The Worst Sequel of 2021: “Debt Ceiling Zombies Attack!”

Posted in: Constitutional Law

Last week, Senate Republicans announced that they have decided not to participate in the necessary adjustment of the federal debt ceiling at the end of this month, playing politics once again with the full faith and credit of the United States of America. President Biden must shut down the Republicans’ debt ceiling gambit, and he must do so now.

American audiences love a sequel, but this is one movie franchise that has been played out—indeed, it should never have been started in the first place. Reaching back to a scheme that they tried and failed to use multiple times from 2011 through 2016, Republicans are taking the country hostage once again, threatening to do their worst unless the majority party heeds their demands. President Barack Obama won those confrontations by playing a game of brinksmanship with the Republicans, and we were fortunate that calmer heads prevailed each time, albeit at the very last minute. It might not be such a happy ending this time.

The debt ceiling statute should not exist at all, but given that it does, Biden must stop Republicans from using it in this way ever again. But how can he stop them from doing their worst? By announcing, clearly and unequivocally, that he has the power and the responsibility not to allow Republicans to ruin the country. The Constitution, as we know, is not a suicide pact. Fortunately, it gives the President the power to stop this madness now.

How Is It Possible That We Are Talking About the Debt Ceiling Again?

Earlier this year, there were rumblings that the Republicans were thinking about reanimating the undead body of their debt ceiling strategy. Although I reluctantly responded to that possibility in a Verdict column, I hoped that what I wrote there would be a mere academic exercise and that nothing would ever need to be done about it. In a subsequent column, I even added, “because there have been no new developments…, there is no need today to relitigate [the debt ceiling] yet again.” Less than a month later, however, here we are. Not to be too technical about it, but … yeeeesh.

There has already been a strong reaction against Republicans’ decision to revive their hostage-taking strategy again. In one good example of liberals’ thinking on the issue, Alex Shepard described in The New Republic the shocking cynicism of Senate Republicans dropping their objections to government borrowing as soon as Barack Obama left office, at which point they happily suspended the debt ceiling to allow themselves to cut taxes for businesses and rich people while spending as much as they wanted on their own priorities. With a Democrat again in office, however, back comes the zombie apocalypse.

And all of that is true. Republicans’ lamentations today, such as Senator Marco Rubio’s blithe assertion that “there really is no other way to make people here wake up and live in the real world,” are simply political theater. The “real world” that they describe is completely unreal, with laws meaning whatever they want them to mean, whenever they choose to use them to obstruct the people who won political power at the ballot box.

The central issue, however, is not Republicans’ cynicism, as breathtaking as it is. The problem is that the debt ceiling does not work in the way they think it does. If they put Biden to the test—indeed, long before then—he must announce that the debt ceiling will not stop him from doing his constitutional duty.

What Would the Inevitable Economic Crisis Look Like?

In an otherwise fine news article describing Republicans’ debt ceiling announcement last week, a Washington Post writer included this assertion:

To finance the gap between spending and revenue, the Treasury Department borrows money by issuing debt. But the government can issue debt only up to the limit set by Congress, which is why the debt ceiling must be raised or suspended periodically.

It is not that reporter’s fault that he is wrong, because nearly everyone misunderstands the debt ceiling, but he most definitely is wrong. Whether or not the debt ceiling has been increased or suspended does not change the President’s responsibilities. Failure to change the debt ceiling would unquestionably cause a constitutional and economic crisis, but it would not change what Joe Biden must do.

And what Biden must do is follow the spending and taxing laws that Congress has enacted, guaranteeing that the people and businesses who are relying on the word of the federal government are not harmed by Republicans’ intransigence.

How does this work? Congress has passed taxing and spending laws that, taken together, determine how much additional money the United States will need to borrow each year. If, for example, the federal government were to take in three trillion dollars while it is legally committed to spending four trillion dollars, the one-trillion-dollar difference would be financed by borrowing on the open financial markets.

But what if Congress says to the President: “We know you cannot do what you’re legally required to do without borrowing the necessary trillion dollars, but even so, we’re not going to update the debt ceiling statute to allow you to do your duty—unless you give us something that we want”? Hostage taken!

And this is what Republicans think that they are doing. At the end of this month, the debt ceiling that Republicans suspended for Donald Trump will come back into existence, to be set at the level of debt that exists at that time. The Treasury Department has at its disposal methods to prevent default for a few months, but Republicans are counting on Biden, in the end, being forced to bend to their will to avoid a crisis.

What would such a crisis look like? On the “drop-dead date,” Treasury would find that it was required to, say, send two billion dollars to pension funds that have invested in U.S. government bonds. And maybe that will also be a day when the government must reimburse hospitals for providing medical care to veterans, or pay contractors for making improvements to water and sewer systems. In other words, the President will need to pay the country’s bills, as has always been done.

But Republicans think that they can say: “Ah, but you can only pay the bills to the extent that incoming taxes cover them. Everyone else gets stiffed.” Retirees would find out that their rock-solid investments—backed by the full faith and credit of the United States government, which until these Republicans came along always meant something—will not be paid, because the government has defaulted on its obligations. Hospital administrators would not be able to pay suppliers, because the funds on which they were relying would have been blocked by the Republicans’ stratagem. Construction workers who showed up to work every day to do what the government contracted with them to do would learn that they would not receive their paychecks.

All of this would happen, moreover, not because “we ran out of money,” because the day before the drop-dead date, it was perfectly fine for the government to pay its bills partially with borrowed funds. This would happen entirely because Republicans think that cutting off this source of financing at an arbitrary time will force Biden and the Democrats to capitulate.

