Is the Debt Cap Unconstitutional? A “Thought Experiment” from 1998

Recent discussions of whether the Fourteenth Amendment’s Public Debt Clause would allow the president to ignore the debt limit reminded me of a paper on the topic that a former student of mine, Michael Abramowicz, wrote under my supervision almost fifteen years ago. Michael has since become a prolific scholar on other topics, and this year he had the rare distinction of publishing articles in both the Harvard Law Review (here) and the Yale Law Journal (here). Meanwhile, he and I have recently coauthored twice, on randomizing law (also with my colleague Yair Listokin) and on using bonds as commitment devices. I tried to find Michael’s old article with Google and couldn’t, so I wrote to him asking about it. With his permission, I include here his reply:

The article is not publicly available online, though it is available on Westlaw or on Hein Online for those with access. Your question has inspired me to get the penultimate version of the article up on SSRN, and it is now available. The article mostly speaks for itself, but I’ll add a few points to put it into the context of the current debate:

(1) The Public Debt Clause was poorly drafted, and because Section 4 was the least important part of the Fourteenth Amendment, there is not a lot of legislative history to guide us. Particularly frustrating was the Framers’ use of the passive voice: “The validity of the public debt … shall not be questioned.” What counts as a questioning of the debt? There is room for debate. To my ear, the word “questioned” is broad, referring not just to direct repudiation of the debt, but at least also to default on the debt. My article defended a broad interpretation that would count as a questioning of any statute that ultimately would lead to a default, if Congress hypothetically never passed any other statutes.

(2) If that broad interpretation is correct, however, it makes constitutionally suspect not just the debt limit statute itself, but the entire statutory fiscal scheme. As I understand it, Medicare alone, if untouched, would eventually become such a burden that a default would follow. Of course, that won’t happen; trends that can’t continue won’t. But my paper emphasizes that the argument for finding the debt limit unconstitutional is the same as the argument for finding an unsustainable fiscal policy unconstitutional. Each puts the nation on a path to default that can be averted only by congressional action.

(3) Until this month, no one joined the argument or cared much about my article, but now Garrett Epps has taken a position similar to mine, and Michael Stern has written some thoughtful posts on the other side (here, here, here, and here). One argument that Michael makes that is particularly intriguing is that, if I am correct that a default would violate the Public Debt Clause, who is to say that the appropriate remedy is for the President to ignore the debt limit? After all, it is the combination of the debt limit and our taxation and spending policies that would lead to default. Could the President not unilaterally cut spending or raise taxes instead?

(4) These considerations make me think that a modest approach for the President to take would be not to conclude that the debt limit is facially unconstitutional, but rather that it would be unconstitutional as applied, to the extent that it would prevent payment of interest on the debt. If the President took that position, the Administration would in effect continue to raise the debt limit as necessary to make payments on the debt. But when other bills came due, if there were insufficient funds to pay them, that would not justify the issuance of additional debt. The consequences of such nonpayment are sufficiently severe that the President and Congress could continue to play their game of chicken, but the worst case scenario would be a government shutdown, rather than a default. Perhaps the President can accomplish this even without invoking the Public Debt Clause, simply by prioritizing payments on the debt over other payments that come due, but his ability to do that depends in part on the timing of revenues and expenditures, and an announcement that the President will make payments on the debt despite the debt limit statute no matter what would calm the markets. Perhaps the Office of Legal Counsel will issue an opinion helping the President to do this, but if not, President Obama has shown a willingness to seek out other legal opinions to allow him to reach the ends he seeks.

(5) The President may not be willing to do this, though, because of the political cost. Many readers found my argument that the debt limit may make the debt limit unconstitutional counterintuitive simply because the statute had been around so long, and the President also might believe that a crisis would ultimately help him politically. In that case, it will be interesting to see whether a bondholder files a preemptive lawsuit, and whether the courts would find such a suit justiciable, an issue I consider preliminarily in the article.

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  1. Joshua Northey says:

    Ultimately the “law” is taken to mean what powerful people’s lawyers say it means. I think the idea there is a “correct” interpretation is laughably naive. The optimates are clearly not interested in this interpretation of the law at this moment in time. I doubt the populares are either as it would give the optimates too much power to cut spending later down the line.

    Moreover it looks like there is not framework or structure for resolving this issue if it is deemed there is a conflict without the executive branch collecting even more power. That is something I doubt anyone who isn’t currently part of the executive apparatus wants as it is already a monstrosity and collects more powers with each administration.

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  2. David says:

    Very often, when I see the passage of the 14th amendment quoted, there is an ellipsis. First, here is the whole sentence. “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.”

    It seems that often left out is an important piece, that the valid public debt is authorized by law. Now, the Supreme Court has held that if Congress funds a war, they are exercising their authority to declare war. It seems to me that the inverse argument is made here, that by creating a debt ceiling, Congress has declared just how much public debt is authorized by law. This means that while the Executive branch may continue to issue debt, that debt would not be covered by the 14th amendment. I don’t know about the legality of the Executive branch issuing debt above the debt limit, but the 14th amendment doesn’t seem to speak to that.

    My legal analysis may be off, because I tend to just look at things in a straightforward manner.

