Is The Debt Ceiling Unconstitutional? - Ep. 41
Download MP3Welcome to litigation nation. I'm your host, Jack Sanker, bringing you this bonus episode today, a little off schedule. Today, we're talking about debt ceiling from legal perspective, not a political or partisan perspective. Just a quick note on scheduling. Normally, we get this out to you every other Tuesday, but with holiday this Monday and and with the ending, debt ceiling debates and crises, which will probably go on over the weekend.
Jack Sanker:We wanted to get you something a little early this week, so we're off schedule. But, I think everyone's gonna wanna have the opportunity to dig into this stuff, before the weekend. So if you're like me, you've been hearing about the debt ceiling happening now in congress. These days, I tend to treat the daily news that comes out of congress about whatever crisis du jour The same way I do the reminder function in my Outlook calendar, which is to say I ignore it, but something this week managed to kinda permeate my membrane here. And what if I told you that the debt ceiling itself might be unconstitutional?
Jack Sanker:Now there's a new lawsuit in Massachusetts, which may actually have some merit. It's set for hearing on May 31st. So this entire discussion that we're gonna have today is kinda trickled down from the ivory tower of legal academia onto the public debate stage that's playing out in the news right now. The debt ceiling, the 14th amendment, and the constitution. I keep telling everyone, including my producer, Kevin, that one of these days, I'm gonna pull the rug out on this podcast and turn it into a civil war history show.
Jack Sanker:No one believes me yet, but I promise it's coming. And that's why this issue, I think, kinda set off my spidey sense about anything 14th amendment related, anything Reconstruction, which is really, you know, in my opinion, kind of the second founding of our country when you think about it. It's just super interesting to me as a lawyer and as someone who likes to know why things are the way they are. So for this week, at least, indulge me, please. Let me speculate wildly about topics of law that I've never practiced.
Jack Sanker:Let me wonder out loud about the historical intentions of the Reconstruction founders and the specific wording of the 14th amendment, and we'll get into chapter 1, which is what is the debt ceiling? The debt ceiling. I'm gonna read from a Wikipedia article on this, and I'll I'll tell you all after why I chose to start with Wikipedia. In the United States, the debt ceiling or debt limit is a legislative limit on the amount of national debt that can be incurred by the US Treasury, thus limiting how much money the federal government may pay by borrowing more money on the debt it already borrowed. The debt ceiling is an aggregate figure that applies to gross debt, which includes debt in the hands of the public and intergovernment accounts.
Jack Sanker:Yada yada yada. And then there's this this part here, which says many scholars argue that the debt ceiling does not provide the legal authority for the United States to default on its debt. And that specific line is heavily footnoted in the Wikipedia article. And the reason I quoted is because the time that I wrote this, which was about 9 o'clock on, Thursday, May 23rd, there's a bunch of internal citations to the quote of the Wikipedia, editors all arguing with each other. One which is footnoted to say, this may use weasel words or too vague attribution.
Jack Sanker:So this kind of debt ceiling debate is is even spread to the, Wikipedia article editors. Anyways, here's the basics which you need to know on the debt ceiling. You'd be surprised to know that much of what the government spends is borrowed money, like a lot of it. Currently, the national debt is, like, $30,000,000,000,000. And from the founding of the republic until 1917, congress had to specifically authorize the issuance of new debt for each congressional expenditure.
Jack Sanker:The country issues debt in the form of US Treasury securities. You'll hear them called t bonds, for example. The bonds mature at various intervals, 1 year, 10 years, 30 years, whatever. Lots of options in between. They can roll over, and these are traded globally.
Jack Sanker:That's how the US raises capital to spend on programs enacted by congress. So what happened in 1917? Well, World War 1, and at that point, I guess, congress got sick of having to specifically authorize the issuance of new debt for every new spending program. So in 1917, congress passed the Liberty Bond Act, which basically said that congress delegates to the executive branch agency, which is the Department of the Treasury in this case, the ability to borrow up to x amount of dollars to fund whatever spending bills the government incurs. Now this just makes for a smoother process rather than specifically authorizing the treasury to issue debt in a specific amount, congress sets a debt limit.
