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.

 

 

The Public Debt Clause: Back from the Dead?

Michael Abramowicz’s youthful “thought experiment” has morphed into a serious (well half-serious) policy proposal in this recent article by law professor Garrett Epps.  The essence of Epps’s claim (presented as an imagined speech by President Obama) is that debt limit is unconstitutional under the Public Debt Clause. Epps further suggests that the President can therefore ignore the debt limit, issue debt instruments on his own authority, and use the funds to continue the government’s spending at currently authorized levels.

There are several important differences between Abramowicz’s position and Epps’s. To begin with, Abramowicz acknowledges the novelty of his position, noting that no plaintiff has ever even attempted to use the Public Debt Clause to challenge the debt limit or any other congressional action that might arguably jeopardize the ability of the United States to repay its debt. Moreover, although he explores the possibility of judicial enforcement of the Public Debt Clause, at the end of the day he concludes that Clause “should be thought of as dead” and explains “why the Supreme Court should not attempt to revive it.”

Abramowicz also explores some of the difficulties would arise if the courts were to try to enforce the Public Debt Clause (or, more precisely, his interpretation thereof). For example, the courts would have to decide which types of obligations fall within the “public debt.” It might be argued that entitlements like Social Security or Medicare fall within the protection of the Clause, but Abramowicz suggests that this might exceed even his own broad interpretation. Because entitlements are not based on voluntary agreements, they are not like either bonds or payments owed to those who have provided goods or services to the federal government.

Moreover, Abramowicz notes that the Supreme Court’s decision in Fleming v. Nestor, 363 U.S. 603 (1960), would stand as a barrier to any attempt to establish a constitutional right to Social Security payments. In Fleming, the Court upheld a statute which retroactively withdrew benefits from aliens deported as Communist sympathizers. The Court noted that Congress had expressly reserved the power to alter, amend or repeal any part of the Social Security Act and found that this provision made explicit what was implicit in the institutional needs of the program, ie, beneficiaries have no vested property right in their benefits. (For more on the right of Congress to change Social Security benefits, see this CRS report). Although the Public Debt Clause was not discussed (not surprisingly, since it would not have occurred to anyone that it related), Abramowicz notes that “it seems intuitively unlikely that the Court would ever uphold Fleming’s interpretation of the Due Process Clause but reach a contrary result on the basis of the Public Debt Clause.”

Finally, if one assumes that the core purpose of the Public Debt Clause is to assure the creditors of the United States of repayment, then a broad interpretation of the “public debt” will tend to be self-defeating. After all, if all of the obligations of the United States have constitutional priority, then none of them do. Or, to borrow a phrase from Abramowicz, protecting entitlements under the Public Debt Clause would transform it “from a brake against fiscal chaos to an accelerator that could push the economy off the fiscal cliff.”

None of these qualifications or nuances appears in Epps’s article. He does not mention Abramowicz, or the fact that he and Abramowicz are evidently the only people to have ever suggested that the Public Debt Clause might require Congress to authorize unlimited borrowing. He asserts, or would have Obama assert, that Social Security is within the scope of the Public Debt Clause, though even Abramowicz does not believe this. Indeed, Epps would seemingly declare all of the government’s spending sacrosanct under the Public Debt Clause, a position that doesn’t appear to be supported by Epps’s own claims about the Clause.

Because the article is framed as a political speech, Epps gives himself literary license to present his argument in the most conclusory and misleading way. The reader is given no clue as to the utter novelty of the legal claims being made. Epps would have Obama declare that “[f]or nearly a century and a half, the absolute language of the Fourteenth Amendment was not even questioned.” Unless this statement is utterly meaningless, it is false. Certainly it is not the case that no one has voted against raising the debt limit. Many have done so, including then-Senator Obama.

These problems, however, are not the worst thing about Epps’s article. We will get to that shortly. But first we will take a closer look at the argument that the debt limit violates the Public Debt Clause.

 

 

“Arrest Me. I Question the Validity of the Public Debt.”

So begins Michael Abramowicz’s 1997 law review article, Beyond Balanced Budgets, Fourteenth Amendment Style, 33 Tulsa L. J. 561 (the quote is from the placard of a whimsical protester in Lafayette Park).  His thesis is that the original meaning of the first sentence of Section Four of the Fourteenth Amendment, if it were to be revived and taken seriously today, would have surprising and dramatic consequences for the conduct of federal finances.

The first sentence of Section Four provides that “[t]he 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.” As Abramowicz notes, this provision is so obscure that no one previously had bothered to give it a name, an omission he remedies by terming it the “Public Debt Clause.”

The primary impetus for the Public Debt Clause seems fairly clear.  The Republicans who controlled Congress in the aftermath of the Civil War wanted to make sure that a future Congress (one that might be controlled by a coalition including representatives of readmitted Confederate states) could not (a) use federal funds to pay off Confederate debts, (b) repudiate Union debts or (c) insist that Confederate and Union debts be treated equivalently. Accordingly, the second sentence of Section Four states categorically that all “debts, obligations and claims” incurred “in aid of insurrection or rebellion” are “illegal and void,” while the Public Debt Clause makes clear that the public debt of the United States, including that related to “suppressing insurrection or rebellion,” shall “not be questioned.”

