Treasury reportedly making plans for payments in case of debt ceiling breach
Zachary Halaschak
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The Treasury Department is reportedly preparing a contingency plan for prioritizing payments on the government’s obligations if stalled negotiations end up with the U.S. breaching its debt ceiling.
Treasury officials are crafting a blueprint that would delay some payments to agencies after June 1, the date that the department expects it will exhaust its borrowing authority, according to the Wall Street Journal, citing people familiar with the matter.
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The contingency plan mirrors preparations made by the Obama Treasury during the 2011 debt ceiling fight, which were only made public years later.
Currently, federal agencies are allowed to submit payment files well ahead of their due dates, and the Treasury Department processes them on a rolling basis. The plan under consideration would instead force agencies to submit payments no sooner than the day before they come due.
If the Treasury Department lacks the funds to make a full day’s worth of payments, it would delay those payments until it has enough cash to do so, rather than picking and choosing which bills to pay. While there have been discussions about the plan, the Treasury Department hasn’t yet implemented the payment changes.
Still, the plan doesn’t yet include details about whether the U.S. would ensure that certain bills are paid on time, such as interest payments on Treasury debt, which are crucial to the financial system.
During the worst debt ceiling standoff in recent history in 2011, the Treasury developed a contingency plan to use incoming tax revenue to keep making payments on the principal and interest on the federal debt. Other payments would be delayed until they could be paid in full as new tax payments came in.
Prioritization of payments — for instance, interest payments — would be painful because many government programs that millions of people rely on could be in jeopardy. Then-Treasury Secretary Jack Lew testified in 2013 that prioritizing payments would be difficult because crucial government programs could be put on the back burner in favor of others.
“I don’t know how you could possibly choose between Social Security and veteran’s benefits, between Medicare and food assistance,” he said.
The Washington Examiner reached out to the Treasury Department for comment about the contingency plan report but didn’t receive a response.
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White House negotiators, led by President Joe Biden, and Republican negotiators, led by House Speaker Kevin McCarthy (R-CA), have thus far failed to reach an agreement to lift the $31.4 trillion debt ceiling, raising the odds of the country suffering a technical default.
JPMorgan Chase recently pegged the odds at 25% that the U.S. will end up hitting the deadline without a deal, odds that are increasing each day that goes by.