Debt ceiling, Spending cuts, Treasury bonds, Federal budget
Constitutional Law | Law and Economics | Securities Law | Tax Law
In August 2011, Congress and the President narrowly averted economic and political catastrophe, agreeing at the last possible moment to authorize a series of increases in the national debt ceiling. This respite, unfortunately, was merely temporary. The amounts of the increases in the debt ceiling that Congress authorized in 2011 were only sufficient to accommodate the additional borrowing that would be necessary through the end of 2012. In an economy that continued to show chronic weakness -- weakness that continues to this day -- the federal government would predictably continue to collect lower-than-normal tax revenues and to make higher-than-normal expenditures, which meant that the debt would necessarily grow over time. Because there is no reason to believe that the annual budget will be balanced after 2012 -- indeed, because that would be an affirmatively bad idea, even if the economy were to return to full employment -- everyone knew that the debt ceiling would have to be raised by the beginning of 2013, to accommodate economic reality as the country continues to try to return to prosperity.
As soon as the agreement temporarily averting the crisis was reached in 2011, however, the two top Republican leaders in Congress announced that they planned to demand additional spending cuts every time in the future that the debt ceiling needed to be increased. Their strategy appears to be based on the assumption that reaching the debt ceiling would, as a matter of course, require the president to cut spending in order to keep total borrowing under the statutory limit. If that were a correct reading of the Constitution, the president would in each case be forced to choose between inflicting severe and immediate austerity on the country at the moment the ceiling was reached -- making spending cuts adequate to reduce total spending, so that it would match the tax revenues flowing into the Treasury -- and accepting less severe austerity in the immediate term, by agreeing to cut spending by larger amounts in the future as the “price” of allowing borrowing to rise in the immediate term, with concomitantly smaller spending cuts up front. We addressed the debt ceiling standoff in an article published in the Columbia Law Review earlier this year: How to Choose the Least Unconstitutional Option: Lessons for the President (and Others) from the Debt Ceiling Standoff (hereinafter “How to Choose”). We argued there that it is incorrect to assume that the president can, or should, reduce authorized spending if the federal government reaches its statutory debt ceiling. Instead, we argued that the president should faithfully carry out the exact levels of spending and taxes that are required by the duly enacted budget of the United States -- even if doing so requires him to exceed the debt ceiling -- by issuing Treasury bonds in amounts sufficient to finance the difference between the levels of spending and taxation that Congress has authorized.
As this follow-up essay is being published, in late December 2012, the President and congressional Republicans are in the midst of budget negotiations that may hinge on whether our argument was correct -- that the president has a duty under the Constitution to set aside the debt ceiling, if the moment of truth comes. Unfortunately, none of the participants in the negotiations has offered any public indication that they even understand the nature of the problem that the president would face, much less how to resolve that problem, should Congress refuse to raise the debt ceiling.
We argue here that the President should make it clear, as soon as possible, that the debt ceiling is not, and cannot legally be used as, a cudgel with which Congress can force him to renegotiate the federal budget. If the President does not do so now, the problem will continue to arise in the future, every time the debt level grows (as it should, in a growing economy which offers continuing opportunities for public investment) above the arbitrary dollar limit that Congress might set. Therefore, the President's best course is to make clear that the debt ceiling must always give way to the wishes of Congress, as expressed through the budget of the United States.
Buchanan, Neil H. and Dorf, Michael C., "Nullifying the Debt Ceiling Threat Once and for All: Why the President Should Embrace the Least Unconstitutional Option" (2012). Cornell Law Faculty Publications. Paper 592.
Neil H. Buchanan & Michael C. Dorf, "Nullifying the Debt Ceiling Threat Once and for All: Why the President Should Embrace the Least Unconstitutional Option", 112 Columbia Law Review, Sidebar (2012)