The Debt Limit and the Public Debt Clause

Following up on my prior posts (see here and here), one thing that Epps and Abramowicz agree on is that the debt limit violates the Public Debt Clause. Put another way, whenever the debt limit prevents (or may prevent) the government from repaying the “public debt,” Congress is constitutionally obligated to raise it.

This position appears to be based on a misunderstanding of the debt limit. To understand why, a brief history of the debt limit is necessary. (Sorry).

The Constitution (art. I, sect. 8, cl. 2) gives Congress the power to “borrow Money on the credit of the United States.” In the First Congress there was some question whether this provision allowed any executive participation at all in borrowing, but it was quickly decided that practicalities required Congress to authorize borrowing and to rely on the executive branch to carry it out. See David Currie, The Constitution in Congress: The Federalist Period 1789-1801 73 n.143 (1997).

Prior to 1917, Congress “approved each individual issuance of debt made on the nation’s behalf.” Anita Krishnakumar, In Defense of the Debt Limit Statute, 42 Harv. J. Legis. 136 (2005). This meant that Congress would determine the terms and interest rate of bonds, notes and other securities issued to borrow money on the credit of the United States. There was no need for a debt limit since no borrowing took place without a specific congressional authorization.

In 1917, Congress gave the Secretary of the Treasury statutory authority to borrow money at times of his choosing and expanded his discretion over the terms and conditions of the debt instruments. At the same time, it established the first debt limit, which placed a cap on the Secretary’s overall discretionary borrowing.

The establishment of the debt limit did not expand congressional control over borrowing; to the contrary, it retained one element of congressional control while other aspects were increasingly delegated to the executive branch. In the decades following 1917, Congress continued to set the overall debt limit, which it would periodically raise in response to the executive’s request (although not always by as much as the President or Treasury Secretary wanted).

It was not until the 1960s and 1970s that Congress started to push back against attempts to raise the debt limit. As the size of the federal budget and level of debt became major political issues, raising the debt limit was increasingly controversial. Votes to increase the debt limit periodically failed, and Congress looked to join debt limit increases with measures to restrain future spending.

For example, in late 1985 the debt limit increase was delayed for months past the ostensible deadline as Congress negotiated passage of the Gramm-Rudman-Hollings bill. During this period, the Treasury Secretary avoided default by engaging in a series of financial maneuvers to raise short term cash. After the crisis, Congress expressly gave the Secretary authority to take such actions in future situations where the government was close to reaching the debt limit.

Another significant impasse occurred in 1995, when the failure of Congress and the President to agree on a budget caused substantial delay in raising the limit. The government was again forced to take extraordinary measures to avoid default.

Since then, Congress has voted to raise the debt limit on 14 separate occasions. A number of these measures were controversial, attended by substantial delay and debate, and passed on largely or entirely party-line votes.  See CRS Report, The Debt Limit: History and Recent Increases (Mar. 11,2011).

Because of these types of problems, some observers, like CBO, have proposed repealing the debt limit statute altogether. These proposals, however, were based on policy, not constitutional, grounds. No one (other than Abramowicz and Epps) appears to have ever questioned the constitutionality of the debt limit. Presumably the many Members of Congress, including then-Senator Obama, who have voted against raising the debt limit do not question its constitutionality.

On the other hand, eliminating the debt limit would raise a serious constitutional issue. As Professor Krishnakumar points out (in the above-cited article), repealing the debt limit would effectively relinquish the last vestige of congressional control over borrowing (a power which the Constitution vests in Congress, not the executive).  She argues that “if the debt limit were repealed, and the Treasury Department given permanent, standing authority to incur debt, Congress would abdicate its control over the power to borrow and expand executive branch authority over government borrowing to an extent impermissible in our separation of powers system.”

With this background, we can now analyze the theory that the debt limit violates the Public Debt Clause. Lets suppose a plaintiff (say a bondholder) brings a lawsuit alleging that the government has violated the Clause by bringing into question its ability to pay the public debt. For arguments sake, we will assume that this is a valid legal theory.

The court may agree that the government has violated the Public Debt Clause, but how does it identify the cause of the violation? From a pure causation standpoint, the violation was equally caused by overspending, undertaxation, or the failure to borrow the difference between spending and revenues. Nothing in the Constitution tells the court how to make that choice.

Fashioning a remedy would also present a huge problem. As Abramowicz acknowledges, “[w]hile the courts might issue mandamus ordering the deficit be lowered, congressional defiance of such an order would leave the courts without recourse, since rewriting a budget is a quintessentially legislative task . . . .”

Declaring the debt limit to be unconstitutional might seem like an easy alternative, but it is not. Functionally, it would be no different than ordering the Congress to borrow more money, which would be just as problematic and unenforceable as ordering the Congress to rewrite the budget. Moreover, ordering (or authorizing) the executive branch to borrow money would be just as bad, if not worse, from a separation of powers standpoint. The courts could no more do this than to authorize the executive branch to appropriate money, or raise taxes.

In conclusion, I have no doubt that the Congress and (in his legislative capacity) the President have the duty to balance the books of the federal government. Likewise, they have the duty to make sure that the federal government does not borrow more than it can reasonably be expected to repay. I have no problem with characterizing these as constitutional duties, reflected in the Public Debt Clause and pre-existing constitutional provisions. But there is simply nothing in the Constitution that tells the Congress how to reach these required goals, or authorizes any other entity (except state legislatures under Article V) to force a particular solution on it.

The Constitution does have relevance to at least one aspect of a debt crisis, however. It would seem that in the event that the debt limit is not raised, the Constitution permits and perhaps requires that constitutional debts be privileged over non-constitutional ones. Of course, as we have seen, what qualifies as a constitutional debt itself may be a matter of dispute. But there is at least no doubt that money owed to bondholders and other creditors falls in that category.

 

 

3 Replies to “The Debt Limit and the Public Debt Clause”

  1. Krishnakumar’s argument that abolishing the debt limit would result in Congress abdicating “its control over the power to borrow” is unconvincing. Congress exercises its control over the debt by enacting laws. If Congress can enact laws that the Treasury goes ahead and pays for, in part through borrowing, and then Congress tries to reassert itself by refusing to allow the Treasury to honor its debts, which were incurred largely on Congress’s directive, then the world can never be certain that Congress will honor its commitments. We end up having the ever imminent potential fiscal hostage taking situation like we are facing now. Indeed, that is what the framers and the Supreme Court appear to have suggested. That getting rid of the debt limit is not easy is not a reason not to do so.

    ‎”I have no doubt that every man who has property in the public funds will feel safer when he sees that the national debt is withdrawn from the power of a Congress to repudiate it and placed under the guardianship of the Constitution than he would feel if it were left at loose ends and subject to the varying majorities which may arise in Congress.” Senator Wade, 1866

    “The Fourteenth Amendment, in its fourth section, explicitly declares: ‘The validity of the public debt of the United States, authorized by law, . . . shall not be questioned.’ . . . We conclude that the Joint Resolution of June 5, 1933, in so far as it attempted to override the obligation created by the bond in suit, went beyond the congressional power.” Perry v. U.S., 294 U.S. 330, 354 (1935).

    1. “unconvincing” is too mild, for the reasons you cite. Does Krishnakumar think the Treasury is going to borrow just for fun?

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