Sen. Pat Toomey introduced a bill Tuesday aimed at laying out a path for the federal government to avoid default on its obligations if the debt limit is not raised in the coming months.
“We need to take the default scare tactics off the table so both sides can sit down at the table and have a serious and honest conversation about cutting spending and instituting structural reforms to put our country’s finances on a sustainable path,” said Toomey, a newly elected Republican from Pennsylvania.
“The Full Faith and Credit Act will allow us to have that conversation by eliminating the possibility for default in case the debt ceiling is not raised,” he said.
The text of Toomey’s bill is only 98 words long. It is co-sponsored by 16 other Republican senators, including six out of his 13 members from the current freshman class. It is intended to give the Treasury Department instructions on prioritizing the use of taxpayer funds in the event that government debt, which is closing in on $14.1 trillion, hits the debt limit, which is $14.3 trillion.
There is disagreement among congressional Republicans over whether Toomey’s idea is legitimate, with some of the GOP’s most expert and authoritative voices on spending matters highly skeptical that it would work.
The essence of Toomey’s idea, some Republican staffers said privately, is to take the administration’s “sky-is-falling” trump card off the table. They are trying to deprive the White House of the upper hand in the showdown over spending that will arrive in a few months when the debate over the debt limit begins in earnest.
Conservative Republicans still remember how the $700 billion TARP bailout was passed in late 2008 when then-Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke went to Capitol Hill and told top lawmakers that the consequences of not passing the spending package were literally unthinkable.
Toomey’s bill would “require that the government prioritize all obligations on the debt held by the public in the event that the debt limit is reached.”
“In the event that the debt of the United States Government, as defined in section 3101 of title 31, United States Code, reaches the statutory limit, the authority of the Department of the Treasury provided in section 3123 of title 31, United States Code, to pay with legal tender the principal and interest on debt held by the public shall take priority over all other obligations incurred by the Government of the United States,” the bill says.
That means the Treasury would prioritize interest payments on government debt, ensuring that there is no default, and then pay for whatever else in the federal budget it could. Someone or some programs would likely be shortchanged, whether it was contractors due payment, or Social Security recipients, or government employees.
Toomey argued in the Wall Street Journal last week that such a scenario is not his preference, and that while it would not result in default, it would force spending cuts probably beyond what even he and most conservatives want to inflict, at least in such short order.
“If we do not raise it, the government’s tax revenue will enable us to fund roughly two-thirds of projected expenditures, including interest payments,” Toomey wrote. “Without the ability to borrow the other third, spending cuts would be sudden and severe: Projects would be postponed, some vendor payments would be delayed, certain programs would be suspended, and many government employees might be furloughed. Default would easily be avoided, but these cuts would certainly be disruptive. That’s why I hope we can avoid this scenario.”
The co-sponsors of the bill include Senators John Barrasso of Wyoming, Roy Blunt of Missouri, Saxby Chambliss of Georgia, Tom Coburn of Oklahoma, Jim DeMint of South Carolina, John Ensign of Nevada, Mike Enzi of Wyoming, James Inhofe of Oklahoma, Johnny Isakson of Georgia, Mike Johanns of Nebraska, Ron Johnson of Wisconsin, Mark Kirk of Illinois, Mike Lee of Utah, Rand Paul of Kentucky, Marco Rubio of Florida, and David Vitter of Louisiana.