It's an overworked expression but desperate times call for desperate measures. With the exhaustion of federal borrowing capacity perhaps a few weeks away, President Biden says he may consider ignoring or challenging the upcoming statutory debt limit by asserting that the debt ceiling is unconstitutional. If negotiations with Congress end in failure, a legal battle of major historic significance could dominate the Nation's attention as federal courts are forced to settle the matter.
Conventional wisdom assumes past is prologue, meaning Republican leaders will blink and raise the limit or work out some deal with the White House. Perhaps. But the political pressures behind the scenes indicate this is not a typical game of debt-ceiling chicken.
If the debt battle becomes a constitutional crisis, law professors on both sides of the issue will swamp the airwaves. Legal precedent on this issue is sparse so outcome predictions will probably vary greatly, and everyone will acknowledge that the correct legal disposition will be whatever a majority on the Supreme Court says it is.
Here's our two cents (okay, with current inflation, call it three cents). The debt ceiling statute is not unconstitutional. Apart from the legal question, however, the hyperbolic political theatrics in play could dilute the purity of legal issues, injecting a measure of political practicality into the final outcome. At a time when the Supreme Court's institutional legitimacy is under constant attack, a decision with the potential to unleash economic and market chaos could be contoured to the moment.
The Fourteenth Amendment Argument: According to the Constitution's Fourteenth Amendment (Section 4), "the validity of the public debt of the United States . . . shall not be questioned." If the statutory debt ceiling impairs the government's ability to pay its bills and service the current national debt, questions would be raised regarding the sanctity of federal debt obligations, according to advisors who may encourage the President to take a constitutional hard line.*
There are two internal Justice Department opinions on the topic but neither has been made public. In late 2012, President Obama's Press Secretary said the Administration did not believe the Fourteenth Amendment empowered the President to disregard the statutory debt limit.
Limited Supreme Court Precedent: Again, judicial precedent is limited but the Supreme Court addressed the Fourteenth Amendment public debt provision in a 1935 decision, Perry v. United States. If President Biden relies on the Fourteenth Amendment to resolve the debt ceiling standoff, this case will be the primary focus of competing arguments.
In 1933, Congress abrogated gold clauses in federal bonds, invalidating provisions that otherwise ensured repayment of principal and interest in gold coins or dollars reflecting equivalent value in gold. In post-depression America, bondholders relied on the gold clauses as inflation protection. Bondholders sued when their $10,000 bonds were redeemed for $10,000 cash instead of the equivalent gold value of more than $16,000.
Because Congress has the constitutional power to regulate the value of money, a five-Justice majority ruled the plaintiff could be capped at $10,000. Private ownership of gold above $100 was prohibited and the gold content of coins had been reduced. Four members of the Court, however, concluded that the cancelation of the gold clauses violated the Fourteenth Amendment's guarantee that the validity of public debt shall not be questioned. "Having this power to authorize the issue of definite obligations for the payment of money borrowed, the Congress has not been vested with the authority to destroy those obligations."
"The expression 'the validity of the public debt' [embraces] whatever concerns the integrity of the public obligations," the Justices wrote in the Court's primary opinion. This view garnered four votes, one shy of a majority. Thus, the conclusion is not binding law.
Four dissenters blasted the abrogation of the gold clauses as a dishonorable rejection of government promises to bondholders. "Loss of reputation for honorable dealing will bring us unending humiliation; the impending legal and moral chaos is appalling."
Article II Theory: The President could assert an alternative theory for justifying the rejection of the debt ceiling. Article II of the Constitution directs the president to ensure the laws are "faithfully executed." If Congress has passed spending bills or other funding legislation, enforcing the debt ceiling could undermine the faithful execution of those spending provisions. The President could claim he is constitutionally bound to enforce and execute the dedicated spending laws duly passed by Congress, exercising executive discretion to choose which laws to enforce.
Is the Current Debt Ceiling Unconstitutional? If the President invokes the Fourteenth Amendment, a legal case will work its way through the federal court system in a hurry. The matter could easily be docketed in the Supreme Court within weeks if not days. Arguments would be extensively developed on both sides, but our initial take suggests the current statutory debt ceiling does not violate the Fourteenth Amendment.
Unlike the gold clause provision repudiated in the Perry case in 1935, the debt ceiling does not directly target U.S. debt obligations or specific provisions of bond contracts. A constitutional case would broadly assert that a hard cap on government spending power would jeopardize any and all government spending obligations to some extent, but this generalized concern does not necessarily implicate debt service payments or return of principal.
Moreover, the Fourteenth Amendment makes debt service a constitutional priority, elevating its legal status above all other government expenditures. Social Security, Medicare, defense spending and other critical program commitments are statutory. They may be political priorities but they do not enjoy the same constitutional protection conferred on public debt. Accordingly, if the debt ceiling forces spending cuts, servicing the public debt is the expenditure least open to question.
Process: If a constitutional battle erupts over the debt ceiling, the case could proceed in one of two ways. Most likely, the Administration would petition a federal court for a declaration that the debt ceiling violates Section 4 of the Fourteenth Amendment. The matter would be briefed and decided expeditiously, move on to the appellate court and quickly make its way to the Supreme Court.
Alternatively, the President could simply direct the Treasury to issue new bonds, ignoring the debt ceiling statute as unconstitutional. The burden would shift to Congress -- as an institution, most likely the House of Representatives -- to assert standing to protect its constitutional authority. Judicial standing for private individuals may be possible if, for example, some investors suffer economic harm by taking a position dependent on the enforcement of the debt ceiling. Standing to initiate a lawsuit, whether by the House or affected individuals, could be a critical issue.
If the case lands in the Supreme Court, the extent of economic, financial and political disruption could creep into the Court's process. In the 1935 Perry case previously discussed, President Franklin Roosevelt hinted that he might disregard the Supreme Court outcome if the Court issued an adverse decision, threatening the Court's institutional legitimacy. Academics have speculated that the Court dodged a major political threat by limiting the amount of damages injured bondholders could recover despite its holding that the abrogation of gold clause protections violated the Fourteenth Amendment.
The high stakes of a constitutional fight, if one erupts, could encourage the end of debt ceiling brinksmanship and force a meaningful negotiation. For now, the potential deployment of the Fourteenth Amendment as the nuclear option in the debt ceiling fight seems mostly theoretical. As the Treasury runs out of money, the abstract and theoretical could become tangible in a rush.
* Interesting fact: The Fourteenth Amendment was adopted in 1868 after winning ratification by three-fourths of the states. The last state to ratify the amendment? The State of Ohio in . . . . . 2003.
