Is The Debt Ceiling Unconstitutional?
The looming debt ceiling battle is shaping up to be the most important in a decade, if not history. If Congress pushes Biden to the brink, could he invoke the Constitution to disobey the debt limit?
Before you promptly close out of this tab instead of reading another boring article about “whatever the debt ceiling is,” consider this: What happens if Biden (who, as of now, is standing firm against the Republicans and their list of demands for raising the debt ceiling) calls the Republicans’ bluff? What if they call Biden’s? Who prevails in a standoff when the money runs dry and we can no longer pay our bills? Would the U.S. really default? Is there anything Biden can do instead of defaulting?
As of today, the U.S. has hit the debt ceiling set by Congress—the total amount of money that the U.S. government is authorized to borrow to meet its existing obligations. Until Congress raises the limit, the government can’t borrow any more money to pay for those existing legal obligations.
The Treasury will now starting using “extraordinary measures” to keep paying the bills, which is forecasted to float us to about June without needing an official increase of the debt ceiling (think of “extraordinary measures” like the sort of cost-cutting, cash-finding and money-moving tricks you use to pay off your credit card bill after a trip to Vegas, but here the bill is much, much higher).
The U.S. national debt is a funny thing. Since the country’s inception, the ghosts of Congresses and presidents past have committed to paying for all sorts of good stuff: Social Security and Medicare benefits, public education, weapons of mass destruction, futile wars in the Middle East, etc. These things cost money; lots of money. And in order to pay for these costly (but totally vital) things, the government has, in the most general sense, two options:
Using money it has raised from taxes, or
Borrowing money by issuing debt.
Although the government covers a large portion of its costs with money it has raised (roughly 58% in 2021), the Treasury ends up having to borrow money from the public in the form of debt in order to make up the difference in what we owe. In 45 of the last 50 years, the federal government has spent more money than it has brought in (a “deficit”).
But because the good folks in the government are just like us—they love to buy stuff but hate to pay for it—the fickle ghosts of Congresses past decided to enact a statute that arbitrarily limits the notional amount of debt that the federal government can borrow.
Each time we’ve neared the ceiling, Congress has typically (and fairly uncontroversially) worked to pass an increase, with the most notable exception occurring in 2011 when the Republican-controlled House pushed the country to the brink of default. The Treasury later cited this brinkmanship and the surrounding uncertainty as a key factor in the fall in consumer and business confidence at the time, the stock market’s decline, the rise in volatility and, most strikingly, the downgrading of U.S. government debt.
But this time is different.
This time, as the clock begins to tick on the Treasury’s extraordinary stopgap measures, we are faced with a Congress that appears even more willing than it was in 2011 to take us to the brink in order to receive the concessions it wants. This time, the Republican-controlled House—which has thus far proved unable to carry out even the most basic day-one task of appointing a speaker (a task that has been utterly routine for the last one hundred years) and which gave a small, far right faction decisive and outsized concessions in exchange for its speakership votes—will almost certainly bring us as close to the brink of default as we’ve ever been.
And while it is more than likely that a compromise will be struck and/or that one side will capitulate, this impending standoff—more than any before it—begs the question: What happens if both sides remain steadfast?
For one, the economic consequences of not raising the debt ceiling are clear. As Treasury Secretary Janet Yellen wrote in her recent letter to Congress:
Failing to increase the debt limit would have catastrophic economic consequences. It would cause the government to default on its legal obligations – an unprecedented event in American history. That would precipitate another financial crisis and threaten the jobs and savings of everyday Americans – putting the United States right back in a deep economic hole, just as the country is recovering from the recent recession.
Researchers at one Democratic think tank estimated in December that breaching the debt limit could cause a loss of up to three million jobs, add $130,000 to the cost of an average 30-year mortgage and balloon the national debt by an additional $850 billion.
But what if we didn’t actually have to default? What if, in a situation where both sides hold firm, the executive branch got creative?
Queue Michael Dorf and Neil Buchanan, two law professors who have written a slew of relatively obscure academic papers on the very subject. In the aftermath of the 2011 debt ceiling crisis, Dorf and Buchanan spent several years exploring what a president could do in the face of an unwavering Congress—dubbing the unique circumstance where a steadfast Congress wields the debt limit as a club to force the President to capitulate to its demands the “trilemma”:
Ignore the debt ceiling and unilaterally issue new bonds, infringing on Congress’s power to borrow money;
Unilaterally raise taxes, infringing on Congress’s power to tax; or
Unilaterally cut spending, infringing on Congress’s power to make spending decisions.
For Dorf and Buchanan, Biden’s answer to being pushed up against the debt ceiling by Republicans is clear: “faced with this choice among unconstitutional options, the President should choose the ‘least unconstitutional’ course—here, ignoring the debt ceiling.”
An even more powerful tool that Biden could invoke, though, is the so-called “nuclear option,” which garnered a fair amount of support back in 2011. Using a bit of legal interpretation to get there, Biden could argue that forcing him up against the debt ceiling without a solution would violate Section 4 of the Fourteenth Amendment, which, states: “The validity of the public debt of the United States … shall not be questioned.” By forcing the country into default solely due to an arbitrary limit of its own creation, the President could argue that Congress is effectively forcing him to breach the debt ceiling in order to avoid a violation of the Constitution.
But this is all, of course, legal theory—and just one of many possible creative workarounds. In a recent column, Matt Levine of Bloomberg even suggested an inventive way for Treasury to financially engineer its way around the US debt ceiling statute by taking advantage of the fact that it only caps the “face amount of obligations” (and not the interest rate on those bonds that the government also has to eventually pay). As it’s worded, the debt limit wouldn’t technically prohibit the issuance of bonds with a face value of $100 that, for example, carry an interest rate of 109% (making each bond economically worth $200 today, which is how much the Treasury would receive for issuing them, but only adding $100 to the total “face amount of obligations”).
Sure, you may say that this is all sort of a pedantic and intellectual exercise at the end of the day. You may say that, when Treasury’s well of “extraordinary measures” runs dry without Biden and Congress coming to an agreement to raise the debt ceiling, it won’t even matter if the President can successfully invoke a creative argument about the constitutionality of the debt ceiling or if the Treasury can financially engineer its way around the limit’s language, because the social, political and economic ramifications of the uncertainty and disfunction that would ensue would still be massive. And you may be right. But whether one of these creative maneuvers would be as “catastrophic” as the Treasury claims a default seems unlikely. More importantly, if we’re going down anyways, don’t you just kind of want to see Biden try?