The budget is its own ‘debt ceiling’
It could be that President Barack Obama and the Republican House of Representatives will again be able to avert fiscal and financial chaos through a short-term, ad hoc agreement on government funding and the ‚Äúdebt ceiling‚ÄĚ limit. This would be good news for the world and its markets.
Going forward, however, we should repeal the 1917 Liberty Bond Act — the source of the ‚Äúdebt ceiling‚ÄĚ regime that everyone‚Äôs talking about. This was effectively superseded by today‚Äôs budget regime, enacted under the Congressional Budget and Impoundment Control Act of 1974. Making this explicit by repealing the 1917 ‚Äúdebt limit‚ÄĚ regime is preferable to leaving things merely implicit as they are now.
In what sense does the 1974 regime ‚Äúimplicitly‚ÄĚ repeal the 1917 regime? To answer, begin with this apocryphal early 20th century statute familiar to some lawyers: This law supposedly imposed a strange, impossible requirement on two train conductors when their trains approach from opposite directions. The conductor of each train was to stop, await the other train‚Äôs passage and then continue the journey. If read literally, of course, this statute would leave trains idling indefinitely on the prairies, shutting down the railway. So the law cannot require what the ‚Äúplain‚ÄĚ language seems to suggest — nor would any court rule this way.
Something like this apocryphal impasse would confront the president if Congress did not raise the ‚Äúdebt ceiling‚ÄĚ later this month.
On the one hand, Obama would be required — under the nation‚Äôs 1974 vintage budget law and continuing obligations — to keep paying the nation‚Äôs creditors and issue Treasury debt if tax revenues fell short of those payment commitments.
He would also, however, be required to cease making those payments, and thus violate the budget law passed under the 1974 regime, according to the 1917 ‚Äúceiling‚ÄĚ regime, which was largely forgotten by the public until rediscovered by opportunistic politicians in 2011.
The president cannot comply with both regimes if read literally — nor would any court rule that he must. The courts must instead interpret one of the incompatible regimes as giving way to the other — and it seems clear that the older, 1917 regime would be the one to yield.
There are decisive constitutional as well as statutory reasons for this. The most compelling constitutional reasons are offered by Neil H. Buchanan of George Washington University Law School and Michael C. Dorf of Cornell Law School in a remarkable trilogy of Columbia Law Review articles. (See here, here, and here.)
Buchanan and Dorf point out that the president‚Äôs unilaterally raising taxes or unilaterally ‚Äúprioritizing‚ÄĚ which bills to pay to comply with the 1917 vintage ‚Äúdebt ceiling‚ÄĚ would do far more violence to Congress‚Äôs prerogatives under Article I of the Constitution than would staying the course with Treasury debt issuance as mandated by the 1974 budget regime. The latter, they argue, is therefore the ‚Äúleast unconstitutional option.‚ÄĚ
We agree with Buchanan and Dorf‚Äôs analysis — if the latest manufactured ‚Äúdebt ceiling crisis‚ÄĚ is truly a constitutional crisis. We also, with them, endorse the argument offered by President Bill Clinton and others during the last debt ceiling crisis and recently reiterated — that Section 4 of the 14th Amendment to the Constitution, which prohibits legislatively impugning the debt obligations of the United States, nullifies the 1917 debt ceiling regime from its very beginning.
Even granting all of this, however, there are good reasons to expect that the courts would resolve the debt ceiling impasse without resorting to constitutional doctrine. For they could read the 1917 regime debt ceiling as implicitly voided, as a matter of statutory interpretation, by the 1974 regime budget.
Longstanding canons of statutory interpretation support our claim. These axioms were developed precisely to deal with conundrums like the one the nation is now facing.
Legal codes are organic human creations. They evolve over time. So it is not uncommon for codes sometimes to lose internal consistency. The circumstances that prompt legislation are often forgotten as statutes grow old and unused — as the ‚Äúceiling‚ÄĚ law did until recently. Their logical consequences are equally easy to lose sight of — at least until a once-forgotten provision is put to new, never-intended use. In view of this, the law has developed secondary decision rules for courts and others to follow when confronted with these dilemmas.
One such principle, the ‚Äúlast in time rule,‚ÄĚ mandates that a later enactment trumps an earlier one when both conflict. Another, the ‚Äúabsurd result‚ÄĚ canon, has it that a legislature is unlikely to intend a manifestly unjust or absurd result. A third, known as the ‚Äúspecific trumps the general‚ÄĚ rule, says that detailed prescriptions are more likely intended than general policy goals, if read as excluding the former.