Whether the Public Debt Clause was to have any effect beyond this is unclear. It is certainly true that the literal terms of the Public Debt Clause encompass all public debt, not merely that incurred in support of the Union cause. But this is entirely consistent with reading the Clause as reaffirming a preexisting understanding of the inviolability of the public debt, while removing any possible doubt as to whether such inviolability extended to Union debt. Indeed, the only Supreme Court case to consider the Clause, Perry v. United States, 294 U.S. 330 (1935), seemed to adopt such a reading, treating the Clause as merely “confirmatory” of the following constitutional principle:

The Constitution gives to the Congress the power to borrow money on the credit of the United States, an unqualified power, a power vital to the government, upon which in an extremity its very life may depend. The binding quality of the promise of the United States is of the essence of the credit which is so pledged. Having this power to authorize the issue of definite obligations for the payment of money borrowed, the Congress has not been vested with authority to alter or destroy those obligations.

Perry involved a holder of a federal bond with a “gold clause” providing that the bond was payable in gold coin (thus protecting the bondholder against depreciation of the currency). However, at the outset of the Depression, Congress banned the use of gold as legal tender and required that bonds be payable only in paper currency. The Supreme Court, in true Marbury-like fashion, gave with one hand and took away with the other. The Court found that Congress had unconstitutionally violated the bond’s gold clause; however, it also held that the bondholder had suffered no damage because the gold coin he was due would have been illegal to sell and therefore could not have profited him. (FWIW, Professor Currie believed that the Court was wrong on both counts.  See David Currie, The Constitution in Congress: The Federalist Period 1789-1801 76 & n. 167 (1997)).

Perry suggests that the Public Debt Clause imposes a fairly minimal external constraint on Congress, even in cases involving bondholders. As Justice Stone observed in his concurrence, the government “has rendered itself immune from liability” and “relieved itself of the obligations of its domestic bonds.” Moreover, the Court noted that Congress could always escape liability for debt repudiation by withdrawing its waiver of sovereign immunity.

Abramowicz nonetheless argues that the most persuasive reading of the Public Debt Clause would have it impose two broad constraints on Congress. First, he argues that the term “public debt” should be read to include more than just bonds. He focuses on the Clause’s reference to “payment of pensions and bounties of services.” Persons owed such payments, or who have a similar claim to government payment (such as federal employees who are owed a pension), should also fall within the Clause’s protection.

This argument is not implausible, although I think one could make at least as strong an argument for limiting the scope of the Public Debt Clause to money owed to creditors (which is normally what we think of as “public debt”). Section Four refers to Confederate “debts,” “obligations” and “claims,” which are declared illegal and void. The Public Debt Clause, however, covers only “debts.” Thus, the non-debt obligations of the United States do not fall within the Clause. This inference is strengthened by an earlier version of the Clause, which would have provided that “all debts or obligations . . . incurred . . . for payment of bounties or pensions . . . shall be inviolable.”

It seems that the framers of the Fourteenth Amendment deliberately decided to exclude “obligations” from the Public Debt Clause. Abramowicz agrees, but argues that the term “debt” can be read to encompass any sum of money due by certain and express agreement. This may exclude sums promised unilaterally or without consideration, but should include monies due under a contract.

The legislative history of Section Four is too sparse to shed much light on the subject. Whether the term “debt” should be read to extend beyond creditors seems to me to be an open question.

Abramowicz’s second point is that the word “questioned” should be read broadly to reach not only actions which directly repudiate the public debt, but also those which jeopardize (i.e., bring into question) the future ability of the United States to repay the debt. His argument is premised largely on the fact that the Public Debt Clause uses the peculiar phrase “shall not be questioned” (a phrase also used in the rather different context of the Speech or Debate Clause), rather than simply saying that the debt is valid or shall remain valid.

I think Abramowicz’s argument here is weak. If the framers of the Fourteenth Amendment wanted to say that the government should take no action that would jeopardize the repayment of debt, surely there were more straightforward ways of saying so.

The literal terms of the Public Debt Clause certainly do not prohibit actions that increase the likelihood of a default on the debt. If I conduct my financial affairs in such a way as to make it unlikely or impossible that I can repay all my creditors, I am acting irresponsibly, but I am not questioning the validity of my debts. Even a failure to pay a debt, if caused by inability rather than refusal to pay, cannot be said to question the debt’s validity.

Abramowicz points to draft versions of the Public Debt Clause, which stated that the public debt was “inviolable” or would “remain inviolate.” He contends that the earlier language would have been sufficient if the framers merely wanted to avoid a repudiation of the debt, and thus surmises that they must have wanted to achieve more. In his view this support the notion that the “shall not be questioned” language should be read broadly to prohibit undermining debt repayment, regardless of whether Congress deliberately repudiates any debts. Thus, congressional action or inaction which substantially prejudices debt repayment would violate the original intent of the Public Debt Clause.