Jack Sanker:So think of, like, the debt ceiling kind of just like the limit on your credit card. That's basically all it is. You can buy on credit up to that limit, at which point you can't borrow anymore. So the debt ceiling gets amended from time to time, like, basically every other year from 1917 to present. I think it was amended about 80 times to account for our growing national debt, and the limit on our national credit card keeps getting raised, basically.
Jack Sanker:So what's important to keep in mind is this. The debt ceiling is set by an act of congress, which means that only congress can amend it, I e raise it. Now the current shutdown is a fight over whether congress should raise it or not. Both sides fighting over the issue, taking opposite opinions on this. Now I'm not an economist or a finance guy by any means, but, you know, when I was a plaintiff's attorney, for example, I used to say the only math I can do is dividing things into thirds.
Jack Sanker:And now that I'm a defense attorney who bills my time, I count everything in 6 minute intervals. But here's my very limited 5th grade level understanding of what happens if we hit the debt ceiling without raising it. So first, right now, we're in this cycle where you're borrowing to pay interest on old debt. So opening up a new credit card to pay down old credit cards, basically. And unless the debt ceiling is raised, we can't do that, which means interest payments on debt have to be paid without taking on new debt.
Jack Sanker:We currently don't really have the budget to do that. We don't really have the cash flow for that. Our first options would be for the government to do a shutdown type scenario where government employees don't get paid. Nonessential government personnel get furloughed. We don't pay our contractors on time while that cash is used to pay down the debt to avoid defaulting.
Jack Sanker:And put a pin in that because the lawsuit in Massachusetts deals specifically with the issue of government employees not being paid during a shutdown. Now for reasons I discussed later, I think president Biden would be well within his constitutional authority to do something, you know, maybe outside the box, like hold a federal yard sale to raise money, for example. Maybe liquidate the Smithsonian and raise some extra scratch. But the point is, without new t bonds, our budget gets stretched mighty thin, mighty quick. And that's the debt ceiling.
Jack Sanker:That's why it matters. Moving on. Chapter 2, 14th amendment. Reconstruction amendments, baby. This is, as I said, my opinion, the second founding of America.
Jack Sanker:There's too much historical context to get into here, but let's jump into it. Fourteenth amendment is 2 pages long. It's incredibly substantial, and it's as important a constitutional document as the declaration or, like, the preamble, in my opinion. There's 5 subsections containing the revised definition in citizenship in section 1, privileges and immunities clause, renegotiation of how house representatives will be accounted for in light of emancipation, and so much else. I just said there's too much historical context to get into, but I'll give you some anyways.
Jack Sanker:After the civil war, the union was trying to figure out what to do with the Confederate States, whether they should be punished, whether they can be even be allowed to participate back in normal government functions. And for all the kind of gnashing of of teeth you hear over, you know, wokeness and and debates like that today. The debate around the 14th amendment, explicitly and openly within the halls of congress talked about ideas such as, for example, systemic racism, white supremacy, universal rights, universal suffrage for freed blacks and for women. And there's a, a really kind of funny part if you look back into the congressional record over some of the debates about the 14th amendment. I don't remember which representative it was, but he raised the issue of universal suffrage for women, and the, the minutes from his speech on the floor actually note, you know, crowd laughs.
Jack Sanker:So, the idea of giving, women the right to vote in the 7 the 18 sixties was, you know, apparently still a big joke. But the point is these people were thinking big at this time. It was, the 14th amendment could've, in many other iterations, been even more widespread than it was. 14th amendment and the other Reconstruction amendments were really something else. It was kind of a referendum and a complete renegotiation of what the United States was going to be that resulted in, in my opinion, almost a completely new and different country from the one that existed from the founding until the Civil War.
