Thursday, October 17, 2013

It's Two ... Two ... Two Constitutional Violations in One!

-- Posted by Neil H. Buchanan

The debt ceiling crisis has again been pushed down the road, meaning that we can now look forward to several months of talking about other things, and then spending the early part of the new year wondering why we are back at it once again.  I ended an interview on Tuesday morning on Sirius XM radio by saying, "See ya in 2014!"

People have been talking about the "Groundhog Day" feeling of this recurring fight, and with the next debt ceiling deadline now set for February 7, we know that we will almost certainly spend February 2 wondering if John Boehner will see his shadow in time to avert utter catastrophe once again.  A BBC anchor joked yesterday that this is good news for me and the publisher of my book (The Debt Ceiling Disasters), and I replied (ungrammatically), "Yes, but it would be nice to have an actual economy to spend all of my book royalties in."

In other words, although I am sure the Obama team is absolutely convinced that they did everything right, they merely delayed the inevitable fight yet again.  They have obviously handled this better in 2013 (twice) than they did in 2011, but anyone who thinks this is over is fooling himself.

One gratifying difference in this most recent go-round is that the policy talk began to confront the constitutional analysis that Professor Dorf and I have been offering, separately and as co-authors, for the last two-plus years.  Big-named economists and financial writers invoked our Columbia Law Review articles (mostly the first one, published in October 2012), and we even had some success getting people to understand that this was not a "clever work-around" for the President.  Our trilemma analysis is no longer simply being conveniently ignored.

Even so, there is more work to be done before February 7.  I continue to hope that the President can be convinced that there is a way to drive a stake through the heart of the debt ceiling statute, rather than simply playing a better political hand of poker than the Republicans do, each time the issue comes up.  Convincing him of this, I think, will require us to add to our argument that the choice of "cutting spending" in response to a trilemma -- which is to say, to default on existing legal obligations to pay money to recipients, in full and on time -- is not just one of three unconstitutional choices, but clearly the most unconstitutional choice.

We have, of course, already made that argument from a number of different angles, but today, I will offer a different path to that result.

Three weeks ago, on September 27, I wrote a post here on Dorf on Law that described the Prompt Payment Act (PPA), which applies to the payments owed to contractors who do work for the federal government.  The PPA provides that contractors who are not paid on time are owed the original amount, plus interest until they are paid.  Importantly, the Act explicitly refers to the unpaid obligations as having become "debt" of the government.  (And each month, any unpaid interest is added to the principal on that debt.)

One of the hangups in the debate over the 14th Amendment's possible role in the debt ceiling standoff involved the meaning of the word "debt."  Section 4 of that amendment does not define debt, and there has been some talk from the right to the effect that the 14th Amendment requires payment on the interest and principal of Treasury securities, and nothing else.  The first Buchanan-Dorf Columbia Law Review article, and many of my posts, showed that such a reading was either too narrow or too broad, and my September 27 DoL post was written to show that "debt" does, indeed, have a broader meaning in the statutes.

I concluded in that post that the language in the PPA strengthens the idea that "default" (which also has no official definition) must include not just nonpayment of principal and interest on Treasuries, but also nonpayment of all other obligations.  Also, I concluded that the PPA's language strengthens the 14th Amendment-based argument that the debt ceiling statute is unconstitutional.  The trilemma argument is still the strongest argument, but the COMPLETELY SEPARATE 14th Amendment argument is strengthened in light of the PPA.  (Sorry for shouting, but it has become important to remind people that the trilemma argument is not at all the same thing as the 14th Amendment argument.  People hear "constitutional argument," and immediately think about the 14th Amendment.)

Looking at the PPA, however, also helps to answer the central question of how to measure the debt that is covered by the debt ceiling itself.  Gregg Polsky, an excellent tax law professor who teaches at the University of North Carolina, reminded me yesterday that "accounts payable (for interest, services, goods, etc…) are 'debt' under the traditional definition."  The question, therefore, is whether this broader definition should be applied to the debt ceiling statute.  Because it does, as I will explain presently, the analysis changes drastically.

Remember, however, that the debt ceiling statute does not use the word "debt," but rather "obligations."  In a Dorf on Law post earlier this year, I pointed out that the debt ceiling law uses an expansive definition of debt.  The statute uses the term "obligations," and it explicitly identifies two categories: (1) traditional Treasury securities, and (2) "other" obligations of the government.  It does not define obligations in a way that excludes money owed under appropriations laws.

Now, think about what this would mean to a President who faces a trilemma.  Suppose that he chooses to default on some payments that are due to be paid on a given day, rather than paying those obligations by floating more debt than the debt ceiling statute purports to allow.  Imagine some simple numbers: $100 worth of obligations come due on the day that the debt ceiling is reached, but only $70 of tax revenue arrive that day.  Whether or not the President "prioritizes," someone who was legally entitled to receive $30 from the government on that date will not be paid.

At that point, we still owe those people (or that person) the additional $30.  We have forced them to involuntarily lend it to the government.  Unless we want to say that we have not just delayed payment on the $30 but have outright repudiated it, the government's obligations have just gone up by $30.  If this is a payment that would be covered by the PPA, it would be labeled a "debt," and if not, then it would be an "obligation."  Both are included in the total amount of debt that is limited by the debt ceiling statute.

This means that the debt limit would be exceeded, even if we default on payments due.  Or, to put it differently, a President who faces a trilemma faces an even worse set of choices than Professor Dorf and I have been describing.  We have said that the has three unconstitutional choices: (a) collect more in taxes than allowed by statute, (b) issue more debt than allowed by statute, or (c) spend less than required by statute.

