The budget negotiations have reached an impasse; Republicans are demanding huge budget cuts without any significant revenue increases, or they’ll refuse to raise the debt ceiling, with disastrous consequences:
In a letter sent to every member of Congress, Geithner said the national debt stands at $13.95 trillion – $335 billion short of the limit on borrowing that Congress set last year. Unless Congress acts to raise the limit, the letter says, the United States will default on its debt, an unprecedented event that could destroy “millions of American jobs,” cause interest rates to spike, damage the dollar, and halt payments to millions of Social Security recipients, veterans and active U.S. troops.
Republicans are thinking that if that happens, they can just blame Obama and benefit from the economic collapse in the 2012 election. Or they’ve convinced themselves that the US defaulting won’t actually have bad consequences, just as they’ve convinced themselves that global climate change won’t actually have bad consequences.1
But if Republicans in Congress refuse to raise the debt ceiling, could the Treasury declare the debt ceiling unconstitutional?
From section 4 of the 14th Amendment to the Constitution:
The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.
Yale constitutional scholar Jack Balkin provides some history:
…the goal (of Section 4) was to remove threats of default on federal debts from partisan struggle. Reconstruction Republicans feared that Democrats, once admitted to Congress would use their majorities to default on obligations they did disliked politically. More generally, as Wade explained, “every man who has property in the public funds will feel safer when he sees that the national debt is withdrawn from the power of a Congress to repudiate it and placed under the guardianship of the Constitution than he would feel if it were left at loose ends and subject to the varying majorities which may arise in Congress.”
Like most inquiries into original understanding, this one does not resolve many of the most interesting questions. What it does suggest is an important structural principle. 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.
Undermining the notion that the Executive has the right to ignore laws that stand in the way of default–in this case, the debt limit–is the next line in the Amendment:
Section 5. The Congress shall have power to enforce, by appropriate legislation, the provisions of this article.
Rather clearly, it is the legislature, not the executive, which has the responsibility to act. What if it abrogates that responsibility? Presumably, the president can do what presidents do: Act and dare the legislature to do something about it.
Brad DeLong describes how this might work in practice:
Tim Geithner announces that by law he is required to spend money on appropriations and entitlements–that he is not allowed to impound–and that there is not enough coming in in tax payments to both do all the spending he is legally required to do and to pay back the debt of the United States as it matures. In the absence of the 14th Amendment, he says, he would be required by law to default on the maturing debt. But, he says, the 14th Amendment forbids him to default. In order to take care that the laws be faithfully executed, therefore, even without explicit congressional authority to do so, he must borrow on the full faith and credit of the United States in order to completely (a) meet his spending obligations, and (b) honor the debt of the United States of America. He begins selling more bonds…
Tim Geithner, the Secretary of the Treasury, is clearly considering using the Constitutional Option, as are the Democrats in the Senate.2
And it’s unclear what Republicans could do about it.
As far as what would happen…I see no reason to think that the president wouldn’t get away with it. It’s not clear who would have standing to (formally) complain, and at any rate the only way that the court could take meaningful action would have to involve an almost immediate injunction, right? In their HuffPo story, Ryan Grim and Samuel Haass point to the possibility of impeachment proceedings, but the truth is that Republicans have hardly been as trigger-happy on impeachment as some of us (myself certainly included) expected, so I wouldn’t count on that. Regardless, an impeachment in the House followed by acquittal in the Senate would still leave the policy in place.
Jonathan Alder at Volokh agrees:
If [President Obama] did, it’s not clear what anyone could do about it. Were the White House to authorize the assumption of debt above and beyond that authorized by Congress, it is not clear that anyone would have standing to challenge this action in federal court. As a consequence, the question would be left to the political branches.
(More on the issue of standing to challenge.)
The Constitutional Option is an extreme step, and one I’d prefer not be used — but not more extreme than the Republicans in Congress holding a gun to the US Economy and threatening to shoot if they don’t get everything they want without compromise.
Assuming the Democrats do not have another 60% majority in the Senate anytime in the foreseeable future — and 60% Senatorial majorities are extremely rare — they have two choices. First, Democrats could give the Republicans whatever they want in exchange for a short-term increase in the debt ceiling. Then, once the debt ceiling comes up again, they can give the Republicans whatever they want again. And again. And again.
