The House on Thursday passed legislation that would allow the government to borrow money above the debt ceiling, but only to service U.S. bondholders and make payments related to the Social Security Trust Fund.
The Full Faith and Credit Act, H.R. 807, was passed in a 221-207 vote that saw all but eight Republicans favor the bill, and every Democrat oppose it.
Just as they did in the last Congress, Republicans have said they want to lock in new spending cuts as a condition for raising the debt ceiling, while Democrats want a clean debt-ceiling hike.
The bill is not expected to move at all in the Senate, and President Obama has said he would veto the legislation.
"This legislation credibly and permanently removes the threat of default on a U.S. debt payment and ensures that Social Security benefit payments are paid in full and on time," Ways and Means Committee Chairman Dave Camp (R-Mich.) said, defending the GOP measure.
"The bill is really quite simple: it requires the Treasury Department to issue debt not subject to the statutory limit to make principal and interest payments."
Democrats were hotly opposed, and said that even by considering it, Republicans were sending a dangerous signal to the markets that there might not be an agreement to raise the debt ceiling later this year.
Minority Whip Steny Hoyer (D-Md.) accused Republicans of "play[ing] around with the national debt," and Rep. Earl BlumenauerEarl BlumenauerOvernight Finance: House GOP grills IRS chief on impeachment | Bipartisan anger over Iran payment | Fed holds rates steady but hints at coming hike Panel votes to extend nuclear power tax credit DEA decision against reclassifying marijuana ignores public opinion MORE (D-Ore.) said it could make foreign lenders nervous.
"Simply by putting this legislation on the floor, it does real damage in terms of putting questions in the minds of people around the world who, to this point, have been giving billions of dollars to the United States government to be able to pay for past spending at record low rates," Blumenauer said.
But Republicans downplayed these arguments. Rep. Tom McClintock (R-Calif.), the sponsor of the bill, said in Wednesday debate that Republicans are not looking to cause a debt-ceiling crisis, but instead want to guarantee some additional borrowing authority if the nation hits its limit.
"The president and his followers argue that this is somehow an excuse for not paying our other obligations," he said. "What absolute nonsense. I challenge them to name one member of Congress who has ever suggested that this measure is an acceptable alternative to not paying our other bills."
McClintock also pointed out that many states have similar provisions allowing emergency borrowing to keep current on their debt, and that Federal Reserve Board Chairman Ben Bernanke has supported a similar federal mechanism.
"Last year, in testimony to the Senate, Ben Bernanke praised the state provisions for maintaining confidence in their bonds," he said. "He told our House Budget Committee that a similar measure at the federal level would help to protect us against a sovereign default, which he called a very high priority."
Democrats also opposed the bill by arguing that it would allow ongoing payments to foreign bondholders, but would not allow more borrowing to fund federal programs. Ways and Means ranking member Sandy Levin (D-Mich.) was one of many who mockingly dubbed the bill the Pay China First Act.
"So essentially what this bill says is, OK, let's pay China and the other foreign bondholders first, not American troops, not disabled veterans, not physician providers who treat Medicare payments, not small businesses holding contract obligations from the United States," said Levin.
Republicans rejected this by saying Democrats were overstating the extent to which the bill would pay foreign bondholders over Americans. Camp said most of the debt is held by Americans themselves.
"American families and businesses hold the overwhelming majority of U.S. debt," Camp said. "So by ensuring that Treasury has the ability to honor our debt obligations, we are in fact ensuring Americans will be paid."
The two parties couldn't agree on how much debt China holds. Democrats said China holds as much as 22 percent of the national debt, but Republicans said the number was closer to 8 percent, and that Democrats weren't counting debt held by the Social Security trust fund in their calculation.
Just before final passage, the House approved an amendment from Camp that would ensure the government cannot borrow above the debt ceiling to pay the salaries of members of Congress. This proposal easily passed in a 340-84 vote in which 111 Democrats supported it, and 84 opposed it.
— This story was updated at 3:11 p.m.