Is the Debt Ceiling Unconstitutional? What about Default?

  • May 8, 2023
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Robert A. Levy

1. Describe the current impasse regarding the debt ceiling.

Treasury Secretary Janet Yellen warns that the federal government may no longer be able to meet its obligations if the debt ceiling is not raised by June 1. The result: default, with financial chaos to follow. Despite that stark warning, the debate over spending cuts continues. Democrats want a stand‐​alone “clean” vote on raising the ceiling. Republicans want to use the debt ceiling as leverage to force spending reductions. Political compromise remains elusive.

2. What do legal experts say about default?

Enter a handful of imaginative lawyers who promise to save us from economic ruination – not by spending less or taxing more, but by applying the Public Debt Clause in section four of the 14th Amendment. Essentially, they claim the Constitution forbids default and, consequently, a debt ceiling that triggers default is itself unconstitutional.

3. What does the Public Debt Clause of the 14th Amendment say?

The Public Debt Clause says “The validity of the public debt of the United States, authorized by law, … shall not be questioned.” That 1868 provision was intended primarily to prevent repudiation of Civil War debts. But the Supreme Court in Perry v. United States (1935) held that all federal debt is covered: The constitutional text applies “to the government bonds in question, and to others duly authorized by the Congress.” Still, that leaves several unanswered questions: First, what constitutes “public debt … authorized by law”? Second, is default comparable to repudiation in its effect on the debt’s “validity”? Third, even if default is unconstitutional, does that mean a debt ceiling is also unconstitutional?

4. What constitutes “public debt authorized by law”?

Perry plainly states that authorized and existing public debt must be paid. But proponents of the debt ceiling argue that Perry is irrelevant because the ceiling refers to new obligations that haven’t yet been authorized or issued. The counter‐​argument, to which I subscribe, is that Congress’s appropriation of funds for subsequent expenditure is equivalent to authorizing debt that would finance the expenditure. In other words, Congress has implicitly authorized the executive branch to borrow; and a statutory ceiling on that borrowing – even though signed by the executive – cannot be harmonized with the spending directive.

5. Would default be the same as repudiation in questioning the validity of our debt?

Debt ceiling advocates assert that Perry involves repudiation, which is more draconian than merely defaulting. Repudiation is a declaration that the money is not owed. A default, by contrast, declares inability to pay, which may even be accompanied by an acknowledgment that the debt remains valid. As long as the debt is not formally repudiated, so the argument goes, default does not automatically render one’s debt invalid. Once again, I subscribe to the counter‐​argument: If a friend refused to repay my loan when due, while assuring me that he would get around to it at an indefinite future date, I would be hard‐​pressed to intuit that his default – although not a repudiation – left me with a debt of unquestioned validity. As the Supreme Court said in Perry, “[T]he expression ‘the validity of the public debt’ [embraces] whatever concerns the integrity of the public obligations.”

6. What about the constitutionality of excessive spending, which can also affect the integrity of our debt?

A few devil’s advocates have argued that section 4 of the 14th Amendment might also mandate higher taxes, sales of public property, and budget cuts. Without those funding sources, the validity of the public debt might also be called into question. Yet, clearly, enactment of those policies is not constitutionally decreed. Instead, consider this more plausible interpretation: Congress is precluded from capping all sources of funds that could be used to pay the debt, but not from capping some sources. Accordingly, a debt ceiling is constitutional as long as other funding is not statutorily barred. That means, of course, Congress and the president would be compelled either to reduce spending, raise taxes, sell the Treasury’s mortgage‐​backed securities or gold, or delay principal and interest on debt held by the Federal Reserve. The choices to avoid default are numerous, notwithstanding a debt ceiling.

7. What’s the bottom line?

Here are my conclusions, tempered by awareness that legal authorities across the ideological spectrum have wide‐​ranging views: First, duly enacted appropriations are legally the counterpart of “public debt … authorized by law.” Second, default on public debt, like repudiation, casts doubt on the debt’s “validity,” and therefore is unconstitutional under the Public Debt Clause. Third, a congressional ban on all funding sources to pay principal and interest would lead ineluctably to default, and is thus unconstitutional as well. But fourth, a debt ceiling that forecloses only one source of funding, leaving open several alternative sources, passes constitutional muster. On the other hand, if default loomed because Congress and the president were unable to agree on a solution, I believe the president would be justified in breaching the debt ceiling.

8. Who would have legal standing to challenge the president if he borrowed above the ceiling?

As a practical matter, I suspect no one has legal standing to challenge an executive decision to borrow in excess of the ceiling. Standing to sue entails a showing of imminent, concrete, and particularized injury to the plaintiff – distinct from injury to the broader public. Perhaps Congress as a whole could claim such injury, but that would require a joint resolution, which would never pass the Democratic‐​controlled Senate. Moreover, even if someone had standing, the Supreme Court would likely treat the debt ceiling dispute as non‐​justiciable – that is, as a political question lacking legal criteria by which a court can resolve the impasse.

9. Where do we go from here?

Finally, there is one subject on which legal scholars seem to agree: Nothing good can come from an attempt to invoke the Public Debt Clause. The constitutional implications for separation‐​of‐​powers, the effect on capital markets, and the status of the dollar as the world’s reserve currency– those considerations should convince the Biden administration and Congress that they, not the courts, must restore fiscal sanity.

This post is an updated version of “Defaults, Debt Limits, and the 14th Amendment,” Daily Caller, July 7, 2011.

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