Beyer Statement On Republican Default Plan
Washington, March 8, 2023
Rep. Don Beyer (D-VA), the Senior House Democrat on Congress’ Joint Economic Committee and a member of the House Committee on Ways and Means, issued the following statement today on updated Republican legislation due for markup tomorrow directing the Treasury Department to prioritize certain payments in the event of a debt limit breach:
“The first thing that struck me reading Republicans’ debt prioritization legislation is that their bill would prioritize paying Chinese bondholders over American troops, veterans, police, schools, hospitals, and more. To be clear, defending our country is not a ‘Tier II Obligation.’
“The premise of the Republicans’ bill is misguided and wrong. Former Treasury Secretaries from both parties say the idea of ‘debt prioritization’ is unworkable, and leading economists say it would not prevent an economically catastrophic default. In fact, by pretending this absurd prioritization scheme is viable at all, this bill makes default more likely.
“There is a serious risk that our colleagues on the other side of the aisle actually believe this would prevent a default. It absolutely would not prevent a default, which in turn would cause a recession and a global financial crisis, cost millions of jobs, and immediately inflict economic pain on huge swathes of the country. We must not allow that to happen.
“Debt prioritization is simply a plan to default on America’s debt. Instead of driving our economy over a cliff by forcing a default, the rational thing for Republicans to do is to simply avoid the cliff altogether by raising the debt limit. They should just do that now.”
The amendment in the nature of a substitute offered by Ways and Means Chairman Jason Smith (R-MO) would completely rewrite the original “Default Prevention Act” introduced by Rep. Tom McClintock (R-CA,) creating a 5-tiered system of obligations which the Department of the Treasury would be required to pay in order in the event of a debt limit breach.
That hypothetical scenario, however, rests on legally dubious and economically unsound foundations. In the event of a breach, credit rating agencies would likely treat failure to pay other financial obligations as a failure to uphold the full faith and credit of the United States government. This would have systemic and cataclysmic effects for the international finance system, which is largely tied to U.S. Treasury bonds, comparable to the 2008 financial crisis, according to analysis by Moody’s Analytics.