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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\
---------------------------------------------------------------------------
    \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]