Will Biden Finally Neuter Republicans’ Debt Ceiling Demagoguery?

Posted in: Tax and Economics

One of the more remarkable aspects of President Biden’s time in office so far has been the Republicans’ lack of anything resembling a policy response. Biden has been successful on almost all fronts, and Republicans have responded nearly exclusively by trying to stoke culture war conflicts rather than by providing a competing view of what the government should be doing.

This broad picture is admittedly not true in every instance. As I discussed in my most recent Verdict column, Republicans have responded to the president’s infrastructure bill by falsely claiming that Biden and the Democrats are using it to fulfill a “liberal wish list” of things that are not truly infrastructure.

Specifically, Republicans insist that infrastructure is exclusively physical items like bridges and roads, not elder care or education. This is, of course, nonsense, as I described at length in my column. An apt summary of my argument there might be: “Not all physical infrastructure is a good public investment, and not all good public investments are physical infrastructure.”

Even if one took the Republicans’ objections seriously, however, they are not actually offering an alternative view of government or even a specific plan. They are simply saying, “No, we won’t work with you to do anything, and we’re hiding behind a semantic argument over the meaning of the word infrastructure because we have nothing useful to say.”

Given my background as an economist with interests in public investments and government budgeting, it is particularly challenging to work in such arid terrain, where only one side is engaging honestly with the issues. Democrats are offering sensible ideas that are, if anything, too restrained. Republicans are not saying, “We have a better solution to that important problem,” nor even, “That’s not really a problem.” They are merely saying, “No. To everything. And what about Dr. Seuss?”

I was thus intrigued when I saw that some Republicans have begun plotting to bring back the debt ceiling to obstruct the Biden administration. This is a truly terrible idea, as I will explain briefly below. More interestingly, if Republicans actually choose to go back down this road, Joe Biden might finally be the man to kill the debt ceiling as a political issue. That would be a genuinely positive legacy, yet another item to add to what is already an impressive list of Biden’s accomplishments.

Oh, God, Please Not the Debt Ceiling Again!

Some very long-time readers of Verdict might recall that I, sometimes alone and sometimes with Professor Michael Dorf, became consumed by the debt ceiling during the Obama years. Mike and I published four law review articles on the topic, and we both wrote numerous pieces about it on Verdict and Dorf on Law.

In fact, I wrote so many columns that I ended up collecting them into a book, The Debt Ceiling Disasters: How the Republicans Created an Unnecessary Constitutional Crisis and How the Democrats Can Fight Back. Even so, both Professor Dorf and I hoped that we would never have to think about the debt ceiling again. It is an unconstitutional statute, and its very existence creates unnecessary dangers for the country. Republicans’ decision to drop that issue after Donald Trump’s non-majority win in 2016 was one of the only good things to come out of that election.

Now, however, Republicans in the U.S. Senate have “signaled they might oppose any future increase to the debt ceiling unless Congress also couples it with comparable federal spending cuts, raising the specter of a political showdown between GOP leaders and the White House this summer.” Although this is all reportedly very preliminary and thus far non-binding even among Republicans, the very idea that they would even consider again using the debt ceiling in an economic blackmail plot is terrible news. True, it does have the benefit of clarifying just how desperate Republicans are at this point, but that is cold comfort indeed.

For those readers who could use a quick primer on the debt ceiling, it is actually quite simple to explain, even in all its craziness.

Congress passes spending laws and tax laws. If the amount of money that Congress commits the government to spend is more than the amount that the tax laws will collect, the Treasury must issue new government debt to cover the difference. To be clear, there is nothing necessarily wrong with running a deficit. Successful businesses do it all the time, and so do the governments of prosperous countries and U.S. states. (Yes, even with so-called balanced-budget requirements in place in 49 states, state governments in this country are permitted to issue debt to finance public investments—like infrastructure.)

But even if we were to think that the government should not borrow money (or not as much money as we are currently borrowing), there is a straightforward way to change course: Congress can pass new spending and taxing laws to change the amount of money that the government must borrow. That is what fiscal policy is. Congress uses the budgetary process to determine spending and taxing levels, and the difference is the deficit that must be covered through borrowing.

At its core, the debt ceiling statute is premised on the idea that Congress can ignore arithmetic. The statute purports to say that the government cannot borrow money even when Congress has passed laws making it necessary to borrow money. As Professor Dorf and I wrote (many times), the existence of the debt ceiling can put a president in the position of having to choose from among three unconstitutional choices, or what we dubbed a “trilemma.”

Imagine, for example, that the debt ceiling is currently set at a level that would allow no more than $200 billion in additional borrowing this year, but the tax system will bring in $600 billion while Congress has legally committed to spending $900 billion. The resulting $300 billion deficit is more than the remaining $200 billion under the debt ceiling, so the president must either: (1) defy the law by collecting more in taxes than Congress authorized, (2) defy the law by refusing to pay for spending that Congress appropriated, or (3) defy the law by borrowing more than the debt ceiling says is permitted.

I have described this trilemma as an “impeachment trap,” because it puts the president in a position where he cannot help but violate a duly enacted law. My work with Professor Dorf led to the conclusion that there actually is a right answer to the question: Which law should the president set aside, in order to obey the other two? The answer was that, as a constitutional matter, the president must treat the debt ceiling as nonbinding and borrow the amount of money necessary—but no more than that amount—so that he can faithfully execute the taxing and spending laws.

