Tag Archives | Debt Limit

Lane’s “Debt-Limit Do-Over”

Charles Lane argues that the nation needs a new debt limit law to reduce the likelihood of brinkmanship.

while GOP factionalism and extremism caused the present predicament, they are also symptoms of a wider breakdown in national consensus that must be addressed if we are to reassure the global economy about long-term U.S. creditworthiness.

Reforming the debt-limit law is one place to start. It has its virtues, chief among them the power to periodically focus the nation’s attention on its accumulated debt burden, which, though related, is a separate issue from the annual level of spending, taxes and borrowing.

Alas, the law was crafted in a different era, before U.S. debts were so large, and our ability to service them so crucial to the world’s well-being. Our politicians were not so easily frightened into voting against a debt increase — or so easily tempted to partisan blackmail.

We need a new debt-limit law for a new era of permanent debt and permanent partisan conflict. Ideally, a reformed procedure would preserve the law’s power to focus Congress on accumulated debt while removing, or minimizing, incentives to delay passage, and thus usurp presidential power.

There should still be votes, but less frequently and with as little as possible at stake each time. One way to achieve this would be to exclude from the debt limit Treasury debt held by the Federal Reserve or trust funds such as Social Security and Medicare, as [Anita] Krishnakumar has suggested. What’s really relevant to the government’s credit is not how much it owes itself but how much it owes foreign governments, banks, pension funds and others — about $10 trillion of the current $16.7 trillion debt.

The idea of excluding certain obligations seems similar to prioritization of payments, which some argue the Constitution compels once [...]

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CRS on Debt Limit History

For those interested in the history of the debt limit and votes to increase the limit over the past 35 years, there are two Congressional Research Service reports that provide useful background.

Of note, the second report covers 53 debt limit increases since 1978.  Of those, half (26) were “clean” and half (27) were combined with other measures.  The vast majority of the latter increases involved changes to spending, taxes, or entitlements. [...]

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Why Treasury Won’t Try the Trillion Dollar Coin Gambit or Disregard the Debt Limit

Ezra Klein interviewed Mark Patterson, who served as the Chief of Staff of the Department of the Treasury from 2009-2013.  Here’s the relevant tidbit:

EK: If you’re this worried and the consequences are this bad, why not do something like declaring the debt ceiling unconstitutional under the 14th amendment or minting the coin?

MP: It’s been my view and the view of pretty much everyone in Treasury and everyone in the administration that if there was a viable legal strategy that could take the threat of default off the table we would eagerly embrace it. It’s not as though people in the administration were or are closed to cool, interesting, viable possibilities. But the things we’ve been presented haven’t withstood that scrutiny.

The coin is a clever, nifty idea but it has problems. The one that gets overlooked the most is it wouldn’t actually make everything normal after it was invoked. It would be subjected to all kinds of challenges and litigation. As a straightforward matter the Federal Reserve wouldn’t give Treasury a trillion dollars for that coin. We looked carefully at it, but for both practical and legal reasons, the legal reason being the law obviously wasn’t meant for anything like this and the practical reason being that the Federal Reserve would need to cooperate and wouldn’t, it wouldn’t work.

The 14th Amendment shares similar problems in which you would invoke a constitutional crisis of sorts. One side would say the president broke the law and should be impeached. That would occupy all the oxygen in Washington. That’s not a reason not to do it if it’s the right thing to do. But if the objective is keeping our status as the safest and best investment in the world you’ve created all kinds of doubts about us. I

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Should There Be a Debt Ceiling at All?

As Washington nears yet another debt ceiling crisis, it’s worth pondering why the U.S. has a debt limit in the first place.  It’s a good question.  While I am not wholly settled in my opinion on the matter, I think some commentators have been too quick to dismiss the debt limit as anachronistic (or worse).

Let’s start where I think there is widespread agreement (at least off of Capitol Hill): Congress should not appropriate funds without providing for the necessary revenue.  So far so good.  At this point, some argue that the problem with the debt ceiling is that it requires two votes to spend money — one to appropriate the funds, and a second to authorize the debt.  That’s true in the cast of deficit spending, but it’s also true for non-deficit spending.  After all, authorizing taxes requires legislative action. If Congress were committed to a balanced budget, appropriating funds would still require two votes, one to spend the money and a second to provide for the necessary funds through some raising revenue device.  Getting rid of the debt limit would, in effect, privilege deficit spending.  While deficit spending is sometimes justifiable, it should not be structurally easier than the alternatives.