No matter the reason, global financial markets would seize up, and the immediate and far-reaching consequences would be enormous. Even if this did not cause an immediate economic collapse, at the very least it would cause people no longer to trust the United States government to live up to its responsibilities.

Among other things, paying for the existing national debt would become much more expensive, as investors would require a risk premium to continue to hold U.S. debt. Future deficits would increase unnecessarily, all because the Republicans cannot get their way legitimately. The debt would rise, not fall. Irony, anyone?

The Legal Analysis: All the Ways that the Debt Ceiling is Unconstitutional

Not all bad policy is unconstitutional, of course, but fortunately, there are incontrovertible legal reasons that the debt ceiling cannot be used as the Republicans plan to use it.

One reason was summarized by Professor Laurence Tribe over the weekend:

Sec. 4 of the 14th Am prohibits any default on Treasury’s obligations. If Congress fails to raise the debt limit, Executive action to avoid default arguably violates Congress’s exclusive power of the purse but is the lesser of two constitutional evils.

This is a notable development, because Professor Tribe had originally expressed some skepticism about this Fourteenth Amendment-based argument when it first arose during the Republicans’ debt ceiling gambits in the Obama years. He now agrees that the relevant constitutional provision—“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.”—requires the President to borrow to prevent a default that would most assuredly bring the validity of the public debt into question.

But that is only the tip of the constitutional iceberg. As Tribe put it, it is only “arguable” that presidential action to avoid default would violate Congress’s exclusive power of the purse, which he stipulated arguendo. He is right that, even if it would so violate Congress’s powers, presidential action to avoid default would be wholly justified.

In fact, however, President Biden would be affirming congressional spending power, not defying it, because he would be doing exactly what Congress told him to do when it passed appropriations laws. Those laws tell a president exactly how much to spend, when, and to whom the money must be paid. For a president to refuse to do so because of the debt ceiling would mean that he would perversely validate Republicans’ obstruction by violating his duty to execute the spending laws.

What to do when laws contradict each other? As I described in my Verdict column earlier this year, Professor Michael Dorf and I wrote a series of law review articles, along with many supporting columns, during the Obama years demonstrating that a president who is in a “trilemma”—unable to honor the spending, taxing, and debt ceiling laws simultaneously—must choose to spend and tax as Congress has ordered, with the debt ceiling losing the constitutional standoff. As Professor Tribe’s tweet put it, this is the lesser of constitutional evils.

The most important reason for this is, somewhat counterintuitively, that we do not want to give the president too much power. But how can it limit a president’s power when we recognize that the Constitution provides him with the authority—indeed, that it imposes on him a duty—to exceed the debt ceiling when necessary?

Giving a president the ability to decide which bills to pay and which creditors to stiff would give the president enormous power, taking away Congress’s exclusive power of the purse. This is not merely theoretical. The Supreme Court has ruled that Congress is not even permitted to give away its own spending power, because the Constitution vests that power solely in Congress. For a president to take that power without even an explicit attempted delegation would clearly be much worse.

Moreover, as Professor Dorf and I have also argued, for the President to use a debt ceiling crisis as a reason not to pay the government’s obligations would not even solve the problem that it purports to solve. If the drop-dead date ever arrives, any president would be crazy to say: “Well, those of you who were legally entitled to receive payments from the United States today are out of luck … permanently. Sorry!” If he did, he would directly violate the provision of the Fourteenth Amendment that I described above, because he would not merely be “questioning” the validity of a legal obligation, he would be explicitly repudiating it.

How to avoid that outcome? The President would instead say: “Not to worry, folks. This is merely Washington politics at its worst. We’ll sort this out, and when we do, everyone will be paid in full. Please be patient.”

To be clear, that would still be earth-shaking. People and businesses rely on timely payments, not whenever-we-get-around-to-it payments. If an obligation is not paid on the date due, the follow-on effects would be enormous, as a set of dominoes falls with each person saying to their creditors, “Well, I didn’t get the money that I was owed, so I can’t pay you, either.”

Even setting that aside, however, the most important thing to remember is that the President would at that point simply be acknowledging the government’s added debt. That is, he would be telling everyone that they can consider themselves to be in line to be paid money that the government undeniably owes them, but they must wait to be paid.

That, however, is debt! This means that, even as the President would be violating the Constitution by not honoring Congress’s spending laws, he would not even be preventing the government from taking on additional debt. It would merely be in a different form.

The difference, and this is especially infuriating, is that the President would be forcing certain unlucky people to loan money to the federal government. That is, he would be telling, say, a Social Security recipient: “I know you want your money now, but I’ll pay you later.” Meanwhile, there are investors who are perfectly happy to lend money to the United States voluntarily—at least, they are willing to do so when the government is a reliable debtor. Therefore, Republicans would be coercing the President into coercing unwilling citizens to lend money to the federal government. Especially for the self-described Party of Freedom, that is more than a bit heavy-handed.

All of which means that President Biden should do what Barack Obama never did (and what the Republicans never forced Donald Trump to do), which is to say now, in advance of any drop-dead date, that the debt ceiling cannot be used as Republicans are trying to use it. If the time comes, he must instruct the Treasury Department to pay all bills in full, using exactly as much borrowed money as Congress’s duly enacted laws require. And he should tell everyone, right now, that this is what he will do.

Even in horror movies, there is always a way that zombies can be killed, finally and truly. It is time for President Biden to put this zombie out of our misery.

Comments are closed.