Tuesday, March 05, 2019

Again With the Debt Ceiling?

by Neil H. Buchanan

After yet another hiatus, the federal debt ceiling is back.  Can you feel the sudden wave of fiscal sanity?  Do you thrill to the return of limits on (supposedly) uncontrolled debt?  Are you awed by the power of Congress to legislate away economic reality?  Of course not, because the debt ceiling does nothing good, and its existence can only set us up for disasters in the future.

This time, the debt ceiling was put into hibernation for a bit more than a year, but if memory serves, it has been in suspension more than it has been in force for the last seven or eight years.  The suspension stratagem was a Mitch McConnell special, whereby the esteemed Republican leader of the United States Senate figured out -- not for the first time -- that his party's self-styled budget hawks were either idiots or cynics who considered their voters to be idiots.  Voting for an increase in the debt ceiling?  Unthinkable!  Voting to suspend the debt ceiling and then bring it back at a higher number?  Let's do it!

And here we are.  As of March 1, the debt ceiling is formally back in force.  Longtime readers of Dorf on Law know -- boy, do they know! -- that Professor Dorf and I have spent a lot of time and spilled a lot of e-ink on this topic since the Tea Party Republicans first used the debt ceiling as a hostage-taking device in 2011.  When I saw the news last week reminding me that the most recent suspension was ending, I tried to think of the best adjectives to describe the task of thinking through these issues yet again: dreary, obligatory, depressing, pointless?  And that was without resorting to a thesaurus.

But because the debt ceiling still exists for some reason, and because of its potential to do real harm, it is important to run once more through the details.  Many readers, after all, might have been mercifully spared from these discussions in the past.  Why should they not be drawn into the insanity?

The debt ceiling purports to put an upper bound, in dollars (as opposed to a percentage of some base, which would only be slightly less ridiculous), on the total "gross federal debt" that the government can have outstanding at any given moment.  Let us ignore the fact that, even on its own completely illogical terms, debt paranoia should be focused on net debt (because gross debt includes money that the federal government owes to itself -- don't ask).  What is the point of the debt ceiling statute?

Again, what Republicans would have us believe, and what many journalists (who have no training in such matters and who are especially prone to buying into sober-sounding conventional wisdom on debt and deficit issues) are willing to repeat as unchallenged truth, is that the debt ceiling puts a ceiling on the debt.  But it does no such thing, for two reasons.

First, the spending and taxing laws determine how much debt will come into existence.  When, putting on his extra-crispy-super-partisan hat, Mitch McConnell once decried President Barack Obama's call to repeal the debt ceiling, McConnell feigned horror that such a move would allow the federal debt to rise literally without limit.  Yet the debt goes up by exactly as much as Congress orders it to rise.

If, for example, Congress passes laws resulting in $3.4 trillion in spending while collecting $2.6 trillion in revenue, debt will rise by the difference, $800 billion.  No more, no less.  If the president fails to spend the correct amount or to enforce the tax laws to collect the correct amount, he violates the law (and the Constitution).  The actual debt ceiling is, as a rule of arithmetic, the sum of the existing debt plus the new borrowing that Congress makes necessary by passing spending and taxing laws each year (or whenever it gets around to passing them; see government shutdown).

That means that the debt ceiling statute is a completely gratuitous law, a separate statement that says that the government can only borrow a certain amount of money, where that supposed limit somehow does not need to be connected to mathematical reality.

Second, when Congress (as it did in passing its currently-binding spending and taxing laws) puts the Treasury on a path to borrowing more money than the debt ceiling would supposedly allow, those laws create obligations that the government must honor.  If, in my example above, the debt ceiling would only accommodate the first $500 billion of that year's required borrowing, the remaining $300 billion is still owed by the government, because Congress ordered the money to be spent (on Medicare reimbursements for hospitals, on road maintenance, on veterans' benefits, and so on), and the people who are supposed to receive that money have every legal right to receive it.

That means (as one of the Buchanan-Dorf articles discussed at some length) that the government will definitely and necessarily owe that $300 billion by the end of the year, one way or the other.  Either it will treat the situation normally, by borrowing the money on the open market from investors who would like to hold Treasury securities, or it will stiff the recipients of the required spending and tell them that they will get their money later -- you know, by borrowing from them, but this time the lenders are not willing parties to the loans.  (The alternative is to repudiate those obligations entirely, but even all but the craziest of Republicans admit that that is unconstitutional.)

Where does that leave us?  We have a statute that exists entirely for a purpose that it cannot fulfill.  Congress automatically limits the debt with every decision to spend (and not spend) and tax (and not tax), and it cannot undo the implications of its decisions through the back door.  But the debt ceiling can create exactly the kind of crisis that I just alluded to, where a president either stiffs people who are legally owed money, repudiates the obligations, or goes ahead and borrows the amount of money that Congress has made it necessary to borrow.  Even though the latter option is (as Professor Dorf and I have shown) the least unconstitutional of the three and is thus required, having to make such a choice would itself create an economic and political disaster.

That sounds pretty bad.  And given that the debt ceiling was revived on March 1 and was set at precisely the dollar amount of debt that existed on that day, one might reasonably think that this would be a very pressing matter.  After all, the taxing/spending laws will continue to require borrowing going forward.  How are we not already in a crisis?  Through the grace of "extraordinary measures."

