Yes. And that might mean no. It’s complicated, and caught up in an intense ongoing partisan struggle, which makes it difficult for anyone to analyze dispassionately. But let’s give it a try.
Everyone is so concerned about our recent habit of debt ceiling standoffs between Congress and the President because if these tense negotiations fail to raise the statutory debt limit by the time Treasury’s ability to manipulate its accounts runs out—a result that neither side desires—it would mean that the United States would be unable to make timely payments on its debt service, to its many employees and contractors, or to the millions of Americans who depend on transfers of various sorts. The most disastrous economic consequences would come from the reputational damage to America’s creditworthiness, which would be caused most directly by a failure to make interest payments to debt holders on time. The most disastrous political consequences would come from the specter of seniors who depend on their Social Security checks finding themselves scrambling to keep the lights on.
Republicans thus have a proposal: they will remove the possibility of missed debt payments or Social Security checks. Their vehicle for this change is the very simple Default Prevention Act (H.R. 692), which the House Ways and Means Committee recently advanced. The 377-word bill would put two holes in the debt ceiling for a cash-strapped Treasury to pop its head through in an emergency, one for debt service and one for Social Security. The statutory debt limit would still remain at the same number, but the Treasury could issue debt for these purposes that would effectively not count against that limit. This would essentially be a partial rolling back of the debt limit; two of the most important areas of Treasury operations would now be subject to an alternative system of congressional control involving extra congressional oversight (the bill has heightened reporting requirements for any debt issued in this way) instead of the debt ceiling.
Republicans are eager to tout the merits of their proposal. Committee Chairman Paul Ryan (R-WI) emphasizes what a big confidence boost the economy would get from “tak[ing] default off the table,” and his committee has a shiny new page entitled, “Default? Not on our watch.” By their lights, this bill is a pure process improvement, ensuring that commitments are met but without “raising the debt limit.” Any future debt ceiling showdowns will be less hazardous than those of the recent past. What’s not to like?
A lot, say Democrats, all of whom voted against the bill in the Ways and Means Committee. Ranking Member Sander Levin (D-MI) offers a quick rebuttal entitled, “Experts agree: Prioritization is ‘default by another name.’” (That quotation comes from a not altogether disinterested party, Secretary of the Treasury Jack Lew.) Law Professor Neil Buchanan, author of a very useful exploration of the recent debt ceiling fights, is apoplectic, headlining his reaction, “House Republicans’ Deep Cynicism: Pay the Rich and Play Politics With Everyone Else.” Why are they so against this limited de-limiting of the debt?
Rather than this bill in particular, much of their ire is directed more generally against “prioritization,” which is the idea that an inability to expand the debt would force government to make some payments rather than others from its cash flow (which is somewhat erratic on a day to day basis). Many Republicans who have downplayed the risks from the debt ceiling fights have claimed that prioritization always existed as an option to ensure that vital payments could be made on time, even without any legal changes. Democrats and the Treasury Department are right to vigorously contest these assertions: logistically, prioritization would be a dicey proposition; legally, it has no basis and would thus be (or at least seem) deeply arbitrary; constitutionally, it is a monstrosity for Congress to pass a set of mutually inconsistent laws and then expect the President to just sort it all out somehow. To the extent that the Default Prevention Act codifies the idea of prioritization, then, it seems like a bad idea.
That line of argumentation is mostly incoherent. By changing the existing statutory framework, the Default Prevention Act would allow—indeed, codify—prioritization, thus removing the thorniest legal and constitutional difficulties when it comes to debt and Social Security payments. The feasibility of making debt and Social Security payments in full and on time while other payments are withheld could be addressed, not instantaneously, and perhaps not in time for this year’s crisis, but certainly before too long. It’s not as if it is logically impossible to separate these things out, just that configuring government computer systems can’t and won’t happen right in the moment of a crisis. But changing the law could set a system change into motion well in advance.
True, because the Default Prevention Act addresses only debt and Social Security payments, it would not resolve the difficult questions about what else ought to be paid for, and when, out of the government’s cash flows. To that extent the improvement it offers is a limited one, and I have argued we would be far better off if we did away with the debt ceiling altogether. But why should a limited improvement should be so offensive?
The answer is that Democrats fear that a less scary debt ceiling breakdown will be a more likely debt ceiling breakdown, with Republicans far more willing than before to hold firm in their demands attached to debt ceiling increases. Several Democratic members voiced fears that once Republicans have planted the “no default” flag, they will be ready to hurl themselves into a debt ceiling fight with renewed fervor, rather than moderating the logic of the hardline anti-spending wing of their party.
And then Democrats say that the point where we’d end up, in which debt service and Social Security recipients are able to go on as normal but everything else is still thrown into chaos, would be just “default by another name,” and we would in fact be no better off for having the Default Prevention Act in place. That strikes me as bluster. Debt market participants are mostly sophisticated (indeed, this is the basis for the rather overwrought cry that Republicans are out to ensure that “China and rich people” get paid first) and if they saw their future interest payments as no longer subject to any debt ceiling, it is hard to understand why they would think those payments were less certain to be made on time, regardless of how badly other things were going.
Even if these claims that everything would be just as bad even if debt payments got made are dubious, Democrats’ broader case makes plenty of sense given their concerns. The President is actually extremely advantaged in any debt ceiling standoff under the current “pass or total disaster” status quo; presumably that advantage would shrink if we move to a “pass or mostly disaster” regime. And maybe negotiations would be more likely to go off the rails with the reform in place, with consequences that would be plenty damaging enough to millions of normal Americans and to America’s reputation as a reliable partner.
Does that worry justify opposing a partial, imperfect reform of the debt ceiling? I wonder if anyone stands sufficiently aloof from the dynamics of the partisan budget fights to give an answer untainted by strategic considerations. For my part a world with the Default Prevention Act passed into law would not strike me as a much scarier place. Probably President Obama’s veto pen means that the symbolic rhetoric flying back and forth is more important than the substantive policy questions for now.