All three of these canons converge where the 1974 budget and 1917 ceiling regimes are concerned. Combined, they suggest that the 1917 terms should never be interpreted to mandate default on national obligations that Congress has incurred through budget legislation.
The 1974 regime, of course, was devised after the 1917 regime, just as all budgets, appropriations, and continuing resolutions enacted pursuant to its provisions occur later than earlier ad hoc ceiling-changes with which they conflict.
There are two bases on which the ‚Äúlast in time‚ÄĚ rule can justify Obama‚Äôs continuing to pay national obligations as they come due. As a general matter, the 1974 budgeting regime calls continuing enforcement of the 1917 ‚Äúceiling‚ÄĚ regime into question — particularly when it presents an obstacle to compliance with the 1974 regime.
In addition, the nation‚Äôs continuing budget obligations left in place and effectively re-endorsed under the last budget stopgap legislation in March, not to mention its many non-continuing obligations reinstated by that legislation, came after the last legislated reaffirmation of the 1917 regime ‚Äúdebt ceiling‚ÄĚ in February. Courts would rule that the March legislation, which avoids default, is controlling.
Turning next to the ‚Äúabsurd result‚ÄĚ canon, trying to comply with both the 1974 budget regime and the 1917 ‚Äúceiling‚ÄĚ regime would be like attempting to meet a requirement to borrow x and a requirement not to borrow more than y < x. That would be absurd — not to mention unjust, in light of the systematic theft from creditors that attempting to comply with both would entail. A court should accordingly ‚Äúreconcile‚ÄĚ the two incompatible requirements in favor of that which does not lead to an unjust and catastrophic default — meaning the 1974 regime budget.
Turning finally to the ‚Äúspecific trumps the general‚ÄĚ rule, the 1974 regime‚Äôs legislative history reveals that it is meant to address comprehensively what the 1917 regime, even as updated in 1939, addressed only piecemeal — Congress‚Äôs larger role in the budgeting, spending, taxing and borrowing process that the president had earlier led.
Anyone who has seen a federal budget knows that these required expenditures, taxings and borrowings are painstakingly detailed and specific — in dramatic contrast to an inconsistent requirement that borrowing in aggregate not exceed some arbitrarily selected amount. Requiring the president to rewrite the budget‚Äôs expenditure or taxation provisions would also do far more violence to congressional budget prerogatives, as Buchanan and Dorf argue, than just continuing to comply with the budget‚Äôs borrowing requirements.
It therefore makes as much sense under the ‚Äúspecific trumps the general‚ÄĚ canon as the ‚Äúlater in time‚ÄĚ and ‚Äúabsurd result‚ÄĚ canons to disregard the categorical 1917 regime ceiling whenever it conflicts with the detailed 1974 regime borrowing requirement. A court should rule as much.
All rules concerning what to do about apparently inconsistent legislation, then warrant that the president treat the 1917 ‚Äúdebt ceiling‚ÄĚ regime, when incompatible with the 1974 budget regime, as yielding to the budget itself and its continuing mandates — which include all obligations Congress has already incurred. If Tea Party Republicans object, they could try their luck in court — and learn how likely a federal judge will be both to grant them standing and hold that a constitutionally infirm, categorically stated 1917 regime trumps a constitutionally impeccable, painstakingly detailed budget determined by 1974 requirements. Particularly when complying with both would not only be impossible, but impose grave injustice and economic catastrophe in the trying.
The policy support for obeying the 1974 budget regime rather than the 1917 ‚Äúceiling‚ÄĚ regime is also beyond question. U.S. government obligations are the only remaining ‚Äúrisk-free‚ÄĚ form of indebtedness in the world. All other credit instruments, and their derivatives, are priced from the baseline of U.S. credit. The risk-free rates of return on U.S. obligations underpin the relative rates on equities and non-fixed-income assets of all types.
The entire global financial system accordingly uses ‚Äúrisk-free‚ÄĚ U.S. credit obligations — either for wealth storage or as a benchmark for pricing other investment risk. Why would anyone pretend that the president might be legally required to put the financial system at risk by taking that away — when he is statutorily required not to?
The answer can only be politics.
PHOTO (Top): Speaker John Boehner (R-Ohio) (C) stands with fellow Republican House leaders as he addresses reporters in Washington, October 10, 2013. REUTERS/Jonathan Ernst
PHOTO (Insert): House Speaker John Boehner (R-Ohio) (R) and House Majority Leader Eric Cantor (R-Va.) (L) switch places at the microphones as they address reporters at the U.S. Capitol in Washington, October 10, 2013. REUTERS/Jonathan Ernst