In fact, the choices are: (a) collect more in taxes than allowed by statute, (b) issue more debt than allowed by statute, or (c*) spend less than required by statute, AND exceed the debt ceiling statute, anyway.  The choice to default is thus both a violation of the spending laws and a violation of the debt ceiling law.  (Formally, Congress made a violation of the debt ceiling law inevitable when it approved spending and tax laws that created obligations in excess of the debt ceiling.)

Professor Dorf and I were very careful in our articles to say that "comparing degrees of unconstitutionality" is no simple matter.  In particular, we refused to say that two constitutional violations are per se worse than one.  One cannot say for sure that x + y > z, or even that s + t + u + v + w + x + y > z.  However, I feel rather comfortable saying that x + y > x, when x and y are both positive numbers.

The only thing left for defenders of the debt ceiling statute to argue is that this is not the "spirit" of the debt ceiling.  It is obvious, one might try to argue, that an unpaid bill for $30 is not what Congress had in mind when it put a hard limit on government debt.  That, however, fails to explain why Congress affirmatively included other obligations in the statute.  And it would require us to believe that Congress thinks it is acceptable to owe money to people, so long as there is no formal loan involved.  To call that implausible and illogical is an understatement.

The Buchanan-Dorf "least unconstitutional option" approach has been unchallenged by serious scholarship, either in the constitutional criteria that we derived, or in applying those criteria to the President's three options.  Even if one somehow thinks that defaulting is less unconstitutional than exceeding the debt ceiling, however, it cannot be the case that both defaulting and exceeding the debt ceiling is the President's best choice.

That there is a debt ceiling law is both unnecessary and absurd.  That House Republicans have tried to use that law to extract ransom from the President, putting the entire world at risk, is unconscionable.  That Congress wrote that law in a way that ultimately collapses on itself is tragicomic.


Michael C. Dorf said...

I think I'd make one amendment here. It's true that when the President spends $X-$Y instead of the Congressionally mandated $X, he thereby violates both the spending law and the debt ceiling, but that's a matter of statutory violations. Thus, if one is concerned about the "trilemma" of which STATUTE to violate, cutting spending is very bad because it violates the spending statute without complying with the debt ceiling. So yes, relative to issuing debt in excess of the debt ceiling, cutting spending is worse as a matter of statutory compliance. However, in the articles, we used the term "trilemma" to refer to the impossibility of avoiding a CONSTITUTIONAL violation and, for simplicity, we said there were three constitutional obligations: the obligations not to usurp Congress's respective powers to spend, to tax or to borrow. From the constitutional perspective, cutting spending only violates one of these: the President has not "borrowed" money in a constitutional sense.

To be sure, cutting spending still results in numerically more constitutional violations than the other options, because in addition to usurping one of the President's enumerated powers, it also violates Sec. 4 of the 14th Amendment (on what we regard as the best reading of that provision). But that's a point we already made.

So bottom line: This strikes me as a very important contribution for the statutory trilemma but less relevant to the constitutional trilemma.

Michael E. Rosenberg said...

Can the Justice Department challenge the Constitutionality of the debt ceiling statute since it so clearly violates the 14th Amendment as it is being used now?

David Ricardo said...

The analytical argument in Mr. Buchanan’s post is formidable, but it is based on the premise that the debt ceiling issue will be revisited early next year. While that is possible, it is not probable for the following reasons.

1. The muddled middle independent voter is willing to tolerate a one time attempt by Republicans on the debt ceiling. A second attempt would turn the independent voters even more strongly against the Republicans.
2. What exactly would be the issue that would unite the Republicans in an attempt to use the debt ceiling? Repeal health care reform, no, that boat has sailed. Lower Social Security benefits and raising the eligibility age for Medicare? Really?
3. The opponents to the Reid/McConnell bill managed only 18 Republican Senators, not even a majority, and while a majority of House Republicans opposed the deal the vote demonstrated there are more than enough Republicans to join with Democrats to pass a debt ceiling increase early next year. And the vote on Wednesday showed that Mr. Boehner can call for a vote in the House and not lose his Speakership.
4. In 2014 the focus will start to be on the fall election. While most House Republicans are in safe seats, Senators and Governors are not gerrymandered. That part of the Republican Party will not want another fight.
5. What is left of the Establishment Republicans do not want another one of these fights. Wall Street and Main Street will be opposed.

This is not to say that after the fall elections the issue will not arise again. The new Republicans in the Congress after 2014 are likely to be even more extreme, more irrational and more willing to endanger the nation’s credit and economic well being. So Mr. Dorf and Mr. Buchanan need to hold their arguments ready, they will be needed, but probably not for a while.

Unknown said...

If your analysis of debt and obligations is correct, then Treasury likely exceeds the debt limit when using extraordinary measures because the obligation to restore the trust funds (Civil Service, Postal and G-Fund) is "debt". I don't think those obligations are excluded from the statutory debt limit. This seems like a pretty good argument for the President to use now in refuting the legitimacy of the debt limit: "Look, we've already exceeded the debt limit many times in the past, so it's obviously invalid."

I came to the same conclusion via a different mechanism in a comment on one of your prior posts

funnygames said...

To be sure, cutting spending still results in numerically more constitutional violations than the other options, because in addition to usurping one of the President's enumerated powers, it also violates Sec. 4 of the 14th Amendment (on what we regard as the best reading of that provision). But that's a point we already made.Fifa 14 Coins
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