Wednesday, January 29, 2014

The Debt Ceiling Does Not Put a Ceiling on Debt (Nor Should It)

-- Posted by Neil H. Buchanan

As I noted in my Dorf on Law post this past Friday, Professor Dorf and I have very recently completed drafting a new law review article, again offering a constitutional analysis of the federal debt ceiling.  The article, Borrowing By Any Other Name: Why Presidential "Spending Cuts" Would Still Exceed The Debt Ceiling, is now up on SSRN (here).  We are very happy that it will soon be published in the online Sidebar version of Columbia Law Review, which also published our other three debt ceiling-related articles (here, here, and here).

In this post, I will summarize the main points of the new article,  Then, I will offer two additional observations related to the arguments that we make there.  I suspect that Professor Dorf will weigh in as well with further thoughts, perhaps as early as tomorrow (although we have not conferred about that).

In last Friday's post, I noted that the new article is "non-'trilemma'-related."  Even occasional readers of Dorf on Law, or of our columns on Verdict (see especially our joint column from last January, here) might reasonably feel bombarded by our favorite way of framing the impossible problem that would face a President, if Congress were to refuse to increase the debt ceiling as needed to accommodate the arithmetic difference between Congress's spending and taxing laws.  Because any decision that the President made under such circumstances would usurp a power of Congress (borrowing, spending, or taxing), he would violate the Constitution no matter what he chose to do.

Our central argument has been that the least-bad choice would be to engage in unconstitutional borrowing, rather than unconstitutional taxing or an unconstitutional refusal to pay in full for Congress's spending decisions (that is, to default on the government's obligations).  But in our new article, we consider the possibility (so far, an entirely hypothetical one) that someone could articulate different criteria, or weigh our criteria differently, such that they could reasonably disagree with us and say that the President must (as Obama and his advisors resolutely insist) default on the nation's bills.  Alternatively, what if someone could simply convince us that defaulting was not a violation of the spending power at all?  Would either of those possibilities mean that there was no constitutional violation?

In a word, no.  We begin by developing a point that I sketched out in a Dorf on Law post this past October: "It's Two ... Two ... Two Constitutional Violations in One!"  It turns out that our stipulation that defaulting would at least avoid usurping Congress's borrowing power (even while usurping the spending power) was simply wrong.  If the President were to decide to leave any obligations unpaid (either by "prioritizing" various obligations, or simply allowing default to befall obligees in the order in which their payments from the government came due), he would still be borrowing, because he would surely be saying "not yet" when he regretfully announced the defaults.  Whether or not the President promised also to pay interest would be irrelevant, because he would be turning an obligation to make payments that had come due (and thus had not yet ripened into debts before their due date) into a "forced loan" from the unlucky obligees.

In my earlier post, I had framed this purely as a statutory matter, pointing out that the language of the debt ceiling law clearly covered "obligations" that went beyond the traditional Treasury securities that are the normal method by which the federal government borrows money from (willing) lenders.  In our new article, however, we point out that the constitutional language is even more damning for the White House's claim that it must default.  Only Congress has the constitutional authority "to borrow Money on the credit of the United States."  That the borrowing in this case would take the form, "Oh, sorry, we're out of cash for now, so we'll pay you when we can," is morally worse than voluntary borrowing, and just as unconstitutional.

But what if the President explicitly repudiated the new debt?  He would have to first default, and then acknowledge that the new debt must be repudiated, but we do not quibble about the nano-seconds between creating the new debt and then extinguishing it.  We agree that this would save the President from committing an unconstitutional usurpation of Congress's borrowing power.  The problem is that this would violate -- Are you ready? -- Section 4 of the Fourteenth Amendment.  Some readers might recall that we (and a few others) have, independently from our trilemma argument, concluded that the "public debt clause" in Section 4 prevents the President from obeying the debt ceiling, because it would cause people to "question" the "validity" of the public debt.   One response to that argument has been that only an outright repudiation rises to the level of a constitutional violation, because that is what it supposedly means to question the debt's validity.

Even by that most cramped reading of the relevant language, however, the President avoids violating Article I, Section 8, only by violating Amendment XIV, Section 4.  We also note that, if the President defaults but claims that there is nothing to repudiate, then he would simply have engaged in an unconstitutional "taking" without just compensation -- because the only just compensation for the unpaid bills would be the amount of the obligation that had not been paid in the first place.

There is more in the article, of course, but this is the gist of it: If the President refuses to float new bonds to cover the shortfall between Congress's spending and taxing laws, then he either violates the Constitution by borrowing on the credit of the United States, or he violates the Constitution in some other way -- and, by the way, puts himself in even hotter political waters.  (Would you like to be the one who explains why obligees will never be paid?)

We, of course, continue to believe that our original analysis is correct.  If we are right, then defaulting amounts to the "two constitutional violations in one," about which I wrote in October 2013.  If we are wrong, however, then the President would still violate the Constitution -- and he would do so by borrowing more money, which is exactly what he insists he cannot do.

