The Great Debate

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 “debt ceiling” 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 “debt ceiling” regime that everyone’s talking about. This was effectively superseded by today’s budget regime, enacted under the Congressional Budget and Impoundment Control Act of 1974. Making this explicit by repealing the 1917 “debt limit” regime is preferable to leaving things merely implicit as they are now.

In what sense does the 1974 regime “implicitly” 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’s 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 “plain” 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 “debt ceiling” later this month.

On the one hand, Obama would be required — under the nation’s 1974 vintage budget law and continuing obligations — to keep paying the nation’s creditors and issue Treasury debt if tax revenues fell short of those payment commitments.

A 14th Amendment for all centuries

During the 1980s, a colorful Washington figure used to stand in Lafayette Square near the White House holding a sign: “Arrest Me. I Question the Validity of the Public Debt. Repeal Section 4, Fourteenth Amendment to the U.S. Constitution.” That section reads: “The 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 far as I know, the whimsical “protester” was never arrested; he wasn’t breaking any law. Congressional Republicans, if they force the United States into default on its debt, will be.

Even most journalists and policy wonks hadn’t heard of Section 4 until recently. But with a default on “the public debt” increasingly possible, many now find the subject gripping. What if the House Republican majority decides that they are just too angry to authorize repayment of the debt? They’d be violating the Constitution — but what would happen to the country, and to them?

During the debt-ceiling crisis of 2011, a number of scholars, including me, suggested that President Obama could end the standoff by proclaiming that Section 4 required him, as part of his duty to “take care that the laws be faithfully executed,” to set aside the debt ceiling and borrow enough money to fund payments on the debt. Obama later said his lawyers told him that was “not a winning argument.” This time around, White House Press Secretary Jay Carney has already said that “this administration does not believe that the 14th Amendment gives the power to the president to ignore the debt ceiling.”