None of this means stand-offs over debt ceiling increases are a good idea. They’re not. Congress should provide for the necessary funds before appropriating funds and debt limit increases should be adopted in conjunction with budget resolutions.  But just because the existing budget process is dysfunctional does not mean the debt ceiling is the problem.

[NOTE: Eliminated a sentence fragment.] [...]

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Why the 14th Amendment Option Is Not on the Table

Garrett Epps argues that if Congress refuses to increase the debt ceiling, the President will have little choice but to invoke Section 4 of the 14th Amendment and act unilaterally to pay the federal government’s fiscal obligations.  The White House, however, has a different view.  As in 2011, the Obama Administration has dismissed this option.  Bloomberg reports that White House advisers believe such a move would be impractical and, perhaps more importantly, that there is no legal authority for such a move.  According to various reports, the Office of Legal Counsel has analysed the question, though has also refused to release the relevant memoranda.

As noted in prior posts on the debt ceiling, the argument that the President could unilaterally breach the debt ceiling is one of those constitutional arguments that may seem superficially appealing, but that falls apart under scrutiny.  As Laurence Tribe has pointed out, such a move would entail the usurpation of a power expressly delegated to the legislature and cause the very evil — calling the nation’s debts into question — that Section 4 of the 14th Amendment was drafted to prevent. For this reason, Tribe (and others) have argued, should the debt limit be reached, the least problematic option for the President is to prioritize debt payments over other spending. [...]

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The History of Debt Ceiling Votes and Government Shutdowns

James Fallows writes:

there is no precedent for serious threats not to honor federal debt — as opposed to symbolic anti-Administration protest votes, which both parties have cast over the years. Nor for demanding the reversal of major legislation as a condition for routine government operations.

There’s never been a “serious threat” to refuse to increase the debt ceiling? Glenn Kessler’s already shredded that claim. As this paper documents, “the use of the debt ceiling vote as a vehicle for other legislative matters,” had become a “pattern” in the mid-1970s and 1980s. Indeed, as Kessler notes, “Congress has used the debt limit to repeal a key legislative priority of a president,” and liberal lions like Senators Ted Kennedy and Walter Mondale sought to attach substantive legislation to a debt ceiling increase in the 1970s.

As for government shutdowns, as I noted here, there have been 17 since 1976, several of which were the result of disputes over substantive policy issues, ranging from limits on funding abortion to civil rights laws to reinstating the Fairness Doctrine. In Fallows defense, none of these involved demands for “reversal of major legislation,” but there were multiple efforts to attach measures that would overturn court decisions or change federal law. [...]

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What Can Be Done about the Debt Ceiling?

The NYT “Room for Debate” feature focuses on how the President should respond if Congress fails to increase the debt ceiling. Among the contributors is Harvard’s Laurence Tribe. After explaining why the President cannot unilaterally disregard the debt ceiling (expanding on arguments he made in 2011), Tribe considers the alternative:

A second approach calls for the Treasury to “prioritize” the payment of bondholders when allocating incoming tax revenues. But prioritization comes at a cost: the very reason we need to borrow is that incoming revenues don’t cover all our spending. So prioritization requires skipping other payments mandated by law — perhaps payments on Social Security, Medicare and defense.

From a constitutional perspective, this approach is preferable to outright default, because it would ensure that the 14th Amendment’s basic promise is kept. It is likewise constitutionally preferable to unilaterally ignoring the debt ceiling, because it does not entail the presidential usurpation of a power specifically committed to the legislative branch. Apart from the technically legal but wildly unrealistic device of minting a trillion-dollar platinum coin, prioritization is the approach that does the least violence to the Constitution.

Tribe thinks this approach is inadequate, but is the least bad — and least constitutionally problematic — alternative. On this point I think Tribe is definitely correct. The alternative argument, made by Neil Buchanan, that it is simpler and less constitutionally suspect to simply issue more debt is unpersuasive. First, such a move involves the affirmative usurpation of a power reserved to the legislature — and such usurpation is more problematic than the refusal to execute a legislative command, such as by refusing to spend appropriated funds. Second, authorizing debt without clear constitutional authority to do so raises the prospect of the precise evil Section 4 of the 14th Amendment was [...]

