The House Ways and Means Committee is set to consider a proposal on Thursday, dubbed the Default Prevention Act, from Rep. Tom McClintock (R-CA) that would prioritize federal spending in the event Congress fails to resolve the debt ceiling crisis in time for the summer deadline. The legislation is meant to be a backup measure that Republicans say would technically prevent a default and protect the economy from catastrophic damage. However, Democrats have accused the bill of fuelling “economic chaos”.
The U.S. has already hit the debt ceiling in early 2023, and the government must raise the it within the next few months to avoid defaulting on payments. As reported by CNN, history shows that even the serious threat of default in 2011 was enough to cause a “credit rating downgrade”. This reality has caused alarm and fear among economists, with Mark Zandi, Chief Economist of Moody’s Analytics, warning that a default would be “catastrophic” for the economy.
This brings us to the present day, where President Joe Biden and House Speaker Kevin McCarthy have been at a stalemate in negotiations to reach a compromise on raising the debt ceiling. The Biden administration has refused to negotiate on spending cuts as part of a deal to raise the borrowing limit, something the House GOP majority has insisted on as part of a deal. To try and reach a compromise, President Biden has proposed additional tax hikes on the wealthy, such as reversing the Trump tax cut by raising the top tax rate to 39.6 percent from 37 percent, increasing the corporate tax to 28 percent from 21 percent, and raising the tax on stock buybacks from 1 percent to 4 percent.
The crux of the matter is political. Republicans are presented with a large, imposing target due to the massive debt. During Tuesday afternoon's hearing, Senator Elizabeth Warren argued that while failing to act on the debt limit would be bad, House GOP spending cuts would be a “disaster, plunging our economy into a recession and putting more than 2.5 million people out of work.”
The Default Prevention Act would give the Treasury secretary authority to issue new debt obligations in the event the debt ceiling is reached. The bill would also prohibit members of Congress from getting paid until the debt ceiling issue is resolved, and would require the Treasury to prioritize Social Security and Medicare payments.
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