Two additional thoughts are worth mentioning here, I think.  First, back when I presented a draft of our first article to the Tax Policy Colloquium at Duke Law School, I argued pretty unambiguously that the debt ceiling law serves no purpose at all, because debt is the consequence of Congress's taxing and spending decisions.  Both of the colloquium's professors (Rich Schmalbeck and Larry Zelenak) posed variations on the following question: Isn't it possible that the debt ceiling is a kind of fail-safe, given that it is not possible to know, ex ante, exactly how much money will ultimately be borrowed under any given set of spending and taxing laws?  Given the existence of commitments tied to contingent events, for example, Congress's spending laws could end up obligating the country to pay much more than Congress would have wanted.

In essence, this argument turns the debt ceiling law into what might playfully be called the "alternative maximum borrowing" (AMB) law, a law that undoes what Congress has otherwise purported to do, if circumstances become unexpectedly extreme.  (Readers who are not tax geeks might not recognize the punny reference to the Alternative Minimum Tax, but believe me, it's hilarious.)

My response at the time to the Schmalbeck-Zelenak query, which I still think is correct, was that Congress has the responsibility to write its laws in a way that covers such contingencies.  In our third article, in fact, Professor Dorf and I discussed what amounted to the same argument, showing that the debt ceiling law would, if read as a fail-safe law, be an unconstitutionally unguided delegation of authority to the President.

In light of our new article, I think the answer to the AMB argument is even clearer.  If Congress thinks that passing a debt ceiling law will actually limit debt, then it is sadly mistaken.  If it truly wants to install pressure-release valves into its laws, then it retains the power to do so explicitly.  But obligating the government to pay certain bills, and then expecting the President not to pay some of those bills if Congress has not paid enough attention to contingencies, is not a way to avoid having the President borrow more money than the debt ceiling allows.

My second thought about our new article is that the framing of our argument might plausibly reinforce the damaging idea that debt is always bad.  One easy (and accurate) way to summarize our argument, after all, is something like this: "The President cannot avoid violating the debt ceiling by defaulting, because Congress's decisions already required that the spending be paid for.  Only Congress can prevent the need for more borrowing."

Although nothing in that summary carries a necessary condemnation of federal borrowing, I fear that it plays into the idea that "Congress is just a bunch of spendthrifts, who cannot stop themselves from putting us all in hock."  Indeed, Tea Party extremist Rep. Raul Labrador of Idaho actually got this much right a few days ago, when he reportedly said: "The time to fight for spending cuts is when you’re talking about spending, not at debt ceiling time. So when people caved on the budget and caved on the [Ryan-Murray] agreement, it’s really hard for them to come back and say, ‘We don’t want to increase the debt ceiling’ when they’ve already voted for something that increases the debt.”

This is why I added the parenthetical comment to the title of this blog post.  When Professor Dorf and I emphasize the nonpartisan nature of our arguments, we frequently note that those who wish to limit the debt have a perfectly straightforward and constitutional method of doing so: cutting spending and/or increasing taxes.  As I have argued repeatedly, however (for example, here on Dorf on Law), "arguendo reasoning" -- assuming that one's opponent's starting point is correct, in order to show that his argument fails even on its own terms -- often ends up reinforcing one's opponent's assumptions.

Here, by noting that the increase in borrowing above the debt ceiling is set in stone by Congress's actions, we do not have to be read as saying that Congress made a mistake in requiring the debt to rise.  Indeed, we both believe that Congress should increase some spending and decrease some taxes, in order to stimulate the economy now, and to invest in the economy's future growth.  When we take pains to say, in essence, "But you need not agree with us about Keynesian economics to agree with us about the unconstitutionality of the debt ceiling," we are doing what scholars do.

That, however, often translates poorly into political discussion.  Therefore, this is my meager effort to say that our constitutional argument is truly, truly agnostic about the wisdom (or lack thereof) of fiscal austerity.  It should not be read as an argument that the larger goal of the debt ceiling fanatics is somehow wise, if only it were pursued through sane (and constitutional) means.

31 comments:

Ben Alpers said...

When Professor Dorf and I emphasize the nonpartisan nature of our arguments, we frequently note that those who wish to limit the debt have a perfectly straightforward and constitutional method of doing so: cutting spending and/or increasing taxes.

If you're going to be truly fiscally agnostic, shouldn't you include cutting taxes as a way of limiting the debt ;-)

Michael C. Dorf said...

Ben's comment--though obviously intended to be tongue in cheek--makes a serious point about the insincerity of what used to be called voodoo economics. Even the people who purport to believe in the magical stimulative effects of tax cuts do not really believe that we are currently so far to the high-tax side of the Laffer Curve that cutting taxes would actually increase government revenues.

Michael C. Dorf said...

Thanks to Neil for this excellent summary. He is right that I'll undoubtedly have more to say about this issue here too, but not tomorrow. Tomorrow I'll have a post that expands on some points I make in my latest Verdict column on the death penalty:

tinyurl.com/qfnf23o

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