US Government Debt Different - Finance Department - University of ...

62 The 2011 Debt Ceiling Impasse RevisitedThis is the approach that the Treasury Department usually (but notinvariably) suggested it was going to apply in August 2011 had acompromise not been reached, and it has the bureaucratic advantageof providing a straightforward rule that would be relatively easy toadminister. 7 Had the government been forced to follow a FIFO approachin August 2011, it would have been able to pay nearly 60 percentof its obligations over the course of the month and would havehad about $127 billlion of unpaid bills pending by month’s end, havingdeferred payment of both debt service (starting on August 2nd)and Social Security payments (starting on August 3rd).Over the years, there has been debate over whether the governmentmust adopt a FIFO payment plan in a Phase Two Crisis or whetherthe Treasury has discretion to adopt other systems of prioritization.The Executive has tended to favor the mechanical FIFO rule, bothfor its relative ease of administration and also for its political virtueof suggesting that congressional failure to raise the debt ceiling necessitatesdeferring payments across the board, including payments tokey constituencies, such as Social Security beneficiaries and membersof the armed service. Congressional leaders, in contrast, prefer tocharacterize the Executive as having greater latitude in prioritizingpayment, thereby imposing on the Executive the responsibility (andpolitical costs) of choosing which payments to defer.While one could imagine other mechanical formulas for prioritizingpayments – with pro rata distributions being an alternative methodemployed in various commercial contexts – FIFO prioritization isthe dominant approach advanced in debt ceiling debates and representssomething of a presumed default position for Governmentpayments in a Phase Two Debt Crisis.2. FIFO Informed by the Public Debt ClauseA potentially attractive variant on FIFO would be for the federalgovernment to follow the basic FIFO rule for most payments butto prioritize a subset of expenditures based on special legal standing7 One complexity of administering even a FIFO prioritization scheme is that theTreasury Department does not actually control 100 percent of federal disbursements.See Appendix A, n. 198, and accompanying text.