[House Report 114-265]
[From the U.S. Government Publishing Office]
114th Congress } { Report
HOUSE OF REPRESENTATIVES
1st Session } { 114-265
======================================================================
DEFAULT PREVENTION ACT
_______
September 18, 2015.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. Ryan of Wisconsin, from the Committee on Ways and Means, submitted
the following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 692]
[Including cost estimate of the Congressional Budget Office]
The Committee on Ways and Means, to whom was referred the
bill (H.R. 692) to ensure the payment of interest and principal
of the debt of the United States, having considered the same,
report favorably thereon without amendment and recommend that
the bill do pass.
CONTENTS
Page
I. SUMMARY AND BACKGROUND...........................................2
A. Purpose and Summary................................. 2
B. Background and Need for Legislation................. 2
C. Legislative History................................. 2
II. EXPLANATION OF THE BILL..........................................3
A. Default Prevention Act.............................. 3
III. VOTES OF THE COMMITTEE...........................................4
IV. BUDGET EFFECTS OF THE BILL.......................................5
A. Committee Estimate of Budgetary Effects............. 5
B. Statement Regarding New Budget Authority and Tax
Expenditures Budget Authority...................... 5
C. Cost Estimate Prepared by the Congressional Budget
Office............................................. 5
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE.......6
A. Committee Oversight Findings and Recommendations.... 6
B. Statement of General Performance Goals and
Objectives......................................... 6
C. Information Relating to Unfunded Mandates........... 6
D. Congressional Earmarks, Limited Tax Benefits, and
Limited Tariff Benefits............................ 6
E. Duplication of Federal Programs..................... 7
F. Disclosure of Directed Rule Makings................. 7
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED............7
VII. DISSENTING VIEWS.................................................8
I. SUMMARY AND BACKGROUND
A. Purpose and Summary
The Default Prevention Act, H.R. 692, as ordered reported
by the Committee on Ways and Means on September 10, 2015,
requires the Secretary of the Treasury (Treasury) to issue new
debt when the statutory debt limit is reached to pay principal
and interest on debt held by the public and provide Treasury
access to Social Security Trust Funds notwithstanding the debt
limit. The bill would also prohibit the newly issued
obligations from being used to compensate Members of Congress.
Lastly, if the authority is exercised, the legislation requires
the Secretary to submit to Congress a weekly accounting of the
principal on mature obligations and interest that is due or
accrued and any obligations issued pursuant to the new
authority.
B. Background and Need for Legislation
The consequences of the U.S. Government failing to make
timely and complete payment on Treasury debt, that is, a
default, could be severe. A default would not only be a great
discredit to our Nation's standing in the world, it would raise
borrowing costs, which, in turn, would threaten our ability to
finance essential government functions. In addition, a default
could push the country into recession. The legislation removes
the risk of default by providing a mechanism to ensure that
principal and interest on debt obligations are paid.
Furthermore, it authorizes and requires Treasury to make
principal and interest payments on securities held by the
Social Security trust funds to ensure that Social Security
benefits can be paid in full.
C. Legislative History
Background
H.R. 692 was introduced on February 3, 2015, and was
referred to the Committee on Ways and Means.
Committee hearings
The debt limit has been discussed on February 3, 2015 at a
``Hearing on the President's Fiscal Year 2016 Budget,'' which
featured Secretary Jack Lew. In addition, the committee held
two hearings during the 113th Congress dedicated to the issue.
The committee held a January 22, 2013 ``Hearing on the Debt
Limit,'' which examined the Congress's borrowing power and
operation of the debt limit. Additionally, the Oversight
Subcommittee held an April 10, 2013 hearing, ``Examining the
Government's Ability to Continue Operations When at the
Statutory Debt Limit,'' which examined the government's ability
to prioritize its obligations and continue operations should
the U.S. Treasury reach its statutory debt limit and exhaust
extraordinary measures.
Committee action
The Committee on Ways and Means marked up H.R. 692, the
Default Prevention Act, on September 10, 2015, and ordered the
bill favorably reported (with a quorum being present).