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  3. Rob says:

    As it stands, all are equally conventional laws. I think the relevant missing piece, though, is the 1974 budget process reforms. By ruling out impoundment by statute, the President cannot impound appropriations without a request to do so that Congress need not act on. However, without asking, the law seems to rule out impounding existing appropriations and solely servicing debt because that is impounding everything else.

    In effect, there is a contradiction to the debt limit, the current year omnibus appropriations, and Title X of the 1974 budget act. Any two invalidate the third. Beyond this, it is a mere matter of choosing which one to invalidate. Perhaps this then makes (4) the most likely because the 1974 act is the oldest piece of legislation.

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  4. Bill says:

    To me, it seems that Congress has already authorized the expenditures by passing the budgets and not raising the revenue to fund them. I think the president’s options may actually be limited however due to the 1974 law. There is only one avenue that seems to be legal if congress refuses to act and it would create a fiscal disaster. They can fire up the presses and start printing money. Massive inflation would take hold. The value of the dollar would plummet. Holders of our currency would probably dump it. The financial well-being of our country would fall apart and we may become the next pre world war 2 Germany or like one of the current impoverished third world countries with worthless currency.

    Here’s hoping our politicians pull their heads out of their asses and fix it before that happens.

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    • John B says:

      “There is only one avenue that seems to be legal if congress refuses to act and it would create a fiscal disaster. They can fire up the presses and start printing money.”

      Where have you been? They have been printing money, at an accelerated rate, for years.

      Almost 1/3 of last year’s government expenditures was “printed money”. Many countries around the world are being hurt badly by the US printing money.

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      • Bill says:

        The levels of money would be vastly different. Especially if congress chose not to fund the debt for a prolonged period. There is between 1billion and 1.5billion in US currency in circulation today. (According to a CNN report I saw several months ago) If we tried to service the debt solely by printing money for an extended period, it would be disastrous because of the sheer magnitude of the current debt and the drastically increased output that would be required.

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  5. Brian says:

    It seems to me that by ignoring the debt limit the President would be violating, not honoring, the 14th amendment. By issuing debt that is NOT authorized by law, he would be calling into question — or at least confusion — the debt that IS authorized by law. While it is possible to imagine a situation where the Pres is between a rock and a hard place — not enough revenue to pay interest on the authorized debt — we are not anywhere close to that point. Instead, he is in a position of not having enough money to pay for everything he would like to pay for. The alternative of the Pres raising taxes unilaterally is plainly unconstitutional and would not be sustained by any federal court. So he has to cut something. The meaning of the 14th amendment is that he has to cut EVERYTHING else BEFORE he defaults on the debt. Some are arguing that federal pensions have priority too, but as I read it that only applies to federal pensions for Civil War veterans. So we are in danger of a government shut down, or default on SS and Medicare/aid payments, but we should be in no danger of a default on the debt. Clearly, this is just the Pres playing chicken to get what he wants: infinite authority to spend other people’s money.

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  6. michael says:

    “My article defended a broad interpretation that would count as a questioning of any statute that ultimately would lead to a default, if Congress hypothetically never passed any other statutes. . . . If that broad interpretation is correct, however, it makes constitutionally suspect not just the debt limit statute itself, but the entire statutory fiscal scheme. As I understand it, Medicare alone, if untouched, would eventually become such a burden that a default would follow. ”

    I do not think that conclusion follows. Whether a default will follow because of enactment of Medicare, notwithstanding the significant partisan bickering on the issue, is far too speculative. The Treasury borrows as is necessary to pay bills. If we get to a point where we can no longer pay our bills, then the need for a practical solution to solve our debt would far outweigh any constitutional concern. The Constitution certainly seems flexible enough to contemplate as much. At any rate, Medicare remains significantly far from causing the country to default on its debt, and look!!, Congress is already taking steps to make it more affordable. Crisis (hopefully) averted.

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  7. Dave says:

    Perhaps I’m being deft but does it not require an amendment to allow one branch of government to limit another branch’s powers? In this case congress seems to be limiting the ability of the treasury (part of the executive branch) to issue debt. Congress, it seems to me, only has powers to control spending (via the budget). Am I grossly mistaken?

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  8. Nathan says:

    As a practicing attorney, I don’t think this clause of the 14th amendment prohibits all defaults on all public debt. That expansive interpretation ignores the appearance of the word “validity” in the amendment. By defaulting on a debt, one does not necessarily question the validity of it.

    Look at the millions of filings in the nation’s bankruptcy courts year after year to see this illustrated. When an individual files for the typical chapter 7 bankruptcy, he lists out all his debts, admits their validity, and asks for a discharge. If he actually wants to contest the validity of a debt, he seeks a declaratory judgment that he does not owe it in state court, or files what is known as an adversarial proceeding in the bankruptcy court to eliminate that creditor from any distribution of assets which may occur.

    Ask most people who have fallen behind on their credit cards whether they admit that they validly owe the debt, and they will candidly admit that they do and simply state that they cannot afford to pay it. This will then operate not as a defense to the underlying debt, but may have an impact on what tools the creditor may have to collect. The fact is, we have a system that has always recognized that one does not question a debt’s validity merely by asserting an inability to pay, and the constitution by its plain language does nothing to change this.

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