The second choice is taking the hostage away from the Republicans. If the Republicans refuse to agree to a responsible bipartisan budget deal — incorporating stimulus measures (both spending and tax cuts) now, to be replaced by large budget cuts and revenue increases once the unemployment rate drops — than Democrats should use the Constitutional Option, as it’s being called. Take the gun away from the hostage-takers and begin negotiations anew, without the threat of economic Armageddon in play.
Further reading: Bruce Bartlett.
At this point, more politically-allocated, economically-questionable stimulus is the last thing we need. And, though please don’t tell the other Republicans I said this, we don’t need any more tax cuts. In fact, we need to increase taxes. This should be done slowly, moderately, and carefully, but our revenue has to go up.
The deal that should be made is no increase to the debt ceiling, major budget cuts, and a series of modest tax increases. The only way to keep interest rates down – and we have to keep interest rates down or our present budgetary crisis will become a budgetary tsunami – is to signal the capital markets that we’re serious about getting the budget under control. That means more taxes and less spending, period. The tax increases need to be slow and small to keep the economy from tanking again (which would cause a smaller but still horrific budget problem), but we need the combined signal of more revenue, less outflow.
Rather than increasing income taxes, I would take a step into Obama’s camp and address tax expenditures first. A phaseout of the home interest deduction would be politically difficult but economically productive, would be unlikely to hurt hiring, and it would also start undeforming the housing market, a long-overdue job.
The housing industry – and thus carpenters, plumbers, roofers, electricians, HVAC installers, landscapers and all the people who sell them materials and services – have been incredibly hard hit by the slump in housing. There’s a large inventory of unsold housing right now. If you get rid of the mortgage interest deduction I would think that you would therefore set up another barrier for people to transition from renting to buying and inhibit the recovery of that industry and the people who are unemployed right now that work in it. It may be the right thing to do, but understand what you’re asking.
Here is an analysis that holds that the debt limit is certainly Constitutional, and that section 4 of the 14th Amendment does not require the President to violate it.
The general concept seems to be that if the expenditures necessary to service public debt already incurred + borrowing to satisfy expenditures for legally mandated entitlements > the debt limit, it’s incumbent on the President to hold back on the entitlement expenditures, as the legislation creating them do not supercede the Constitution, and tell the Congress to resolve the issue.
Ron, any modification to government spending or revenue is going to hurt somebody. I have a very large amount of sympathy for people in the construction trades, but your comment notes that there is a large surplus of housing right now. We can’t base our policies on trying to keep industries afloat past their sell-by dates. Construction needs to contract as a sector, and in a fairly major way; there is more product than there is demand, and it will likely be quite a while before that surplus goes away and reverses the trend. That really sucks to the people working construction, I freely grant.
True. My point is not whether the mortgage interest tax deduction is good or bad tax policy. My point is that it involves a whole lot of voters. Politics has oft been described as the art of the possible ….
Construction does not need to contract. Construction simply needs to switch from building houses, of which we have more than we need, to repairing roads and building train tracks, which are in bad shape and short supply.
We certainly need more maintenance on transportation infrastructure. But the kind of work you’re talking about will not employ roofers, dry-wallers, cabinet makers, plumbers, etc.. There won’t be as much work for electricians, either, and not much work for finish carpenters. The housing labor force does not map to a transportation infrastructure labor force. There’ll still be a lot of people out of work.
Don’t consider this as an argument against pursuing fixing roads and bridges and railbeds and tracks. That kind of thing is what any stimulus package should have gone to! But you have to understand the limitations of such a strategy.
On the other hand, some analysts think there’s a housing shortage coming. Basically, if the economy recovers enough so that people start affording their own houses, instead of sharing with other folks or moving in with their parents, we could see an enormous surge in housing.
And even if a lot of that is taken up by currently-empty housing, those houses won’t be move-in ready; houses deteriorate if no one’s in them for months or years. So even if new builds are suppressed by old stock, there will still be work for roofers, electricians, plumbers, etc.
Of course, all of that depends on employment numbers going up faster than the population for a while. Not sure when that’s next gonna happen.
Of course, all of that depends on employment numbers going up faster than the population for a while. Not sure when that’s next gonna happen.
Around November 4, 2012.
That noted right-wing Tea Party radical Lawrence Tribe holds that laws setting a debt limit are Constitutional and that the President’s option is to prioritize spending rather than exceed the debt limit.
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