II. EXPLANATION OF THE BILL
A. Default Prevention Act
PRESENT LAW
The Constitution grants Congress sole authority over the
fiscal powers to tax, spend and borrow:
The Congress shall have Power to lay and collect
Taxes, Duties, Imposts, and Excises, to pay the Debts
and provide for the common Defense and general Welfare
of the United States . . . To borrow Money on the
credit of the United States.\1\
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\1\U.S. Const., art. 1 Sec. 8, cl, 1-2, 5.
Congress exercises its borrowing authority by placing
restrictions on public debt. Until World War I, Congress
typically authorized limited amounts of debt, with defined
maturity and redemption terms, for specific projects. Upon
America's entry into World War I, Congress passed the Second
Liberty Bond Act of 1917 to ensure liquidity necessary to meet
obligations as presented. The Act delegated control over day-
to-day borrowing activity, subject to various limitations, to
the Executive branch. In 1939, Congress enacted legislation
creating the first aggregate debt limit, then $45 billion.
It is important to note that because the power to borrow
resides in Congress, the debt limit is not actually a
limitation on the executive's power to borrow. Rather, the
statute containing the debt ceiling is a grant of authority to
the President that he would not otherwise have. When that
authority runs out, it is the Constitution that prevents the
President from attempting to borrow on the credit of the United
States.
The current debt limit is $18.1 trillion. This consists of
both debt held by the public and debt held by the government,
both carrying the full faith and credit guarantee. Debt held by
the public consists of securities the Treasury has issued to
investors, and currently amounts to $13.1 trillion. The balance
is debt held by the government in the form of non-marketable
Treasury securities, the majority of which, $2.8 trillion, is
held by the Social Security Trust Funds.
According to the Treasury Department, the U.S. Government
reached the current debt limit of $18.1 trillion on March 16,
2015. Since that time, Treasury has employed ``extraordinary
measures'' to avoid exceeding the debt limit. These measures
temporarily forestall the need to exceed the ceiling by
shuffling funds among accounts, as well as suspending certain
payments and programs. The Treasury Department expects
extraordinary measures to last through late October plus a
brief additional period. The Congressional Budget Office
expects cash balances and extraordinary measures to last
through mid-November to early December at which point the debt
limit will need to be addressed.
REASONS FOR CHANGE
To permanently remove the risk that the United States could
default on its debt obligations, and ensure that the Social
Security Trust Funds can be accessed to pay full benefits when
the debt limit is reached, it is necessary to require the
Treasury Secretary to roll over existing debt and honor
principal and interest commitments by issuing debt outside of
the limit solely for these purposes.
EXPLANATION OF PROVISIONS
The bill provides that in the event the debt of the United
States Government reaches the statutory limit, the Treasury
Secretary shall issue debt to the extent necessary to pay
principal and interest on certain obligations as defined.
Obligations for which debt shall be issued are limited to those
obligations held by the public or the Social Security Trust
Funds. Obligations issued pursuant to this authority are exempt
from the statutory debt limit only to the extent such
obligations would otherwise cause the limit to be exceeded.
Section 2 also requires a weekly report from the Treasury that
accounts for obligations due and amounts issued if the
authority under the bill is exercised.
EFFECTIVE DATE
The bill provision becomes effective upon enactment.
III. VOTES OF THE COMMITTEE
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the vote of the Committee on Ways and Means in its
consideration of H.R. 692, The Default Prevention Act, on
September 10, 2015.
The bill, H.R. 692, was ordered favorably reported as
amended by a roll call vote of 23 yeas to 15 nays (with a
quorum being present). The vote was as follows:
VOTES OF THE COMMITTEE
In compliance with the Rules of the House of
Representatives, the following statement is made concerning the
vote of the Committee on Ways and Means during the markup
consideration of H.R. 692, ``Default Prevention Act,'' on
September 10, 2015.
The bill H.R. 692 was ordered favorably reported without
amendment to the House of Representatives by a roll call vote
of 23 yeas to 15 nays (with a quorum being present). The vote
was as follows:
----------------------------------------------------------------------------------------------------------------
Representative Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Ryan....................... X ........ ......... Mr. Levin........ ........ X .........
Mr. Johnson.................... X ........ ......... Mr. Rangel....... ........ X .........
Mr. Brady...................... X ........ ......... Mr. McDermott.... ........ X .........
