Tuesday, July 19, 2011

Borrowing, Spending, and Taxation: Further Thoughts on Professor Tribe's Reply

-- Posted by Neil H. Buchanan

Over the weekend, Professor Laurence H. Tribe posted some thoughts here on Dorf on Law, responding to my July 11 column on Verdict and my July 12 and July 15 posts on this blog. In turn, my column and posts had been largely written in response to Professor Tribe's influential op-ed in The New York Times, in which he argued that President Obama lacks constitutional authority (under the 14th Amendment, and more generally under separation-of-powers principles) to ignore the debt limit, should Congress fail to raise the limit before the Treasury loses its ability to pay all of its legal obligations.

I continue to agree with Professor Tribe that the best solution would be for Congress and the President to find a way forward through standard political procedures, resolving a political crisis that is completely avoidable. Even in light of Professor Tribe's additional arguments, however, we continue to disagree about what the President's options are, should the crisis not be resolved.

Professor Tribe's arguments can be placed into three categories. First, there is a preliminary matter regarding the authority to borrow under existing budgetary law. Second, there is the question of the applicability of Section 4 of the Fourteenth Amendment, and whether it should be read to invalidate the debt-limit statute. Finally, he offers a constitutional argument that the President -- when presented with a collection of laws that cannot be simultaneously executed (because they are mutually contradictory) -- can and must make spending cuts at his (limited) discretion, rather than ordering Treasury to borrow more money to cover the government's obligations.

As a threshold matter, Professor Tribe says that he is "at a loss to see why Professor Buchanan assumes" that the spending laws currently in effect include the authority to increase borrowing. He walks readers through a quick tutorial regarding the various ways that the law might authorize borrowing, allowing that "[s]ome spending laws might conceivably be written in a way that includes such authority." Saying that he has not "personally seen any spending laws written in a way that includes such authority and certainly can’t accept the premise that each spending law necessarily contains its own built-in borrowing authorization," he then describes the role that spending laws and taxing laws serve in the budget.

None of this says anything about the current situation. It merely says that Professor Tribe does not know whether or how current law enables the government to borrow money. Yet he ignores my actual argument, which is that the current political crisis is premised on the fact that the debt limit will be binding. That is, the only way for the current standoff to have any meaning is if, on August 3, the Treasury would otherwise be legally authorized to borrow money in excess of the current debt ceiling. If that is not true, then there is no reason to have this debate, because the federal government would not be on the brink of engaging in spending that exceeds the debt limit. Indeed, the Treasury could not even try to borrow money, and if it did, it would be violating not the debt-limit statute but its legal authority to issue debt.

Furthermore, the solution to the current crisis could not be to raise the debt-limit, because doing so would not provide the statutory authority to increase the debt. I am fully aware that there are times when every political player in Washington seems to share a common delusion, but it would be rather astonishing if this entire political crisis were based on the false belief that the government was about to exceed its borrowing authority. If I were writing a law review article, I would dutifully detail the statutory scheme under which borrowing authority has been vested in the Treasury, but honestly, I do not see how we are even having this debate if any of us thinks that current law does not authorize borrowing that would push the government past the current debt ceiling.

Tribe further asserts that I am incorrect to describe the debt limit as preventing the government from paying for its authorized spending commitments, because the debt limit "merely limits one source of revenue that the government might use to pay its bills. Similarly, the tax code limits a different source of revenue—taxation—that the government might also use to cover its expenditures." Obviously, my statement about the debt limit is premised on the existing structure of both spending and taxation. That is the essence of the debate: If the current tax laws do not provide sufficient revenues to cover current spending, then the only way to get the remaining money that must be spent is by borrowing it. "Professor Buchanan simply does not explain why the one is constitutional, and the other unconstitutional – or why one, but not the other, becomes unconstitutional under sufficiently dire fiscal circumstances." Let us now turn to that issue.

Professor Tribe rejects the argument that Section 4 of the Fourteenth Amendment makes the debt-limit law unconstitutional. He says that I err by misreading Section 4 to apply to all spending commitments as "public debt" that "cannot be questioned," whereas the better reading is that "public debt" means only Treasury securities (i.e., contractual commitments by which the government has borrowed money and promises to repay lenders principal plus interest), not any of the government's other legal commitments to pay money to any other parties.

My mistake, Professor Tribe says, is in engaging in an overly-broad reading of Section 4, which is one of the Constitution's "precise, hard-wired, rule-like provisions". He then offers five reasons why I am wrong to assert that debt and obligation "mean the same thing." Of course, I never argued that there is no difference between debts and obligations. I argued that all obligations that are due on a particular day -- whether those obligations involve paying principal or interest on U.S. Treasury securities, or paying Social Security benefits, or paying a contractor for services rendered -- are debts in the meaningful sense that the government has to pay them, and that treating some as optional undermines the public debt in precisely the way that Section 4 is designed to prevent.

