Previewing the partisan food fight coming this fall over raising the debt ceiling, the House passed legislation on Thursday allowing the Treasury to pay U.S. bond holders if the nation hits its borrowing limit.
But the vote doesn't move Congress any closer to a deal to address the nation's fiscal situation -- it just exposes the bitter divide between the political parties.
The House approved the GOP bill, 221-207, along party lines, with no Democrats voting for it and eight Republicans opposed.
Technically, the limit on federal borrowing will be reached later this month. But because the Treasury can take measures to continue getting loans, most congressional leaders don't expect the debt ceiling to be reached until sometime between September and October.
Economists say continued fiscal uncertainty in Washington over spending, deficits, overall debt, and the now more frequent haggles over raising the debt ceiling, now over $16 trillion, could sap confidence in U.S. economic recovery and slow growth.
Potential negative effects of continued federal borrowing are magnified in the absence of meaningful deficit reduction, experts say, although they acknowledge that defaulting on debt payments is not an option.
One Wall Street ratings house, Standard & Poor's, cut the gold-plated U.S. credit rating on long term debt when negotiations on raising the debt ceiling went down to the wire in 2011 and rattled markets. Another agency, Fitch, warned in January a that a similar downgrade was possible unless Washington got its fiscal house in order.
Lower credit ratings on debt could potentially impact financial markets and threaten to increase borrowing costs for consumers although interest rates currently are at or near historic lows.
California Republican Tom McClintock, the sponsor of the so-called "debt prioritization" bill, said Wednesday his proposal "makes perfect sense -- as a practical matter, a family that's depending on its credit cards to pay its bills had better make sure to pay the credit card bills first. "
But House Democrats slammed the measure and dubbed it the "Pay China first," bill, saying it puts Chinese banks ahead of the U.S. military and others which wouldn't paid if the nation couldn't borrow any more money.
House Speaker John Boehner essentially verified the Democrats' analysis in an interview with Bloomberg TV earlier this week.
"Those who have loaned us money, like in any other proceeding, if you will, court proceeding, the bond holders usually get paid first. Same thing here," Boehner said.
House GOP aides conceded the measure had virtually no chance of moving forward in the Democratic-led Senate, and the White House already promised to veto it if it came to President Barack Obama's desk.
Gene Sperling, a top economic adviser to Obama, said this week that the president was stepping up efforts to reach out to congressional Republicans to create conditions for a serious bipartisan agreement addressing the nation's fiscal situation, but warned the GOP needed to be willing to compromise.
"But, you know, again it takes two to tango," he said at an appearance at the Pete Peterson Fiscal Summit.
Republican leaders promised they would hold the vote after a push from a bloc of conservatives who wanted to go on record now.
These aides said this vote demonstrated that the GOP was addressing the issue, and could point to it if negotiations and talk about default go all the way up until the deadline.
Democrats maintained Republicans were just playing politics with the nation's credit rating.
"This issue, this legislation is being driven by very narrow bunch on the other side with radical governing philosophy which basically says I hate my government so much that I'm willing to jeopardize the full faith and credit of the United States and bring this economy down until we get our way," Wisconsin Democrat Ron Kind said
Arkansas Republican Tim Griffin argued on the House floor that GOP was the only party concerned about burgeoning federal deficits.
"We are the ones that are trying to get Washington spending under control so it can live within its means." He called the bill "a backstop that takes default off the table," Griffin said.
This week's House debate served as the opening round of several months of wrangling, both inside the House Republican conference, and with congressional Democrats and the White House over what legislation can pass the divided Congress that will raise the nation's debt limit.
The last debt ceiling debate in the summer of 2011 was an exceedingly messy process, and starkly illustrated the partisan divide infecting Washington.
Boehner met directly with Obama over months, but failed to reach a deal on comprehensive deficit reduction. Both parties were left scrambling to get votes on a last-minute compromise that left both sides unhappy and kicked the can down the road.
Many House conservatives opposed that deal and criticized Boehner for "backroom negotiations" that left them out of the process.