Advancing a Free Society

The Debt Ceiling Is Certainly Not “Unconstitutional”

Monday, July 4, 2011

As we approach the debt ceiling sometime in August, with no agreement seemingly in reach, there is wild talk in Washington to the effect that the debt ceiling violates Section Four of the Fourteenth Amendment. The theory is bunk.

Section Four reads: “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.” According to some wishful thinkers, because it would be unconstitutional to default on the public debt, the Treasury must have authority to borrow any additional funds necessary to pay principal and interest on the existing debt as they become due. This means President Obama can ignore the debt ceiling and issue more debt, for the purpose of paying off past loans, without getting approval from Congress. If true, this would take the pressure off the President to agree to spending reductions in exchange for an increase in the limit.

Legislative control over incurring new debt is a fundamental aspect of separation of powers, going back to Parliament’s curtailment of the royal prerogative of borrowing in the wake of the Glorious Revolution of 1688. Article I, Section 8, Clause 2 empowers Congress, and only Congress, “to borrow money on the credit of the United States.” Without congressional authorization, the President may no more borrow money than he could make new criminal laws, declare war, or enact a new spending program. The “debt ceiling” is simply the limit Congress has imposed on how much money the country may borrow. The executive branch cannot constitutionally borrow a dime in excess of this amount.

Section Four of the Fourteenth Amendment does not create a back-door method for the Administration to borrow more money without congressional authorization. For Congress to limit the amount of the debt does not “question” the “validity” of the debt that has been “authorized by law.” At most, it means that paying the public debts and pension obligations of the United States, as they become due, has priority over all other spending. Each month, the Treasury takes in about $175 billion in new revenues. These are more than sufficient to pay principal and interest when due, as well as pension obligations. (Social Security, by the way, is not a “pension” obligation within the meaning of this provision. The Supreme Court held in Fleming v. Nestor that Social Security claims are nothing more than promises to pay, not legal obligations to pay.)

If we reach the debt limit, the Treasury will be compelled to reduce spending (other than payments on the public debt and pensions) to bring current expenditures in line with current receipts, just as a family has to do when it has maxed out on its credit cards. Presumably, the executive branch will have to make the tough decisions about priorities. No law exists to guide the process. In theory, essential services and payments will keep flowing, and less essential services and payments will be postponed. In practice, if history is any guide, politicians in the executive branch will find it more in their interest to shutter the most conspicuous and painful services first – this is called “closing the Washington Monument” – to maximize public pressure to increase the limit. It would be a crying shame if the executive stopped funding truly inessential services and programs, and no one (other than the immediate beneficiaries) noticed.

A wise and prudent President could use the occasion of hitting the debt ceiling to trim waste and excessive spending from the budget. This would not solve our long-term fiscal problem (that will require structural reform in entitlement programs coupled with measures to increase economic growth), but it would signal to the bond markets that we are serious about grappling with the spending mess. Waste and abuse are like the weather. Everybody talks about it, but nobody does anything about it. Indeed, in ordinary times the Impoundment Control Act (an unfortunate piece of legislation passed in response to Nixonian abuses) requires the executive to expend all appropriated funds, and thus prohibits the executive from postponing or cancelling non-essential spending, however wasteful. But the debt limit takes precedence over the Impoundment Control Act, especially in light of the Fourteenth Amendment’s prohibition of “questioning” the validity of the debt, which means the President can trim spending to the extent that appropriations exceed revenues. A President serious about controlling spending would find this an opportunity for leadership.

Thus, the real effect of Section Four of the Fourteenth Amendment is almost the opposite of what hopeful voices in Washington are saying. Section Four puts the onus on the President to reduce spending in order to avoid default on the debt. It does not permit him to borrow more.

(photo credit: Public Notice Media)