Trying to discern the intent of the Public Debt Clause from this change of language seems rather speculative, particularly since there is at least one floor statement indicating that the change of language was not intended to change the meaning of the provision. But it seems to me that the most persuasive explanation for the final language in the Public Debt Clause is simply this– it expresses exactly what the framers of the Fourteenth Amendment were trying to accomplish. They wanted to prohibit future Congresses from questioning the validity of the public debt. Specifically, they wanted to prohibit future Members of Congress from arguing that Union debt was invalid because there was no constitutional basis for making war on states that wanted to secede from the Union.

But how, one might ask, could the framers of the Fourteenth Amendment expect that such a provision be enforced? This question assumes a fact not in evidence, namely that the framers expected the provision to be enforced outside of Congress. In fact, despite Abramowicz’s contention that the courts could enforce the Public Debt Clause under current jurisprudential doctrines, it surely would not have crossed the minds of the framers that any such enforcement would take place. They would have expected (understandably, and, as it turns out, correctly) that the only effect of the Public Debt Clause would be the impact that it would have on the consciences of future Congresses. Seem in this light, it is not surprising that the Public Debt Clause is phrased in a broad, hortatory and essentially unenforceable way.

If the framers of the Fourteenth Amendment had anticipated even a remote possibility that the Public Debt Clause would be subject to judicial enforcement, they certainly would not have drafted it in the broad manner that Abramowicz suggests. If courts were empowered to decide if a particular congressional action or inaction (such as new spending or a failure to raise taxes or increase the debt limit) jeopardized creditors, it would be the equivalent to turning over the power of the purse to the courts.

To be fair, Abramowicz himself does not contend that the courts will, or should, enforce the Public Debt Clause. He acknowledges that attempting to enforce the Clause at this juncture would introduce dangerous uncertainty about the structure of government. After all, Congress has spent the century and a half since the enactment of the Fourteenth Amendment making commitments without anyone apparently being aware that the Public Debt Clause had the meaning or import that Abramowicz ascribes to it. Instead, Abramowicz treats his reconstruction of the Clause’s original intent as a kind of thought experiment to shed light on how we might craft a new constitutional amendment ensuring that Congress better keeps to its fiscal commitments in the future.

So why, I hear you ask, should anyone care about this?

I’m getting to that.

 

 

 

 

 

 

Not a Creature has Standing, Not Even the House?

When Attorney General Holder announced that the Department of Justice (DOJ) would no longer defend the constitutionality of the Defense of Marriage Act (DOMA) in cases where it was being challenged, he committed to “providing Congress a full and fair opportunity to participate in the litigation in those cases.” In response, the Bipartisan Legal Advisory Group (BLAG) of the House of Representatives is seeking to intervene in a number of such cases, including Windsor v. United States, pending in the Southern District of New York.

DOJ does not object to BLAG’s intervention in Windsor, but it contends that the House’s interest in DOMA’s constitutionality is nothing more than a “generalized grievance” that is inadequate to give it standing. Accordingly, it proposes that BLAG be permitted to intervene only “to present arguments in support of the constitutionality of Section 3 of DOMA, consistent with [DOJ’s] role in this case as counsel for the United States.”

Under DOJ’s theory, it would retain exclusive control of the defense of the case, including control over procedural issues such as filing motions, making objections and appealing adverse decisions. DOJ promises that it will “file appropriate motions, purely as a procedural matter, to ensure that this Court can consider arguments on both sides of the constitutional issue and that the Court has jurisdiction to enter judgment on the basis of those arguments.” Notably, however, DOJ does not promise that it will necessarily appeal a judgment against the constitutionality of DOMA.

BLAG objects to DOJ’s position. It argues that DOJ is inappropriately attempting to relegate it to the status of a glorified amicus and “asserting a right to act as a gatekeeper for the House’s efforts to defend a validly enacted statute that the Department itself refuses to defend.” Accepting DOJ’s position would give it the ability to hamstring the House’s defense of DOMA, or any federal statute, thus effectively giving it “an extra-constitutional post-enactment veto over federal statutes to which it objects.”

Moreover, BLAG argues that DOJ’s position is inconsistent with INS v. Chadha, 462 U.S. 919, 940 (1983) , where the Court stated that “Congress is the proper party to defend the validity of a statute when an agency of the government, as a defendant charged with enforcing the statute, agrees with plaintiffs that the statute is inapplicable or unconstitutional.” Chadha relied on this proposition to support its holding that there was a justiciable case or controversy, a conclusion that would make no sense unless Congress was considered to be a true party with independent standing.

BLAG’s reading of Chadha seems to be the more persuasive one. Therefore, BLAG should have standing so long as one makes the assumption that it is the same entity, for purposes of the standing analysis, as the House itself.  This assumption is of yet unexamined, but may not remain so.