The way to ensure the government can keep paying its bills is to raise or suspend the debt limit, Treasury Secretary Janet Yellen told lawmakers Friday — not prioritize payments, as some Republicans have proposed.
“In my assessment and those of economists across the board, a default on our debt would trigger an economic and financial catastrophe,” Yellen said. “I urge all members of Congress to come together to address the debt limit without conditions and without waiting until the last minute.”
The government reached the maximum amount it is able to borrow to pay the bills, known as the debt ceiling, in January. Lawmakers must act to raise or suspend that limit for the government to continue paying its bills, including paying its past debt built up under multiple administrations. The move would not greenlight new spending; that has been previously authorized by Congress — at issue is how to pay for what has already been spent.
Yellen’s comments came during testimony before the House Ways and Means Committee, where she spoke about President Biden’s budget proposal. The Treasury Department has been using so-called extraordinary measures to keep paying the bills since the government hit the debt limit. In a letter to congressional leaders, Yellen previously said that the government could be unable to pay the bills as soon as June. The Congressional Budget Office estimates that so-called X date would fall between July and September if Congress does not act.
The committee took up Republican-introduced legislation that would direct the Treasury to prioritize payments a day earlier. The legislation calls for the Treasury to first service the nation’s existing debt and pay Social Security and Medicare benefits, followed by payments to members of the military and veterans benefits. It also would withhold pay for the president, vice president, executive appointees and members of Congress unless all other obligations are met.
But Yellen pushed back on the possibility of prioritizing payments, calling it “default by another name.”
“We should not think that prioritization is a solution to the debt ceiling issue. Prioritization is simply not paying all of the government’s bills when they come due,” Yellen said. She said it is critical that the United States maintains its commitment to pay the bills.
“If we don’t do that and think that there’s some shortcut around it that will avoid economic chaos, we’re kidding ourselves because not paying the government’s bills will produce economic and financial collapse,” she said Friday.
She said that not raising the debt limit would affect the government’s ability to pay benefits and would cause interest rates to skyrocket. On prioritization, she noted Fitch Ratings recently stated a failure to pay all of the bills could potentially lead to a credit rating downgrade.
The White House and Republicans in Congress had been in a showdown over the debt limit for several months with GOP lawmakers urging the administration to release its budget proposal. Mr. Biden unveiled his $6.9 trillion plan on Thursday. During a speech in Philadelphia, he said he is willing to meet with House Speaker Kevin McCarthy any time to negotiate a deal.