Should Obama just ignore the debt ceiling? These law professors think so.

October 10, 2013

If Congress failed to lift the debt ceiling by mid-October, President Obama would be caught in a serious constitutional dilemma.


(AP)

On the one hand, Congress has passed a slew of laws requiring the executive branch to spend money on things like Social Security, Medicare, veterans' benefits, and so on. On the other hand, Congress has also restricted the administration's ability to borrow any more money to pay for those programs, through the debt ceiling.

So what is Obama supposed to do once the United States bumps up against that limit? For two law professors, Neil Buchanan of George Washington and Michael Dorf of Cornell, the answer is clear: Obama should ignore the debt ceiling and keep borrowing money anyway.

Yes, that's illegal. But, they say, it's arguably less illegal than most of the plausible alternatives (they don't consider the much-loved platinum-coin option to be "realistic"). As they put it, ignoring the debt ceiling is the "least unconstitutional" option around.

Buchanan and Dorf's argument might just be academic, since the Obama administration insists that it can't ignore the debt ceiling — and that a failure to raise the borrowing limit will lead the United States to default on its obligations. Still, it's worth walking through their full paper (pdf), which illustrates some of the absurdities of the debt-ceiling crisis.

The debt-ceiling dilemma

Most observers assume that if we crash into the debt ceiling, the Obama administration will have to start missing payments to agencies, contractors, and so on. At that point, after all, the Treasury Department would only have enough tax revenue to pay around two-thirds of its bills — and couldn't borrow more to make up the difference. (Republicans have asked Obama to prioritize bondholders above all else, to avoid a default and financial crisis.)

But Buchanan and Dorf argue at length that doing so could be unconstitutional. They make this argument on several fronts, but the simplest is that all of these contractors, employees, debt-holders, retirees, and so on are entitled to money under various federal laws. And the president has an obligation under the Constitution to "take Care that the Laws" at hand "be faithfully executed."

The precedents here are fairly straightforward, Dorf explains in an interview: "It’s been clear for some time that the president has no power to not spend when Congress has appropriated money or has ordered him to spend."

Back in the 1970s, for instance, Richard Nixon tried to refuse to spend $16 billion that Congress appropriated. He was overruled by both the courts and Congress, which passed the Impoundment Control Act in 1974. What's more, in 1995, the Supreme Court ruled that the president can't unilaterally rescind spending on his own through the line-item veto.

Some Republicans have tried to resolve these legal issues by touting the Full Faith and Credit Act, which would require the Obama administration to set priorities if we hit the debt ceiling: Bondholders get paid first, then the military, then Social Security, then Medicare. But this bill has never passed Congress, and won't before the debt-ceiling deadline hits.

But can Obama ignore the debt ceiling?


(The Washington Post)

But even if it's illegal for Obama to cut back on spending by himself, what gives him the right to ignore the debt ceiling? After all, Article I of the Constitution clearly states that only Congress has the power "[t]o borrow Money on the credit of the United States.”

This part gets trickier, and Buchanan and Dorf spend a lot of time in their paper looking at possible rules for when the administration is trapped in a constitutional bind like this. (Abraham Lincoln once faced a comparable dilemma and gave a famous speech on this exact question, asking "Are all the laws, but one, to go unexecuted, and the government itself go to pieces, lest that one be violated?")

Their basic argument is that, caught in this situation, the president should try to "minimize the unconstitutional assumption of power" and "preserve, to the extent possible, the ability of other actors to undo or remedy constitutional violations."

Ignoring the debt ceiling is likely the least harmful route here, partly because it's the simplest and least disruptive. "In either case, we're talking about the president exercising power allocated to Congress," Dorf explains. "So how much power should he exercise? Any attempt to prioritize spending would involve thousands of legislative trade-offs. Whereas issuing as much debt as needed to cover spending involves just one decision."

Practical problems with ignoring the ceiling

That said, there could be a heap of practical problems — and market turmoil — if Obama simply ignored the debt ceiling. When a similar proposal came up back in 2011, I asked Tom Gallagher, a fiscal and monetary policy specialist at the Scowcroft Group, how markets might react. He raised a plethora of concerns.

“[O]n the one hand it shows that the feared disruptions from no debt ceiling increase wouldn't happen,” Gallagher told me then. “On the other hand it plunges the U.S. into a genuine constitutional crisis. How quickly would courts rule? Who would bring suit? Would the House initiate impeachment proceedings? That's hardly a reassuring set of questions. And then there's the question of who would buy debt that might later be ruled to have been unconstitutionally issued.” Worse still, Gallagher notes, foreign investors might get jittery: “The Chinese might decide to sit out those auctions for appearance purposes alone.”

That's not good. But the point of Buchanan and Dorf's paper is that anything Obama does in this situation could plunge the United States into a crisis. Say, for instance, that the Treasury Department decides to delay Social Security checks in order to pay off bondholders and avert a default on the debt. That's not good, either.

"Say there's a retiree who gets a haircut on his Social Security check. That person could file a lawsuit against the Treasury," says Dorf. "He has standing, clearly, and could seek an injunction. The hard question for the federal judge is, do you grant?" At this point, we'd be in fairly unprecedented territory.

In any case, Obama says he won't ignore the ceiling

Now, these legal arguments are all likely besides the point. Both Obama and the Treasury Department have emphasized on multiple occasions that they won't try to find any clever ways to circumvent the debt ceiling.

For example: They have publicly ruled out using a trillion-dollar platinum coin to fund the government. They instist they can't declare the debt ceiling unconstitutional under the 14th Amendment. Granted, the administration hasn't explicitly ruled out the latest clever workaround floating about the Internet — namely, Matt Levine's proposal for Treasury to issue "premium bonds" that could bypass the debt ceiling. But officials have shot down these sorts of tactics before.

As White House Press Secretary Jay Carney put it back in January, "There are only two options to deal with the debt limit: Congress can pay its bills or they can fail to act and put the nation into default."

The simplest option, as always, would just be for Congress to raise the debt ceiling. But if that doesn't happen, nothing about what happens next would be straightforward.

Further reading:

-- Absolutely everything you need to know about the debt ceiling.

-- A very simple timeline for the debt-ceiling crisis.

-- If we hit the debt ceiling, can Obama pick and choose which bills to pay?

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