House Republicans revamp bill to prioritize federal debt payments

House Republicans next week will look to pass legislation allowing the government to continue borrowing money above the debt ceiling, but only to pay interest on the debt or make Social Security payments.

Members will take up the Full Faith and Credit Act, H.R. 807, from Rep. Tom McClintock (R-Calif.). But the bill that the House will consider will look very different from McClintock's original bill.

McClintock's original language did not allow any new borrowing by the government. Instead, it said that if the debt ceiling were reached, the government would have to prioritize payments for interest on the debt before making other payments.

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The bill as reported by the House Ways and Means Committee is dramatically different, as it allows new borrowing above the debt ceiling to pay interest on the debt. The committee also added interest due to the Social Security trust fund as priority item, and the bill says the government can borrow money above the debt ceiling for that reason as well.

The Social Security component was added to allow new government borrowing to cover the costs associated with selling off Social Security trust fund securities. The trust fund needs to sell securities to make benefit payments because it is now paying out more than it takes in each year.

Selling securities requires the trust fund to credit interest payments on those securities — effectively, the sale imposes an additional cost to the fund beyond the value of the securities sold. Without the bill, the government would have to use general tax revenues to make those interest payments.

But if the bill were to become law, the government could borrow above the debt ceiling to pay those interest costs.

A report from the committee accompanying the bill said focusing on these two priorities will help the government avoid a default on the debt if there were no agreement to raise the debt ceiling.

"The legislation removes the risk of default by providing a mechanism to ensure that principal and interest on debt obligations are paid," the report said. "Furthermore, it defines interest so Treasury can and must make the interest payments necessary to ensure that Social Security benefits can be paid in full."

"Obligations issued pursuant to this authority are exempt from the statutory debt limit," it adds.

House GOP leaders have said for several weeks that they would look to pass a bill prioritizing government payments in case there is no new deal on raising the debt ceiling.

Earlier this year, Congress passed the No Budget, No Pay Act, which suspended the debt ceiling through May 18. On May 19, the debt ceiling will be equal to the level of debt accumulated by that date, which means Congress will be under pressure to act before then to increase the limit again.

Budget experts estimate a debt-ceiling increase will be needed by early October.

So far, Republicans have said they want new commitments to cut federal spending as a condition for increasing the debt ceiling again. In contrast, Democrats are again looking for a clean debt-ceiling hike, and have said they would oppose the Full Faith and Credit Act.

An example of the GOP's hardline on the debt ceiling can be seen in the Ways and Means report, which notes that Congress has the authority under the Constitution to borrow money.

"It is important to note that because the power to borrow resides in Congress, the debt limit is not actually a limitation on the executive's power to borrow," the report says. "Instead, the statute containing the debt ceiling is a grant of authority to the President that he would not otherwise have."

— This story was updated at 11:39 a.m.