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Treasury Rejects Platinum Coin Ploy

Paul Krugman and Larry Tribe may think minting a platinum coin to evade the debt ceiling is legal, but the Department of the Treasury thinks otherwise, according to this report from Ezra Klein. According to

The Treasury Department will not mint a trillion-dollar platinum coin to get around the debt ceiling. If they did, the Federal Reserve would not accept it.

That’s the bottom line of the statement that Anthony Coley, a spokesman for the Treasury Department, gave me today. “Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit,” he said.

The inclusion of the Federal Reserve is significant. For the platinum coin idea to work, the Federal Reserve would have to treat it as a legal way for the Treasury Department to create currency. If they don’t believe it’s legal and would not credit the Treasury Department’s deposit, the platinum coin would be worthless.

In other words, Treasury believes the coin gimmick would be both illegal and improper, according to its spokesman. That would seem to settle the matter. Tom Maguire has more.

It is both significant and commendable that the Obama Administration has ruled out gimmicks (the coin) or unprecedented assertions of executive power (unilaterally rejecting the debt limit). This does not mean the President is without options, however. Should Congress fail to increase the debt ceiling, the President will still be obligated under the 14th Amendment to pay the federal government’s debt obligations, so long as revenues exceed such obligations. Insofar as there are insufficient revenues to satisfy other obligations — i.e. to pay for all the other things that Congress has authorized — the President will [...]

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Is the Platinum Coin Ploy Legal?

The idea of creating a $1 trillion platinum coin to evade the debt ceiling may be unwise — even “idiotic” — but is it legal? Proponents of the idea point to the following language in the U.S. Code:

The Secretary may mint and issue bullion and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.

This statutory text plainly authorizes the treasury Secretary to have platinum coins issued in any amount or denomination he wishes so that settles the matter, right? Not really, because it’s not clear this is what the statute means. Does it authorize the Secretary to issue actual currency? Or merely to issue commemorative coins to be sold and marketed to collectors? Either is a plausible reading of the text.

The plain text of a statute is and should be controlling, but what does the statute mean? To answer this question it is best not to look at a single provision in isolation. The meaning of a given statutory provision is often best understood in context and looking at the statute as a whole. Consider a statute providing that “Teachers shall not bear arms on school grounds.” Would such a statute prohibit gun possession? Sleeveless shirts? Displays of armorial bearings? The text of the statute could mean any of these things, so we look to the statute as a whole. If it were titled the “Gun-Free School Zones Act” and otherwise concerned gun-related issues, this would indicate one meaning of the text, whereas if it were titled “Teacher Modesty Act,” the “Uniform Uniform Code,” [the “Armorial Bearings in Education Act” or a “Code of Heraldry”], we would recognize that the statute is really about something else. [...]

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The Platinum Coin Ploy

During the last major debt limit standoff in 2011, pundits and professors debated whether the debt ceiling itself was constitutional. According to some, placing a limit on the issuance of debt to cover the federal government’s financial obligations would violate Section 4 of the Fourteenth Amendment, which provides “The validity of the public debt of the United States, authorized by law, . . . shall not be questioned.” Therefore, some urged the President to disregard the debt ceiling should it be reached. Prominent academics on both sides of the aisle dismissed such arguments, but the question became moot as the President and Congress eventually reached a deal.

Well here we are again, only this time there’s a new argument for how the President should sidestep the debt ceiling: Direct the U.S. mint to issue a $1 trillion platinum coin that could then be deposited in the federal treasury to cover the government’s obligations, at least temporarily. Once the debt limit is increased, the coin could then be destroyed and the federal government could return to business as usual.

Authority for this move is allegedly found in the federal statute authorizing the U.S. mint to make commemorative coins, as the law contains language that would appear to authorize the federal government to issue platinum coins of any denomination by executive fiat. Of course this can’t be legal Kevin Drum protests. Others think it’s quite plausible, even a good idea. Former Representative Mike Castle, who authored the bill in question, thinks its preposterous a law authorizing the minting of commemorative coins could be used to circumvent the debt limit, but former Mint director Philip Diehl, who worked with Castle on the bill, thinks otherwise.

Whether or not the platinum coin ploy would be legal, this is not the [...]

