Default not an option under U.S. Constitution
By Reynolds Holding
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
A federal default is no option under the U.S. Constitution. Rating-agency warnings and budget-talk walkouts aside, America’s founding document probably won’t let the government stiff its creditors. That’s no reason to derail a deal on the debt ceiling. But if push comes to shove, the White House may have the greater legal leverage.
Politics drive the conceit that the debt cap is inviolate. So long as it isn’t breached, the Treasury Department, rather than Congress, can keep the power to issue debt. That’s why the Obama administration predicts economic “catastrophe” if the ceiling isn’t raised. Republicans, on the other hand, can hold an increase hostage to deep cuts in spending, healthcare and retirement obligations.
But a mere statute created the ceiling. The Constitution trumps statutes. And a clause in the Fourteenth Amendment essentially says that the feds cannot renege on debts, meaning the cap could, if it came down to a court decision, be declared unconstitutional.
There’s some doubt, because the clause has rarely been tested. It was enacted in 1868 to ensure payment of Civil War obligations, but the Supreme Court has twice confirmed that it also covers current debts backed by the United States. Government bonds qualify, and Social Security may as well, because the clause includes “debts incurred for payment of pensions.”
The language is so sweeping — public debt “shall not be questioned” — it seems to require on-time payment in full. That could be a problem if money trouble forces the Treasury Secretary to choose which obligations to cover first. During a spat over the cap in 1985, the Government Accountability Office said prioritizing payments would be OK, but it didn’t mention the Constitution.
It’s hard to believe the debt clause will come into play. Congress has raised the ceiling 10 times since 2001. But if Congress insists on forcing Uncle Sam into acting like a deadbeat, the president has a clear — if unprecedented — response. He can declare default unconstitutional and arrange to pay the nation’s debts unilaterally. That would certainly demonstrate that the United States is a better credit risk than anyone thought.