Extraordinary measures are the ultimate proof that the debt ceiling is nonsense.  As I explained during an iteration of this pointless exercise five years ago (!), Congress continues to allow Treasury to deem certain types of borrowing to be non-borrowing, moving bookkeeping entries around from certain sub-accounts to allow the government to continue to formally meet its obligations while pretending that it is not increasing the debt.  Those accounting gimmicks are limited, however, and it is never exactly clear (even to Treasury's experts) when they will run out of room to maneuver.  The current best guess is late September.

When that point is reached, then we truly will be up against it.  If nothing is then done, we will have an economic crisis that is entirely a result of political dysfunction.  The point, after all, is not that "we're borrowing too much" -- which nobody believes, because no one (especially not so-called fiscal conservatives) is offering a plan to stop all further borrowing.  Indeed, it is good that no one is proposing such a plan, because there will be borrowing every year in a healthy economy, and even more borrowing in a weak economy.  (If that sounds shocking, I understand, but this is not the place to go over yet again why non-zero deficits are a good thing.)

Will we reach that crisis point?  No one knows, even though this should be an easy call.  After all, the Republicans only turned the debt ceiling into a weapon as part of their war on Barack Obama, trying to put him into an impossible situation (which I often referred to as an "impeachment trap") by forcing him to either violate the spending or taxing laws or exceed the debt ceiling.  Republicans do not want to do anything to upset Donald Trump (even to the point of allowing him to declare nonexistent emergencies), and a debt ceiling crisis is not good for Trump.

What, then, is the problem?  It is not as though House Democrats want to create a debt ceiling crisis.  They understandably oppose everything that Trump stands for, but it is not in their interest to create a debt ceiling crisis, either.  (Also, just by the way, such a crisis would hurt real people.)  Indeed, the Democrats have already adopted a version of the old Gephardt Rule, by which debt ceiling increases were automatically included in every budget law: "A new House rule would automatically send a debt limit extension to the Senate if a budget passes the lower chamber, expediting the process."

The problem is that nothing makes sense anymore.  No one knows what will happen, because a political moment that can spin so far out of control that the government shuts down for 35 days is a moment in which even worse things can happen.  Even though Treasury Secretary Steve Mnuchin (despite everything else that is problematic about him) has the good sense to push for "clean" increases in the debt ceiling, the presence of Mick Mulvaney first as Trump's budget director and now as his chief of staff means that the we have a man who truly has no clue about budgeting or debt -- but who knows almost as much about dangerous grandstanding as Trump does -- in a position of power.  We cannot know what the White House will do.

By coincidence, the current estimated drop-dead date (when the extraordinary measures are exhausted) lands almost to the day at the end of the 2019 fiscal year, which means that Congress will need to avoid another shutdown by passing the necessary budgetary laws by September 30.  That would make it even more obvious that the debt ceiling (if it must be kept alive at all) should simply be folded into the same process.  But being obvious does not mean that it will happen.

The hopeful news is that, in 2017, Trump actually talked about repealing the debt ceiling; but he says a lot of things.  In his fevered mind, especially if the walls are closing in over the summer and into September, he might decide that a good economic and constitutional crisis is just the right distraction from his other troubles.  Even though literally no one has a good reason to want to see the debt ceiling ever become binding, there are plenty of bad reasons, and Trump is very likely to find some that we cannot even imagine.

During the Obama years, I spent a lot of time analyzing the constitutional and economic issues raised by the Republicans' unprecedented use of the debt ceiling for political gain, and I offered plenty of unsolicited advice to the White House and congressional Democrats.  Now, none of that kind of analysis matters.

We are in a constant chaos machine, and if it so happens that the debt ceiling becomes binding when everything else is spinning out of control, no legal or economic analysis will make a difference.  A minority of 2016's voters, and Trump's increasingly servile Republican enablers, will have given Trump the ability to use the debt ceiling as yet another dangerous toy.  Heaven help us.

2 comments:

David Ricardo said...

thanks for the reminder, we had hoped the debt ceiling debate had closed out of town.

The debt ceiling is only a problem when there is a Dem in the White House and the Republicans control at least one house of Congress, in which case (1) they can pretend to care about the deficit and the debt, not that they know the difference between the two and (2) they can use their position to try and extort concessions from the White House.

When there is a Republican in the White House, the debt, deficit and debt ceiling are just not issues and so the Congress will at some time in the near future pass a suspension of the debt ceiling until say March 2021 in which case one of the scenarios above will be played out again.

Sorry, we have just seen this movies too many times.

Greg said...

All of this debt ceiling talk has got me wondering.

For a president who wants to cut benefits or increase taxes, could they make the argument that the debt ceiling restricts them BEFORE actually hitting it, or without taking "extraordinary measures?"

Thus, could a president say that they are choosing to restrict spending today because doing otherwise will cause them to exceed the debt ceiling (or exhaust extraordinary measures) in the future? (I accept that this argument can probably only be used if the debt ceiling will be exceeded during the current fiscal year using already enacted budget allocations.)

It isn't clear to me that this is any less constitutional than taking action only after reaching the debt ceiling and exhausting extraordinary measures. Either way, the president would argue that Congress has implicitly directed them to make these judgement calls by enacting conflicting laws in the first place. Further, the president could reasonably argue that (assuming themselves to be forever limited by the current debt ceiling) it is more responsible to take considered action before exhausting the debt ceiling limit than it is to suddenly make drastic changes in response to a crisis.

As a way to provide legal clarity around the debt ceiling, a president could make some small reduction in spending and make the above argument in order to force the issue in the courts. This could provide some legal clarity on exactly what the president's responsibilities are in response to a debt ceiling crisis without actually having to live through the crisis. It also might cause congress to permanently repeal the debt ceiling in order to prevent future presidents from taking the same action in a more drastic way.