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Debt Limit Options

Posted by Bruce Bartlett
04 Jul 2011

For more than I year, I have been warning [ http://www.thefiscaltimes.com/Columns/2010/06/11/Debt-Default-It-Can-Happen-Here.aspx ] about the danger of a debt default resulting from Congress’s failure to raise the debt limit in a timely manner. Now, we are getting close to the 11th hour and it is clear that there are many Republicans willing to risk a default to achieve their ideological goal of slashing government. Although they say they are motivated by a concern for the nation’s finances, their total unwillingness to consider so much as $1 of tax increase proves that such claims are hollow.

As a consequence, I continue to believe that a debt crisis is imminent. I have serious doubt that Congress will raise the debt limit in time to prevent the Treasury from running out of cash to pay its bills, including interest and repayments on the debt. And since the ultimate crisis may come during Congress’s August recess, the Treasury may have no recourse except to consider radical options for preventing default.

One idea comes from Peterson Institute economist Joseph Gagnon, a former Federal Reserve official. He suggested to me that the Federal Reserve could temporarily buy some of the Treasury’s $300 billion stock of gold. This would allow the Fed to create cash that the Treasury could use to pay its bills until the debt limit is increased, at which time Treasury could simply buy it back. It would be a purely paper transaction that would have no real effect on the price of gold or anything else. The Fed could simultaneously sell an equal amount of securities from its portfolio to prevent the money supply from rising more than it desires.

A more radical solution would be to simply disregard the debt limit altogether on constitutional grounds, an idea I suggested [ http://www.thefiscaltimes.com/Columns/2011/04/29/The-Debt-Limit-Option-President-Obama-Can-Use.aspx ] in the Fiscal Times on April 29. University of Baltimore law professor Garrett Epps made a similar suggestion [ http://www.theatlantic.com/politics/archive/2011/05/our-national-debt-shall-not-be-questioned-the-constitution-says/238269/ ] in The Atlantic on May 4.

The essence of the argument involves section 4 of the Fourteenth Amendment to the Constitution, which reads: “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”

In my view and that of Prof. Epps, this means that the president would have constitutional authority to take extraordinary measures to protect the public credit and prevent a debt default even if it means disregarding the debt limit, which is statutory law subordinate to the Constitution.

Since my article appeared, I have had the opportunity to do further research on this topic and now feel even more strongly that the Fourteenth Amendment trumps the debt limit. I found strong support for this position in a law review article by George Washington University law professor Michael Abramowicz. Writing in the Tulsa Law Journal (“Beyond Balanced Budgets, Fourteenth Amendment Style,” 33:2, Winter 1997, pp. 561-612), he concludes that any government action “making uncertain whether or not a debt will be honored is unconstitutional.” As Abramowicz explains:

“A debt does not become valid or invalid only at the moment payment is due. A debt’s validity may be assessed at any time, and a debt is valid only if the law provides that it will be honored. Therefore, a requirement that the government not question a debt’s validity does not kick in only once the time comes for the government to make a payment on the debt. Rather, the duty not to question is a continuous one. If as a result of government actions, a debt will not be paid absent future governmental action, that debt is effectively invalid. The high level of generality recognizes that instead of referring to payment of debts, the Clause bans government action at any time that affects the validity of debt instruments…. Moreover, there is no such thing as a valid debt that will nonetheless not be honored; a debt cannot be called “valid” if existing laws will cause default on it. So as soon as Congress passes a statute that will lead to default in the absence of a change of course, the debt is invalid (or at least of questionable validity) and Congress has violated the original meaning of the Public Debt Clause.”

To my mind, this means that the very existence of the debt limit is unconstitutional because it calls into question the validity of the debt. So would any other provision of law. That is a key reason why Congress created a permanent appropriation for interest payments at the same time that the Fourteenth Amendment was debated. Previously, Congress had to pass annual appropriations for interest.

Of course, if the administration takes my position and ignores the debt limit to prevent a default on constitutional grounds, there are certainly those who would claim that it has violated the law. However, Jonathan Zasloff, a professor of law at UCLA, raises an interesting question [ http://www.samefacts.com/2011/05/watching-conservatives/if-the-debt-ceiling-is-unconstitutional-how-would-anyone-know ]: who would have standing enjoin the administration’s action?

The Justice Department would certainly not sue the president or the Treasury secretary under these circumstances, so who would? Zasloff thinks only the Congress as a whole would have standing, which means that both the House and Senate would have to pass a joint resolution condemning the president’s action and authorizing a law suit, something that would be very unlikely given Democratic control of the Senate.

According to a June 28 report [ http://www.huffingtonpost.com/2011/06/28/14th-amendment-debt-ceiling-unconstitutional-democrats_n_886442.html ] in the Huffington Post, Democratic senators, including Chris Coons of Delaware and Patty Murray of Washington, are warming to the constitutional option for breaking the deadlock on the debt limit and preventing a default. At a press conference on Wednesday, President Obama was asked directly about this by Chuck Todd of NBC News and he refused to rule it out.

