A political debate between Treasury Secretary Timothy Geithner and Pennsylvania Senator Pat Toomey on federal spending continues to heat up. Secretary Geithner addressed both House and Senate committees on the federal budget Wednesday, while Senator Toomey spoke about his legislation on prioritizing debt service payments at the Heritage Foundation in Washington D.C.
Senator Toomey’s “Full Faith and Credit Act” would force the government to pay principal and interest on its debt before all other spending obligations. The reason, he says, is that defaulting on debt would be far worse for the U.S. economy than failing to fund mandated government programs or pay government vendors. Toomey says debt payments are the keys to keep investors buying bonds.
Secretary Geithner says investors would be just as likely not to buy bonds if the government doesn’t pay its other obligations. But Senator Toomey disagrees.
“I mean, if we pull the contract for the guys that plant grass on the Washington Mall, is that seen the same way as the failure to pay interest and principals on our bond?” asked Toomey. “I can tell you as a guy who used to trade treasuries, the market’s plenty smart enough to know the difference. And there’s a big difference.”
But government obligations include lots of things that would be politically risky to cut such as Social Security, Medicare, school aid, and veterans benefits.