‘Debt Prevention Act’ Wouldn’t Live Up to Its Name

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The House Ways and Means Committee has approved a measure that supporters incorrectly claim would prevent federal defaults if the statutory debt limit were reached.

The legislation attempts to prioritize which payments the government would make in that situation, with the Treasury no longer able to pay all of its obligations. Under the measure, all debts not related to Social Security and debt held by the public would be left unpaid.

But Phil LaRue, director of government relations for The Concord Coalition, says this “Debt Prevention Act” — approved by the committee last week — would not actually prevent a default “because failure to pay any government obligations is still a default and would be seen as such in global markets.”

Such debt prioritization bills fail to address underlying structural imbalances in the budget and may actually raise the likelihood of default by fostering the impression that its effects would not be severe.

LaRue says Congress should consider replacing the current debt limit mechanism in favor of one that better holds lawmakers accountable for policy choices that increase government borrowing.

Treasury Secretary Jack Lew again urged Congress last week to raise the debt limit soon, reminding lawmakers of the risks to business and consumer confidence, financial markets and the country’s credit rating.  

External links:
H.R. 692, “Default Prevention Act”
Treasury Secretary Lew’s Letter to Congress on Debt Limit
Lew Letter in Line With CBO, BPC Projections (BPC)
Understanding the Federal Debt Limit (Concord Issue Brief)
Alternatives to the Debt Limit (GAO)
Chairman Ryan’s Statement on H.R. 692

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