It goes without saying that provoking a constitutional crisis over the debt limit is a bad idea, but a debt crisis would be worse. At a minimum, the Fourteenth Amendment greatly strengthens the president’s hand in getting the debt limit increased in a timely matter. He should not be afraid to use it.

Addendum

Since I wrote this, I discovered that Prof. Abramowicz has posted an even stronger article arguing for the unconstitutionality of the debt limit. It is available at SSRN [ http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1874746 ]. Prof. Jack Balkin of Yale has posted a legislative history [ http://balkin.blogspot.com/2011/06/legislative-history-of-section-four-of.html ] of sec. 4 that supports a broad reading of its applicability to the debt limit issue.

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http://capitalgainsandgames.com/blog/bruce-bartlett/2296/debt-limit-options [with comments]


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What our Declaration really said

By E.J. Dionne Jr., Published: July 3[, 2011]

Our nation confronts a challenge this Fourth of July that we face but rarely: We are at odds over the meaning of our history and why, to quote our Declaration of Independence [ http://www.archives.gov/exhibits/charters/declaration_transcript.html ], “governments are instituted.”

Only divisions this deep can explain why we are taking risks with our country’s future that we’re usually wise enough to avoid. Arguments over how much government should tax and spend are the very stuff of democracy’s give-and-take. Now, the debate is shadowed by worries that if a willful faction does not get what it wants, it might bring the nation to default [ http://www.washingtonpost.com/politics/congress ].

This is, well, crazy. It makes sense only if politicians believe — or have convinced themselves — that they are fighting over matters of principle so profound that any means to defeat their opponents is defensible.

We are closer to that point than we think, and our friends in the Tea Party have offered a helpful clue by naming their movement in honor of the 1773 revolt against tea taxes [ http://www.time.com/time/specials/packages/article/0,28804,2080036_2080037_2080049,00.html ] on that momentous night in Boston Harbor.

Whether they intend it or not, their name suggests they believe that the current elected government in Washington is as illegitimate as was a distant, unelected monarchy. It implies something fundamentally wrong with taxes themselves or, at the least, that current levels of taxation (the lowest in decades) are dangerously oppressive. And it hints that methods outside the normal political channels are justified in confronting such oppression.

We need to recognize the deep flaws in this vision of our present and our past. A reading of the Declaration of Independence makes clear that our forebears were not revolting against taxes as such — and most certainly not against government as such.

In the long list of “abuses and usurpations” the Declaration documents, taxes don’t come up until the 17th item, and that item is neither a complaint about tax rates nor an objection to the idea of taxation. Our Founders remonstrated against the British crown “for imposing taxes on us without our consent.” They were concerned about “consent,” i.e. popular rule, not taxes.

The very first item on their list condemned the king because he “refused his assent to laws, the most wholesome and necessary for the public good.” Note that the signers wanted to pass laws, not repeal them, and they began by speaking of “the public good,” not about individuals or “the private sector.” They knew that it takes public action — including effective and responsive government — to secure “life, liberty and the pursuit of happiness.”

Their second grievance reinforced the first, accusing the king of having “forbidden his governors to pass laws of immediate and pressing importance.” Again, our forebears wanted to enact laws; they were not anti-government zealots.

Abuses three through nine also referred in some way to how laws were passed or justice was administered. The document doesn’t really get to anything that looks like Big Government oppression (“He has erected a multitude of new offices, and sent hither swarms of officers to harrass our people, and eat out their substance”) until grievance No. 10.

This misunderstanding of our founding document is paralleled by a misunderstanding of our Constitution [ http://www.archives.gov/exhibits/charters/constitution.html ]. “The federal government was created by the states to be an agent for the states, not the other way around,” Gov. Rick Perry of Texas said recently [ http://thecaucus.blogs.nytimes.com/2011/06/14/perry-speaks-but-avoids-big-question/ ].

No, our Constitution begins with the words “We the People” not “We the States.” The Constitution’s Preamble speaks of promoting “a more perfect Union,” “Justice,” “the common defense,” “the general Welfare” and “the Blessings of Liberty.” These were national goals.

I know states’ rights advocates revere the 10th Amendment [ http://www.archives.gov/exhibits/charters/bill_of_rights_transcript.html ]. But when the word “states” appears in the Constitution, it typically is part of a compound word, “United States,” or refers to how the states and their people will be represented in the national government. We learned it in elementary school: The Constitution replaced the Articles of Confederation to create a stronger federal government, not a weak confederate government. Perry’s view was rejected in 1787 and again in 1865.

We praise our Founders annually for revolting against royal rule and for creating an exceptionally durable system of self-government. We can wreck that system if we forget our Founders’ purpose of creating a representative form of national authority robust enough to secure the public good. It is still perfectly capable of doing that. But if we pretend we are living in Boston in 1773, we will draw all the wrong conclusions and make some remarkably foolish choices.

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© 2011 The Washington Post

http://www.washingtonpost.com/opinions/what-our-declaration-really-said/2011/07/02/AGugyvwH_story.html [with comments]


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