Democrats are hitting House Republicans over their proposal to prioritize obligations to bondholders to avoid default, accusing the party of putting Chinese banks ahead of funding key U.S. government services in a standoff over the debt ceiling.
The House Ways and Means Committee is convening on Thursday to mark up a proposal outlining how to prioritize federal spending in the event Congress can’t resolve the debt ceiling crisis ahead of the summer deadline. The legislation, dubbed the Default Prevention Act, would serve as a backup measure that Republicans say would technically prevent a default and avoid wreaking havoc on the economy.
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However, Democrats on the committee have criticized the proposal, arguing that debt prioritization is not feasible due to the federal government's outdated computer systems.
“Even if the ‘Pay China First’ strategy were possible, you can’t legislate away Republicans’ aversion to governing,” Rep. Richie Neal (D-MA), the top Democrat on the panel, said in a statement. “This legislation is a weak attempt to socialize an impossible solution while showing the American people who the Republicans are for by putting foreign bondholders before our military, our veterans, and given its tax season, the American people’s tax refunds.”
Democrats also accused their GOP counterparts of signaling that they are already preparing for a default instead of agreeing to their demands for a clean debt ceiling hike.
The GOP-led bill divides federal payments into a tiered system, outlining which groups would still receive payments even if Congress runs out of funds. The top tier includes payments toward interest on the country’s debts to several foreign governments, including China.
Payments outlined in the second tier or below will only be made if those in the top tier are completed — meaning foreign payments would be prioritized over the Defense Department, which is in Tier Two.
“The defense of our country is not a ‘Tier II obligation,’” said Rep. Don Beyer (D-VA). “The Republicans' plan to default on America's debt prioritizes paying bondholders in China overpaying our troops and our veterans' benefits. And it would wreck our economy.”
The Ways and Means Committee's Thursday markup could tee it up for a vote before the full House. House Republicans passed a similar bill in 2015, but the legislation failed to make it through the Senate due to Democratic opposition.
The U.S. hit its debt ceiling on Jan. 19, raising fears of a default. Treasury Secretary Janet Yellen said her agency would take “extraordinary measures” to prevent the U.S. from defaulting on its obligations. Still, the department will only have a few months before those measures are exhausted.
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House Speaker Kevin McCarthy (R-CA) first met with President Joe Biden in January to begin negotiations on the debt ceiling. However, that meeting ended without a binding agreement as the White House remains adamant it will not discuss federal spending until the borrowing limit is lifted.
Meanwhile, McCarthy has drawn his own line, saying that spending cuts are required, but beyond that, his party is split over which programs to ax or pare back. The stalled negotiations have McCarthy in a difficult position and mark his first major leadership test since taking the helm of speaker in January.