Debt ceiling: Yellen says no plan for prioritization has been discussed with Biden
Zachary Halaschak
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Treasury Secretary Janet Yellen said that despite the government hitting the debt ceiling months ago, there has been no plan for prioritizing payments presented to the president.
As lawmakers struggle to come to an agreement about raising the debt ceiling, every day gets closer to when the Treasury runs out of room to maneuver under the debt ceiling and fails to make a payment an obligation. If that happens, the Treasury must make some tough choices about what to pay and what to allow to lapse — Yellen said Friday that no plan has been discussed with President Joe Biden.
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“If Congress fails to do that, it really impairs our credit rating. We have to default on some obligation, whether it’s Treasurys or payments to Social Security recipients,” she told Bloomberg during a TV interview. “That’s something America hasn’t done since 1789. And we shouldn’t start now. So we’ve not discussed what to do.”
Prioritizing payments — that is, paying some bills while allowing others to go unpaid — has been discussed in the context of past debt limit standoffs, but officials have repeatedly said that doing so would not be feasible. But if negotiations fail to pan out, a reality that would be the worst-case scenario, the Treasury could be forced into doing so.
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.
Yellen stressed on Friday that while the notion was discussed, then-President Barack Obama wasn’t involved and didn’t greenlight the plan.
“My understanding — I was at the Fed in 2011 — is that this plan was never presented to the president and never approved,” Yellen said.
Prioritization of payments would be painful because many government programs that millions of people rely on could be in jeopardy.
For instance, if interest payments were prioritized, Social Security payments could be delayed, border control and air traffic control could be left temporarily unfunded, and things such as government-funded school lunches could be at risk.
“It’s not like they will have no money. They just won’t have enough, and so they’ll have to figure out what they pay and what story they’ll tell in the capital markets about how soon it will all be fixed,” Robert Van Order, professor of finance and economics at George Washington University, told the Washington Examiner this week.
It would also be difficult to do. Many economists and officials have pointed out the complexity, both practically and technologically, of being forced to prioritize payments.
Republicans already released legislation that they hoped would serve as a road map in a potential detente on the debt ceiling. The legislation, the Default Prevention Act, would serve as a backup measure that Republicans say would prevent a default on the debt by skipping payments on other government spending, thereby avoiding the worst harms to the economy.
Yellen announced recently that the U.S. may be unable to pay its obligations as soon as June 1. While likely a conservative estimate, that is sooner than many economists and officials had expected, further adding urgency to negotiations between Republicans and the White House.
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While in debt ceiling standoffs in years past, Senate Minority Leader Mitch McConnell (R-KY) has taken up the negotiating mantle for Republicans, McConnell has made it clear that this time around, House Speaker Kevin McCarthy (R-CA) is playing a central role.
McCarthy offered up a plan that would raise the debt ceiling over the next year either by $1.5 trillion or until March 31, 2024, whichever comes first. But the plan would cut back on spending and includes machinations that are unpalatable to Democrats in the Democratic-controlled Senate, such as beefed-up work requirements for welfare.