Capitol Hill lawmakers scrambled Wednesday to come up with backup plans to decide who would still get paid if the government bumps up against its debt limit next month, as the outlook for a deal grew gloomier and following President Obama’s warning that Social Security benefit checks could be halted.
Moody’s bond rating service admonished that a default on government debt payments will cost the country its prized AAA rating, and Federal Reserve Chairman Ben S. Bernanke said it would send “shock waves through the entire financial system.”
Another high-stakes meeting Wednesday between Mr. Obama and congressional leaders failed to produce an accord, and pessimism grew on Capitol Hill that a deal would be made by Aug. 2, which is when the Treasury Department says the $13.29 trillion debt limit would be reached.
House Majority Leader Eric Cantor, Virginia Republican and one of the negotiators, said nobody has produced a plan that can win enough votes to pass the House, and he urged both sides to focus on areas of agreement such as spending cuts and entitlement program changes.
“The path forward is to focus on what we can agree upon, and though it doesn’t go as far as our budget, House Republicans can likely agree with the general spending cuts and entitlement changes in the ‘big deal’ proposed by the president,” he said.
A day later, lawmakers responded with several proposals to try to prioritize payments should the debt negotiations fail.
Sen. Bill Nelson, Florida Democrat, on Wednesday offered legislation that would allow the Treasury Department to temporarily stop counting Social Security obligations against the debt limit, thus ensuring that benefits checks would continue to be mailed in the event of a government default.
“I want to urge our colleagues to try to come together and give the assurances to millions of retirees that they are not going to be whacked, and especially so they are not going to be whacked out of political gridlock,” Mr. Nelson said.
On Tuesday, Senate Minority Leader Mitch McConnell, Kentucky Republican, proposed a complex backup plan that would adjust congressional rules to allow the debt to be increased but would also shift the political peril for doing so onto the White House.
Mr. McConnell told radio show host Laura Ingraham that Mr. Obama would use a default against Republicans in next year’s elections, leaving the GOP in “a horrible position politically that would allow the president to probably get re-elected.”
In the House, meanwhile, Rep. Steve King, Iowa Republican, introduced a bill Wednesday that calls for setting the pay of military personnel, as well as the payment of the principal and interest on public debt, as “top priorities” in the event that the debt limit is reached.
“There’s still a lot of money left over for the president’s discretion to play political games,” he said. “But let us not do so with our military and let us not let … the full faith and credit of the United States go to pot at the expense of political leveraging.”
A threat that military pay could be halted also was an issue this year when Congress faced a possible government shutdown during a budget dispute. Such a scenario was averted when lawmakers agreed to a stopgap spending measure to fund the government for the rest of the fiscal year.
“Don’t allow our military men and women to dangle over a fire and think they won’t get paid,” said Rep. Michele Bachmann, a Minnesota Republican who also co-sponsored Mr. King’s bill. “I am unwilling to do that to any military personnel or their families. That’s a dangerous game to play.”
Rep. Louie Gohmert, Texas Republican and another co-sponsor of the bill, said the president’s warning that Social Security checks could be withheld was nothing more than a scare tactic.
“The fearmongering needs to stop,” Mr. Gohmert said.
Social Security Administration Chief Actuary Stephen Goss told the House Budget Committee on Wednesday that the Treasury Department — not his agency — has the final say on whether or not to withhold Social Security benefit checks.
The question of whether or not Treasury can prioritize debt payments is murky. The department has argued that it lacks the legal authority to allow some debts to take precedence over others, saying to do so would be “a failure by the U.S. to stand behind its commitments.”
But in 1985, the General Accounting Office, now called the Government Accountability Office, said “Treasury is free to liquidate obligations in any order it finds will best serve the interests of the United States.”
The nonpartisan Congressional Research Service says the positions aren’t necessarily contradictory, suggesting “they merely offer two different interpretations of Congress’s silence with respect to a prioritization system.”
Some political observers have argued that the 14th Amendment means the government cannot suspend payments and that the president can act to keep funding government even without congressional authorization.
The White House has been dismissive of using the 14th Amendment as a way to solve the debt limit impasse.
• Stephen Dinan contributed to this report.