Professor Tribe's fourth and fifth arguments (labeled "Common sense" and "Precedent," respectively) illustrate the distinction. He points out that the Congress could legally change authorized appropriations, including Social Security. What he does not point out is that Congress may do so prospectively. That is, it may certainly decide not to pay doctors the same reimbursement rates under Medicare in 2012 as it did in 2011. It may not, however, decide on the due date that it is not paying the then-current reimbursement rates under the law. As a commenter on one of my previous posts pointed out, recent Supreme Court precedents (U.S. v. Winstar Corp., 518 U.S. 839 (1996) and Cherokee Nation v. Leavitt, 534 U.S. 631 (2005)) confirm that the government's statutory spending obligations are legally binding commitments that the government was free not to enter into in the first place, but that it cannot ignore once it has committed to pay the funds.

Again, my point was not that there is never a difference between the meanings of the words debt and obligation. Instead, the question is what it means under Section 4 to say that the validity of the public debt shall not be questioned. After discussing the logical incoherence in this context of describing an obligation to pay money to a private holder of of a government bond as a "debt" but an obligation to pay money to a private holder of a government contract or other obligation as "not a debt," I turned, naturally, to see whether the courts have spoken.

Even in light of the textual and other points to which Professor Tribe draws our attention, the Supreme Court in Perry v. United States stated: ""Nor can we perceive any reason for not considering the expression 'the validity of the public debt' as embracing whatever concerns the integrity of the public obligations." In other words, the Perry court is saying that Section 4 is not limited to Treasury securities.

Professor Tribe dismisses this as "a stray dictum in a plurality opinion from 1935." I suppose that "stray dicta" lie somewhere on a continuum between "regular dicta" and "rank dicta." In any event, I fail to see how the Perry language can be so easily demoted to dictum status. Describing the principal that allows us to understand Section 4's overall meaning strikes me as a perfect example of what courts do, whether in 1865, 1935, or 2005. In any case, I am happy to rely on the Court's only express statement to date that -- in this context -- "the validity of the public debt" includes concerns about "the integrity of the public obligations."

Indeed, we can see the illogic of limiting the definition of debt in this context by considering what the word "debt" could be limited to mean. In a narrow sense (consistent with Professor Tribe's treatment of the matter), the debt is the value of the securities issued by the Treasury that are currently outstanding. The debt is what we currently owe. The interest on that debt, however, has not yet been paid. The obligation to pay interest is simply a contractual commitment, which the federal government has promised to honor on the relevant future due dates. If we were to read "the validity of the public debt" in the sense in which debt is not merely an obligation, then a government could affirm the validity of the public debt merely by promising to pay back the principal, but not the interest. The principal, after all, is the debt that we owe today, whereas the interest is to become due at some point in the future.

It is precisely this possibility, however, that motivates our concern about undermining "the full faith and credit" of the government. No bondholder would be satisfied to learn that the government does not really owe interest, merely because interest is not included in the amount of currently outstanding debt. Yet their claim for payment of interest on any given due date is merely a claim that the government owes them money as of that date, not today.

This is why the Perry language about "the integrity of the public obligations" is not merely aspirational. The ratings agencies have recently been warning that any failure to pay a public obligation -- principal on a Treasury security, interest on a security, or any other public obligation -- will be considered an "event" that will undermine the credit rating of the government, thus raising borrowing costs in the future. In other words, "the validity of the public debt" can be brought into question by much more than simply failing to repay narrowly-defined debt.

The Fourteenth Amendment, therefore, is directly applicable to a situation in which the government might not pay its obligations. Failing to pay people who are owed money, when due, under current law casts serious doubt on the government's reliability as a debtor; and we must not enforce laws that would prevent obligations from being paid. This means that there can be no prioritization of payments -- reducing expenditures as necessary to stay under the debt limit -- under the Constitution.

Even assuming that there is no violation under the Fourteenth Amendment, however, Professor Tribe allows that there might be a constitutional issue involved with prioritization, under separation-of-powers concerns. That is, even if the debt-limit statute is constitutionally valid, the combination of the current tax laws, spending laws, and debt limit will soon prevent the President from carrying out his duties to execute the law. Professor Tribe then asks whether there is a way to know what must give. He concludes that it is the spending authorized under the current budget, not the debt limit, that the President is constitutionally authorized to alter.

Professor Tribe offers an analogy to the line-item veto, noting that the Supreme Court's decision in Clinton v. New York held that the president may not cancel appropriations that Congress has authorized. I would add that what it being considered here is much more extreme than a line-item veto, because prioritization of spending allows the president to adjust levels of spending unilaterally, whereas the line-item veto only allows the president to make all-or-nothing decisions about spending items. If, for example, Congress has authorized $10 million to be spent on housing vouchers, a line-item veto would force the president to accept all $10 million or nothing at all, whereas prioritization would allow the president to reduce spending by any amount at all. As a usurpation of Congressional authority, therefore, prioritization is extreme. If the line-item veto is unconstitutional, then prioritization would be even more of a violation.