During the years when the Republicans were using the debt ceiling to try to extort concessions from the Obama administration (2011-16), most people simply assumed that a president would have no choice but to refuse to spend appropriated funds if the debt ceiling were not increased. Not only is that conclusion incorrect, but no one ever justified that conclusion other than by saying something along the lines of, “Well, obviously, the debt ceiling is binding.”

This ignores the law, historical experience, and simple logic. Congress does not set spending laws by instructing the executive branch to spend “up to” certain amounts. It orders that certain amounts be spent. Allowing the president to pick and choose where to cut (in the example above) $100 billion of spending would be a massive violation of the separation of powers, among other constitutional problems.

In short, if Congress ever fails to increase (or, as they have done recently, to suspend) the debt ceiling to allow the president to tax and spend in the amounts required by law, the president will have to choose to go ahead and issue new debt to allow the government to meet its legal obligations. He is required to safeguard the country’s full faith and credit, and failing to pay our obligations would destroy it.

What Might Biden Do?

In a column decrying the Senate Republicans’ cynical move to bring back debt ceiling brinksmanship, the Washington Post’s Paul Waldman offers a nice idea, saying that Democrats “have to kill the debt ceiling entirely. Kill it with fire. Drown it and shoot it and bury it. Strap it to a rocket and launch it into the sun. Enough is enough.”

This is a great idea in principle, but it would be nearly impossible to do so in reality. And even then, Republicans could bring it back from the dead. True, if Republicans force the issue now, Democrats could simply repeal the statute, which would finally put us in a sane situation in which Congress and the president control debt by adjusting taxing and spending, not by trying to square a circle.

It is not clear, however, that Democrats have the courage to do this. The debt ceiling, after all, sounds like a good idea. Even deficit doves like me admit that borrowing cannot rise literally without limit, so many people find it easy to nod along and say, “Sure, there should be a ceiling on debt.” Who cares that the taxing and spending laws already automatically do this? A debt ceiling is an easy tool for demagogues.

And even if current congressional Democrats were willing to repeal the debt ceiling, they cannot prevent future congresses from enacting a new one (other than by passing a constitutional amendment, which would be roughly as likely as me being named the next poet laureate of Austria). We would at least not have to worry about the debt ceiling while Democrats still control Congress, but that can change quickly.

More likely, the Democrats will figure out a way to increase the debt ceiling in the next two years without repealing it. But what if Republicans retake either or both the House and the Senate in next year’s midterm elections? In other words, what if Joe Biden’s second two years in the White House are like Barack Obama’s last six?

At that point, Republicans could again hold the global economy hostage, threatening not to increase the debt ceiling unless Biden accedes to a list of their demands. Republicans are currently talking about insisting on spending cuts in exchange for debt ceiling increases, but there is nothing stopping them from demanding, say, Biden’s support for must-carry gun laws or abortion restrictions (or supporting the false claim that the 2020 election was “stolen”) to prevent fiscal suicide.

And this is where Biden could truly do something important. Former President Obama, to his credit, learned an important lesson after a very bad first go-round with Tea Party-led Republicans, who succeeded in extracting concessions from the White House. He then changed gears and responded to all subsequent Republican hostage-taking threats by simply refusing to negotiate.

This had the beneficial effect of forcing Republicans ultimately to back down each time, so we never experienced the full-on constitutional and economic crisis that Republicans threatened to inflict on all of us. Unfortunately, it meant that every time the debt ceiling needed to be increased, the world came up to the very edge of catastrophe before enough Republicans would blink and do what needed to be done.

Obama chose that path because, apparently, he believed that it was politically impossible to say—clearly and well in advance of any deadlines—what needed to be said: “The debt ceiling law is unconstitutional and can never supersede the taxing and spending laws.” Could Biden act differently?

We already have good evidence that Biden views the political landscape of 2021 to be quite different from the Obama years. Just as importantly, he has surprised everyone (very much including me) by showing a willingness to be blunt and bold.

Biden, after all, broke with all previous presidents by describing the Armenian genocide as a genocide. He could have continued to dance around the issue, and he probably would have suffered only mild and temporary political consequences by extending the U.S.’s official state of denial. But he chose to be honest and clear.

Similarly, Biden has decided to end the Forever War in Afghanistan, to propose popular gun control measures (and to issue executive orders where appropriate), to support workers’ efforts to form and join labor unions, and to take many other actions and positions that were previously thought to be too risky.

It is now, therefore, actually possible to picture President Biden saying something like this:

I hear that the Republicans want to pass a law that commits the United States to buying and paying for things that the American people want, which is good; but my friends across the aisle are also going to tell me that I won’t be able to meet those obligations because of some game that they want to play with the debt ceiling.

Come on, man! The United States of America is not a deadbeat, and we’ll never become one on my watch. When we pass a law that tells me to pay Social Security recipients, I’ll make sure they get paid. When we pass a law that tells hospitals that the American government will reimburse them for caring for our veterans, I will not leave the hospitals high and dry. When Congress has passed, and I have signed, a law saying that we will provide childcare, funding for roads, and money to make sure that everyone has clean drinking water, I will not allow Republicans to force me to take any of that away.

So hear this: If Republicans want to negotiate in good faith about spending and taxing, I’m right here. Once our work is done, however, they have to agree to adjust the debt ceiling as needed. And if they refuse, I will always make sure that we borrow enough money to fund what we have promised to do for the American people.

Is that a pipe dream? Maybe. After all, Biden might find it easier to do what Obama did, which was ultimately successful in a limited, very risky sense. Biden might, however, finally be the one to say that having a debt ceiling statute is not just illogical but dangerous. He might decide that the debt ceiling is malarkey, and we know how he feels about that.

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