Obama May Have to Break the Law if Debt Talks Collapse

Obama May Have to Break the Law if Debt Talks Collapse


Last April, I first raised the idea of the constitutional option for the debt limit here in The Fiscal Times, followed by a discussion last week of the emerging research by legal scholars. Since then there has been an explosion of commentary on legal blogs that has clarified our understanding of the issue considerably.

Briefly, the constitutional option for the debt limit involves invoking sec. 4 of the 14th Amendment, which says that the validity of the public debt “may not be questioned.” This has led some legal scholars to argue that this makes the debt limit unconstitutional. Among these is Prof. Michael Abramowicz of the George Washington University law school. In a new paper just posted on June 29, he takes a strong position on this issue. Here is part of the introduction:

Part I argues that the Public Debt Clause applies beyond Reconstruction. Although there are few historical records available to help us discern the Framers’ intention, the history of the Clause’s adoption shows that Congress did not intend to limit its applicability to Civil War debt, but rather sought to embed fiscal honor within the Constitution.

Part II argues for a broad reading of the Clause. The language and history of the Clause show that the “public debt” can include more than just bonds, and that formal repudiation need not occur for its validity to have been questioned.

Part III applies the Public Debt Clause to problems in the budget process. The most obvious consequence of taking the Clause seriously would be that a governmental failure to make debt payments…would be unconstitutional. More broadly, the Clause renders unconstitutional the federal debt-limit statute that makes default possible. [emphasis mine]

In short, if Congress fails to raise the debt limit and Treasury runs out of cash to pay interest on the debt and repay principal, Treasury may be justified in ignoring the debt limit and selling whatever securities are necessary to raise the cash to avoid default.

On June 30, Prof. Jack Balkin of the Yale University law school posted an excellent legislative history of the public debt clause. He makes clear that the purpose of it was to deal with exactly the sort of political impasse we are seeing today, in which congressional gridlock threatens the government’s debts. As Balkin concludes:

The threat of defaulting on government obligations is a powerful weapon, especially in a complex, interconnected world economy. Devoted partisans can use it to disrupt government, to roil ordinary politics, to undermine policies they do not like, even to seek political revenge. Section Four was placed in the Constitution to remove this weapon from ordinary politics.

On July 4, Prof. Michael McConnell of the Stanford law school said that rather than granting the president authority to disregard the debt limit, the public debt clause forces him to prioritize debt payments above all other spending. As he put it:

Section Four of the Fourteenth Amendment does not create a back-door method for the Administration to borrow more money without congressional authorization. For Congress to limit the amount of the debt does not “question” the “validity” of the debt that has been “authorized by law.” At most, it means that paying the public debts and pension obligations of the United States, as they become due, has priority over all other spending.

The problem is that there are laws, such as the Impoundment Control Act of 1974, which require funds appropriated by Congress to be spent, and the Supreme Court has ruled that the president doesn’t have line item veto authority – essentially what McConnell is suggesting that sec. 4 authorizes. For this reason, Prof. Jonathan Zasloff of the UCLA law school says that his argument doesn’t hold water:

In Clinton v. New York, the Supreme Court struck down the line-item veto, arguing that the President is not allowed to pick and choose among provisions of a duly enacted piece of budget legislation even if Congress has given him to power to do so. So what McConnell appears to be arguing is that the President can pick and choose between spending only if Congress has not authorized him to do so, and in fact, by previously passing spending measures, has instructed him to spend it. That hardly makes sense.

Undoubtedly, McConnell would argue that impounding money is different from vetoing appropriations. To my mind, this would come perilously close to failing the laugh test. A President would say, “I’m not vetoing this spending, you understand: I’m just refusing to spend it.” That’s the sort of thing that gives lawyers a bad name.

Thus if the debt limit is not raised and the government is faced with default, the president has only two options: either break the law by ignoring the debt limit or break the law by impounding funds that he is required by law to spend. Given that the first option is well grounded in the 14th Amendment, while a recent Supreme Court case appears to rule out the second option, it would appear that ignoring the debt limit is better supported by constitutional law, which overrides statutory law when there is a conflict.

More on the Debt Ceiling from The Fiscal Times:
Interest Groups Gear Up to Fight Cuts, Defend Tax Breaks 
Social Security Cuts: Tax Hikes Linked or No Deal 
U.S. Debt Ceiling History