduction in tax rates.
The Treasury Department had $177 billion in its cash account as of Tuesday, a cash pile that it will slowly draw down while Congress and the White House debate what to do about the debt ceiling.