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Tribe on the Debt Ceiling

Harvard law professor Laurence Tribe has an op-ed in today’s NYT on the constitutional debate over the debt ceiling. He writes:

Several law professors and senators, and even Treasury Secretary Timothy F. Geithner, have suggested that section 4 of the 14th Amendment, known as the public debt clause, might provide a silver bullet. This provision states that “the validity of the public debt of the United States, authorized by law … shall not be questioned.” They argue that the public debt clause is sufficient to nullify the ceiling — or can be used to permit the president to borrow money without regard to the ceiling.

Both approaches provide the false hope of a legal answer that obviates the need for a real solution.

That sounds right to me. Indeed, I found relatively little in Tribe’s op-ed with which to disagree. He notes that an interpretation under which any action which threatens default is unconstitutional would sweep too broadly, and notes the implications for executive power of any argument that would allow unilateral borrowing.

the argument that the president may do whatever is necessary to avoid default has no logical stopping point. In theory, Congress could pay debts not only by borrowing more money, but also by exercising its powers to impose taxes, to coin money or to sell federal property. If the president could usurp the congressional power to borrow, what would stop him from taking over all these other powers, as well?

Tribe concludes quoting Justice John Marshall Harlan II, “the Constitution is not a panacea for every blot upon the public welfare,” and suggests the solution to the current impasse is not to be found in the constitution, but in the political process.

UPDATE: The Treasury Department responds. [...]

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In Defense of the Debt Limit’s Constitutionality

The Honorable Michael McConnell responds to claims that the debt ceiling is unconstitutional and that Section 4 of the 14th Amendment authorizes the President to issue additional debt if necessary to meet existing debt obligations.  Here’s a taste:

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. . . .

. . . 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.

UPDATE: Another point of McConnell’s worth highlighting is that “legislative control over incurring new debt is a fundamental aspect of separation of powers.” Article I, Section 8 expressly grants Congress the power “to borrow money on the credit of the United States.” Despite this provision, some believe that Section 4 of the 14th Amendment authorizes the President to assume for himself a power expressly enumerated to a coordinate branch before taking more modest steps, such as privileging debt payment over other spending. [Note that the executive branch actually does this sort of thing all the time, as when agencies are given statutory obligations that outstrip their appropriations.] [...]

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Is the Debt Limit Constitutional? – Part Deux

Treasury Secretary Tim Geithner has picked up on suggestions that the debt limit violates Section 4 of the Fourteenth Amendment, though stopped short of saying the Administration would refuse to abide by the ceiling to avoid default.  Meanwhile, much bandwidth is being spilled over the various constitutional arguments.

Jack Balkin points to the drafting history of Section 4 that could support the argument against the debt ceiling.  In particular, he notes that this portion of the 14th Amendment was intended to prevent subsequent repudiation of Civil War debts.  Michael Stern responds noting, among other things, that repudiation and default are not one and the same (a point I also made to Balkin in an e-mail  on Thursday).  Repudiation cancels a debt, whereas default is a failure to pay a valid debt.  In other words, default presumes that the debt is still valid, and does not call into question the validity of the obligation.  Further, even if Section 4 precludes repudiation of valid debts,  this does not mean default is equally unconstitutional, or that the President is authorized to issue new debt obligations to cover the old without Congressional approval.  Balkin responds here, but I am still not convinced.  His argument boils down to a claim that since debt repudiation is off the table, so is all political gamesmanship over how and when debts get paid.

Gerard Magliocca adds an interesting wrinkle, noting the Public Debts Clause could be read to preclude Congressional default as well, though Calvin Massey does not believe the clause grants the President unlimited authority to borrow money.  Michael Abramowicz — one of the few scholars to have focused on these questions — also notes that broad readings of Section 4 and the Public Debts Clause have implications for other laws and would, among other things, [...]

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Is the Debt Limit Constitutional?

The Huffington Post reports that some Democrats are urging the White House to ignore the debt ceiling on the grounds that it is unconstitutional. The basis for this argument is Section 4 of the Fourteenth Amendment, which provides “The validity of the public debt of the United States, authorized by law, . . . shall not be questioned.” Under this provision, some argue, the federal government is prohibited from defaulting on its debt obligations. Therefore, the argument goes, the President could violate the debt ceiling imposed by Congress if necessary to pay existing obligations.

This is an interesting argument, and one that is unlikely to be resolved by the Courts. There is no indication that President Obama is willing to embrace this argument. If he did, it’s not clear what anyone cuold 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. [...]

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