If the Debt Limit is Reached, Should the Treasury Keep Borrowing to Pay for Social Security? (H.R. 422)

What is H.R. 422?

(Updated August 4, 2020)

This bill would require the Dept. of the Treasury to continue borrowing after the debt limit has been reached. This ensures that the country can make good on its obligations related to mandatory spending and debt service. Essentially, this bill would make these types of debt exempt from the debt limit.

The Treasury would be required to issue debt obligations to allow the federal government to make payments on the principal and interest on the portion of the national debt held by the public or the Social Security Trust Funds. These obligations could not be used for paychecks for members of Congress.

If the Treasury uses the authority granted it by the legislation, it must report to Congress with accounting details on:

• The principal on mature obligations and interest that is due or accrued;

• Obligations issued under this bill.

Argument in favor

Failing to service the national debt and defaulting could trigger a debt spiral that damages the entire U.S. economy. Reneging on Social Security would harm vulnerable populations. This bill will prevent this kind of disaster.

Argument opposed

This bill lowers expectations by planning for Congress to fail to raise the debt limit. Lawmakers should focus on a solution rather than preparing a backup plan in case they fail to do what they need to.

Impact

Taxpayers; anyone who relies on Social Security benefits; and the Treasury.

Cost of H.R. 422

In the last session of Congress the CBO estimated that this bill wouldn't significantly add to the Dept. of the Treasury's administrative costs.

Additional Info

In-Depth: Sponsoring Rep. Tom McClintock (R-CA) also introduced this legislation in the 114th Congress because “the full faith and credit of the United States should not hang in the balance every time there’s a fiscal debate in Washington.”

During the 114th Congress, the Ways and Means Committee passed this bill by a vote of 23 to 15 amidst strong opposition from Democrats who said that it would “pay China first, and some Americans not at all.”

The Treasury has informed Congress that it will reach the federal debt limit in mid-March 2017.

Of Note: The term ‘debt held by the public’ refers to individuals, companies, state or local governments, Federal Reserve Banks, and foreign governments that own federal debt securities like bonds, T-bills, TIPS, savings bonds. Currently, debt held by the public accounts for about $13 trillion of the total national debt, which exceeds $18 trillion.

Once a country defaults on its sovereign debt, there is a risk of a debt spiral beginning. A debt spiral happens when interest rates on the country’s debt securities rise because of a default, which means that the government has to spend more money servicing its debt. In the absence of economic growth and increased tax revenue, this requires the government to issue more debt simply to service existing debt.

Media:

• Sponsoring Rep. Tom McClintock (R-CA) Press Release (Previous Version)
  
• CBO Cost Estimate (Previous Version)
  
• Americans for Tax Reform (In Favor)
  
• FreedomWorks (In Favor)
  
• The Hill (Op-Ed In Favor)
  
• National Taxpayers Union (In Favor)
  

Summary by Eric Revell
(Photo Credit: Flickr user NCinDC)