Mr. Nunes...................... ........ ........ ......... Mr. Lewis........ ........ X .........
Mr. Tiberi..................... X ........ ......... Mr. Neal......... ........ X .........
Mr. Reichert................... X ........ ......... Mr. Becerra...... ........ X .........
Mr. Boustany................... X ........ ......... Mr. Doggett...... ........ X .........
Mr. Roskam..................... X ........ ......... Mr. Thompson..... ........ X .........
Mr. Price...................... X ........ ......... Mr. Larson....... ........ X .........
Mr. Buchanan................... X ........ ......... Mr. Blumenauer... ........ X .........
Mr. Smith (NE)................. X ........ ......... Mr. Kind......... ........ X .........
Ms. Jenkins.................... X ........ ......... Mr. Pascrell..... ........ X .........
Mr. Paulsen.................... X ........ ......... Mr. Crowley...... ........ X .........
Mr. Marchant................... X ........ ......... Mr. Davis........ ........ X .........
Ms. Black...................... X ........ ......... Ms. Sanchez...... ........ X .........
Mr. Reed....................... X ........ .........
Mr. Young...................... X ........ .........
Mr. Kelly...................... X ........ .........
Mr. Renacci.................... X ........ .........
Mr. Meehan..................... X ........ .........
Ms. Noem....................... X ........ .........
Mr. Holding.................... X ........ .........
Mr. Smith (MO)................. X ........ .........
Mr. Dold....................... X ........ .........
----------------------------------------------------------------------------------------------------------------
IV. BUDGET EFFECTS OF THE BILL
A. Committee Estimate of Budgetary Effects
In compliance with clause 3(d) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the effects on the budget of the bill, H.R. 692, as
reported. The Committee agrees with the estimate prepared by
the Congressional Budget Office (CBO), which is included below.
B. Statement Regarding New Budget Authority and Tax Expenditures Budget
Authority
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee states that the
bill involves no new or increased budget authority. The
Committee states further that the bill involves no new or
increased tax expenditures.
C. Cost Estimate Prepared by the Congressional Budget Office
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, requiring a cost estimate
prepared by the CBO, the following statement by CBO is
provided.
U.S. Congress,
Congressional Budget Office,
Washington, DC, September 16, 2015.
Hon. Paul Ryan,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 692, the Default
Prevention Act.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Meredith
Decker.
Sincerely,
Keith Hall.
Enclosure.
H.R. 692--Default Prevention Act
H.R. 692 would allow the Department of the Treasury to
issue debt to pay principal and interest on debt held by the
public and debt held by the Old-Age and Survivors Insurance
Trust Fund and Disability Insurance Trust Fund, if the
statutory limit on debt is reached. The bill would require the
Treasury to provide a weekly report to the House Committee on
Ways and Means and the Senate Committee on Finance outlining
the exempted transactions until a new debt limit is enacted.
CBO estimates that enacting H.R. 692, by itself, would not
affect direct spending or revenues because it would not change
any of the government's tax or spending policies. Therefore,
pay-as-you-go procedures do not apply. In addition, CBO
estimates that the bill would not significantly add to the
Treasury's administrative costs; any such costs would be
subject to the availability of appropriated funds.
H.R. 692 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act.
The CBO staff contact for this estimate is Meredith Decker.
This estimate was approved by Theresa Gullo, Assistant Director
for Budget Analysis.
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE
A. Committee Oversight Findings and Recommendations
With respect to clause 3(c)(1) of rule XIII of the Rules of
the House of Representatives (relating to oversight findings),
the Committee advises that it was as a result of the
Committee's review of the provisions of H.R. 692 that the
Committee concluded that it is appropriate to report the bill,
as amended, favorably to the House of Representatives with the
recommendation that the bill do pass.
B. Statement of General Performance Goals and Objectives
With respect to clause 3(c)(4) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
bill contains no measure that authorizes funding, so no
statement of general performance goals and objectives for which
any measure authorizes funding is required.
C. Information Relating to Unfunded Mandates
This information is provided in accordance with section 423
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
The Committee has determined that the bill does not contain
Federal mandates on the private sector. The Committee has
determined that the bill does not impose a Federal
intergovernmental mandate on State, local, or tribal
governments.
D. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff
Benefits
With respect to clause 9 of rule XXI of the Rules of the
House of Representatives, the Committee has carefully reviewed
the provisions of the bill, and states that the provisions of
the bill do not contain any congressional earmarks, limited tax
benefits, or limited tariff benefits within the meaning of the
rule.
E. Duplication of Federal Programs
In compliance with Sec. 3(g)(2) of H. Res. 5 (114th
Congress), the Committee states that no provision of the bill
establishes or reauthorizes: (1) a program of the Federal
Government known to be duplicative of another Federal program;
(2) a program included in any report from the Government
Accountability Office to Congress pursuant to section 21 of
Public Law 111-139; or (3) a program related to a program
identified in the most recent Catalog of Federal Domestic
Assistance, published pursuant to the Federal Program
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No.
98-169).
F. Disclosure of Directed Rule Makings
In compliance with Sec. 3(i) of H. Res. 5 (114th Congress),
the following statement is made concerning directed rule
makings: The Committee estimates that the bill requires no
directed rule makings within the meaning of such section.
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
With respect to clause 3(e) of rule XIII of the Rules of
the House of Representatives, the bill, as reported, includes
no provisions proposing to repeal or amend an existing statute
or part thereof. Therefore, no additional materials otherwise
required to be included in this report or accompanying document
under that clause are required to be included with respect to
this bill.
VII. DISSENTING VIEWS
The Democratic Members of the Committee strongly oppose
this legislation, which is, in effect, a plan for an
unprecedented default on the full faith and credit of the
United States. We are further concerned that the plan contained
in the legislation would prioritize payment of debts to
bondholders, including those in China, Switzerland, and the
Cayman Islands, over our obligations to America's veterans,
seniors, students, and troops in harm's way.
H.R. 692 would allow the Department of the Treasury to
continue borrowing money to pay Chinese and other foreign
bondholders, but not to pay our servicemembers, not to pay the
doctors and hospitals that care for our seniors on Medicare,
not to pay American small businesses, and not to pay our
veterans--including those who became disabled protecting our
country. Let us be clear: under this legislation, the effect
would be to pay China first, and some Americans not at all.
As we learned the last time the Majority forced this
legislation through the House, just entertaining the idea that
the United States will no longer pay all of its bills on time
and in full does real damage to our economy and our
credibility.
The Council of Economic Advisors estimated that the 2013
debt limit standoff and government shutdown cost us 120,000
jobs, just as our economic recovery was taking hold. The
Government Accountability Office (GAO) reported that in 2013,
investors took the ``unprecedented action of systematically
avoiding certain Treasury securities--those that matured around
the dates when the Department of the Treasury projected it
would exhaust the extraordinary measures.'' The effect of that
was to disrupt public and private credit markets, driving up
borrowing costs for the federal government, homeowners, and
businesses. GAO estimated that the total increased borrowing
costs on securities issued during the last debt limit crisis
were $70 million.
Economists across the political spectrum have warned that
to default on creditors other than private bondholders and the
Social Security Trust Funds--as this legislation envisions--
would do catastrophic damage to our economy. To put it in
context, the short-term reduction in federal spending and the
resulting fiscal shock from a default would be about two and a
half times as large as the contraction that would have been
caused by the recent ``fiscal cliff.'' At our Ways and Means
Committee hearing on this topic two years ago, MIT Economist
Simon Johnson warned that a default could reduce GDP by 20 to
30 percent and double the unemployment rate.
Rather than enacting a plan for who gets paid and who
doesn't in a default, Congress should quickly take action to
ensure that the United States pays all of its bills, on time
and in full, just as we always have in the past. As the
Secretary of the Treasury Jack Lew said the last time the House
considered this legislation, it is simply ``default by another
name.''
We oppose this legislation and urge our Republican
colleagues to avoid repeating their mistakes.
Sincerely,
Sander Levin.
Charles B. Rangel.
Jim McDermott.
John Lewis.
Richard E. Neal.
Xavier Becerra.
Lloyd Doggett.
Mike Thompson.
John B. Larson.
Earl Blumenauer.
Ron Kind.
Bill Pascrell, Jr.
Joseph Crowley.
Danny K. Davis.
Linda T. Sanchez.
[all]