Again, however, Professor Tribe frames the problem as a choice between valid laws, and he says that even Clinton does not protect duly-enacted spending legislation from being cut due to the debt limit, because it would be even worse to do otherwise.

Professor Tribe's argument, however, describes the President's options not as three choices -- spending, taxing, and borrowing -- but as two: "executive control over spending [or] executive control over revenue-raising." His analysis thus treats taxing and borrowing as the same thing: raising revenue. Clearly, however, both Congress and the President (as well as everyone else) treat borrowing and taxing quite differently, and the history of this country makes it clear that borrowing and taxing are not the same thing. "No taxation without representation," for example, can hardly be read as a call for the government neither to tax nor to borrow.

I am perfectly happy to concede that Congress's power to tax is highly prized and jealously guarded. Even within Professor Tribe's framing of the argument, however, it is clear that Congress's power to determine spending levels is much more jealously guarded than its ability to set a limit on debt.

It is notable that Professor Tribe points to executive cancellation of congressional appropriations by several presidents, the most recent of whom is Richard Nixon. Nixon's attempt to cancel spending appropriated by Congress led to litigation to re-assert Congress's authority. Before the Supreme Court had an opportunity to rule on Nixon's losses in the lower courts, Congress passed the Impoundment Control Act of 1974. By the terms of that act, Congress allows only the most limited delays in spending duly-authorized funds, and such delays must be approved by Congress. (See a good summary from the Congressional Research Service at pp. 8-9 here.)

While the Impoundment Act is necessarily imperfect, it establishes that Congress has aggressively disapproved of presidential encroachment on its spending authority -- encroachment of precisely the type that prioritization represents. Consider, by contrast, Congress's actions regarding the federal debt limit. Enacted in partial form in 1917 and then in its present form in 1939, Congress has raised the debt limit without fail, treating it (until this year) as a mere formality. That is not to say that Congress puts no weight on the debt-limit statute. After all, Congress has not repealed it. As a matter of priorities, however, Congress's protection of its constitutionally-endowed spending powers has been much more aggressive than its protection of a claimed ability to set a limit on the debts that its own laws otherwise necessitate.

Finally, consider how Congress itself would set its priorities. The prevailing standard for determining how a Congress would act under these circumstances is the "reasonable Congress" approach, not actual Congressional intent. How would a reasonable Congress want a President to proceed?

If the President refuses to spend, people are harmed immediately, perhaps irreversibly. For example, if the President cancels some Medicaid spending, people can be forced to do without life-saving treatments. If, on the other hand, the President borrows more than Congress allows under the debt ceiling, any harm is in the future ("impoverishing future generations" and other such claims) or is diffuse (perhaps slightly higher interest rates -- though that would not happen in today's economy). Moreover, if Congress is truly unhappy with a higher level of debt, it can decide in subsequent years how to reverse that -- what combination of spending cuts and tax increases it wants to enact to bring the debt back down.

A reasonable Congress, then, would choose to have the President violate the debt limit, rather than cut spending or raise taxes. Of course, they would not be happy with that choice, but the exercise here is about choosing the least bad among three bad options.

In short, while I found Professor Tribe's arguments here on Dorf on Law engaging, they still do not add up to an adequate defense of the enforceability of the debt-limit statute. The statute is unconstitutional under Section 4 of the Fourteenth Amendment, because the debt limit threatens the integrity of all government obligations. Even if the debt-limit is otherwise constitutional, however, it must give way to validate Congress's control over spending and taxation.

1 comment:

Hashim said...

You haven't answered the central critique leveled by Tribe (or me in my various comments): even assuming the broad interpretation of 14A "debt" that you propound, why is it the debt-ceiling statute that is unconstitional, as opposed to the cap on marginal income tax rates, or any of the other myriad statutes that limit the source of govt revenues. Article I equally places the power to tax and to borrow in Congress' sole control, and the 14A does not distinguish between tax revenues and borrowed funds in meeting the Nation's "debts." The debt-ceiling is simply a statutory cap on the statutory authorization to borrow, just like the top marginal tax rate is a statutory cap on the statutory authorization to tax. Nothing in your argument explains why the one, rather than the other, is unconstitutional, when the President lacks sufficient funds to satisfy the Nation's "debts."

Again, I think my 1789 hypo is instructive, and you still haven't answered it. Assume that (1) the 14A had been on the books in 1789, (2) the only two laws that Congress had passed were a limited tax and a legally mandated spending program, and (3) the tax revenues were insufficient to satisfy the program obligations. Are you really arguing that the President could have borrowed funds (or increased taxes) in the complete absence of statutory authorization? And if not, then what's the difference between the current setting, where the debt-ceiling is a statutory limit on a statutory authorization?