WASHINGTON (October 4, 2021) ― The Pentagon, as of Monday, had not issued departmentwide guidance about the possibility of a debt limit default — an event experts say would be a chaotic foray into uncharted territory.
President Joe Biden accused Republican lawmakers on Monday of blocking efforts to increase the government’s borrowing authority, saying it poses a risk to Social Security benefits, troop salaries and veterans benefits.
“We’re going to have to raise the debt limit if we’re going to meet those obligations,” Biden said at the White House ahead of an Oct. 18 deadline to allow for more borrowing.
Both Biden and Senate Majority Leader Mitch McConnell, R-Ky., have promised the country will avoid default, but their lack of progress risks an economic meltdown. It also raises questions about how the Treasury Department would pay the military’s vendors as well as its uniformed and civilian workforce ― along with the rest of the federal government ― if it cannot continue borrowing.
Once a routine vote, the need to raise the nation’s debt limit has become increasingly partisan. It’s become a favorite political weapon of Republicans to either demand concessions or force Democrats into unpopular votes to enable more borrowing. McConnell has tied the vote to Biden’s multitrillion-dollar tax and economic agenda that awaits congressional approval.
“They need to stop playing Russian roulette with the U.S. economy,” Biden said. “Republicans just have to let us do our job. Just get out of the way. If you don’t want to help save the country, get out of the way so you don’t destroy it.”
Republicans are insisting that Democrats go it alone with the same legislative tool that is already being used to try and pass Biden’s plan to boost safety net, health and environmental programs. Democrats say that extending the debt limit has traditionally been a bipartisan effort and that the debt cap was built up under presidents from both parties.
“We have no list of demands,” McConnell said Monday in a letter to Biden. “For two and a half months, we have simply warned that since your party wishes to govern alone, it must handle the debt limit alone as well.”
Late payments and lawsuits
Treasury Secretary Janet Yellen has said that on Oct. 18, the government will exhaust its cash reserves — an event she says would likely trigger a financial crisis and economic recession. She said that would likely send interest rates higher and swell the government’s interest payments on the national debt.
Former Pentagon Comptroller Bob Hale, a veteran of several debt limit showdowns, is confident lawmakers will wind up cutting an 11th hour deal because the consequences of failure are so grim. But if the country defaults, the Treasury might have to prioritize expenses, potentially harming military pay, veterans benefits and payments it owes to government contractors.
Alternatively, the Treasury could pay its bills on a rolling basis as revenues come in, but that might result in more severe delays over time.
“It’s hard to know how [that] would affect contractors,” Hale told Defense News. “Will they continue working? Probably for a while, for sure, even if they’re getting paid late. But if this went on, then I think there would be serious problems.”
If the government were to take the prioritization route, mandatory spending on social programs would almost certainly come ahead of discretionary defense spending, speculated Arnold Punaro, a former Senate Armed Services Committee staff director and the chairman of the board at the National Defense Industrial Association.
What that means for defense acquisition programs is unclear.
“You’ve invited more people to the cocktail party than you have places at the table when it comes to spending,” Punaro said. “I guarantee you they’re not going to pay for the F-35 [fighter jet] before people get their Social Security checks.”
Successive administrations have said convincingly that there is no mechanism for the government to prioritize payments, noted David Berteau, the chief executive of the Professional Services Council, which represents more than 400 businesses that provide services to federal agencies.
“I believe there is no secret plan by which we figure out how to spend what little money we have and avoid global economic calamity,” Berteau said. “I wish I could give you a rosier picture here. I’m trying desperately to figure out a way to have a positive thought at the end of this paragraph, but I can’t.”
If the government were to prioritize payments and, for example, decided to pay troops but not federal workers, such decisions could invite lawsuits against the government, said the Bipartisan Policy Center’s Rachel Snyderman.
“There are different camps on this issue as to whether or not this would even be something that operationally the Treasury Department could do, and legally,” she said. “Court battles and legal questions could arise from government officials picking and choosing which programs to pay out in full on time versus which programs would suffer delays.”
The rising interest rates Yellen warned of would not only hit military families among other households and businesses, but it would indirectly put a squeeze on the government’s future defense budgets.
“We’ve got a lot of debt these days, and [interest payments] would eat up more of the government’s resources, and indirectly, potentially mean there would be less for defense,” Hale said. “Generally, it’s such a bad idea, it’s hard to believe we’ll walk right into [a default], and I doubt we will.”
The Associated Press contributed to this report.