Jack Sanker:Now one of the areas where this was a problem was public debt. The South and the Southern states, the former Confederacy, really didn't wanna pay for the debt that the North incurred during the Civil War. And the South also wanted compensation for the freed slaves that were emancipated, but, you know, losers don't get to make the rules. So the final version of the 14th amendment, specifically section 4, which is relevant to this discussion today, reads as follows. Quote, the validity of the public debt of the United States authorized by law includes debts incurred for payment of pensions and bounties for servicing and suppressing insurrectional rebellion shall not be questioned.
Jack Sanker:But neither the United States nor any state shall assume or pay any debt or obligation incurred in native insurrection of rebellion against the United States or any claim for the loss of emancipation of any slave, but all such debts, obligations, and claims shall be held illegal and void. So what's really relevant for today's little field trip into constitutional law is that first part. Quote, the validity of the public debt of the United States authorized by law shall not be questioned. Now a lot of people, yours truly included, thinks that this means what it says. The United States will always pay its debt.
Jack Sanker:United States is like the Lannisters. You know, we'll always pay. In fact, this amendment makes it unconstitutional for the US to default on debt, in my opinion. I'm not alone here. Tim Geithner, former treasury secretary, agrees, so does legal scholar Garrett Epps, who's also the author of an incredible book, I've been reading on the 14th amendment called Democracy Reborn, the 14th Amendment and the Fight for Civil Rights in Post Civil War America.
Jack Sanker:There's Harvard Law professor Lawrence Tribe. All these folks tend to agree with the position I just articulated generally, that it's unconstitutional for the US to default. And I think that's ultimately, you know, a good thing. I suspect it has no small part in why the US dollar is the reserve currency for the world economy, but it kinda brings us into our current political conundrum. If it's unconstitutional to default, and even if we drastically cut spending without raising the debt ceiling, we're probably going to default, what can we do, and what should we do?
Jack Sanker:Some people think it's the president's obligation to uphold section 4 of the 14th amendment and to, without authorization of congress, direct the treasury to issue more debt without congressional approval. I think that's dumb, personally. We can we're gonna get into why I think that's unconstitutional a little bit later, but I also think, you know, why would anyone buy bonds that weren't authorized by congress anyways? I don't know if there'd be any market for that debt. And, theoretically, once things get straightened out in congress, those bonds could just be ignored.
Jack Sanker:So I I don't know exactly that that really solve our problem even if we went that route. There's also people that think that Biden should, quote, mint the coin. And if you don't know anything about this idea, I find it delightful even if it's ridiculous. There's an act of congress which allows the US Mint to, to create these, like, commemorative coins, which you've probably seen on, like, late night infomercials. We can mint coins, that have, you know, pictures of Thomas Jefferson on it that are made of, you know, white gold and are worth $25, whatever.
Jack Sanker:Their commemorative coins are souvenirs, but, technically, at least according to proponents of this idea, the US Mint can mint coins of any kind for any amount, which means, you know, theoretically, they can mint a $1,000,000,000,000 coin, put, you know, Joe Biden's face on it, and then take it over to, I guess, the bank teller at the treasury department and make a deposit and thereby paying down our debt a $1,000,000,000,000. Now if that seems like bullshit to you, frankly, you're not alone, but, you know, I would ask you to ask yourself how much of the rest of the financial system also feels like bullshit. And I think the more you think about it, minting the coin is as ridiculous as some of the other things we're already doing, like quantitative easing, for example. So, you know, whatever. Mint the coin, move on.
Jack Sanker:I don't know. I mentioned earlier that I like the idea of a presidential yard sale where you get Biden out on the White House lawn pawning off the bust of, George Washington or Teddy Roosevelt's cowboy boots or whatever. You probably get a few billion out of that. But, anyways, that brings us to our last segment, chapter 3, constitution, and what it has to say about the debt ceiling. Article 1 of the constitution gives congress the exclusive power to, quote, borrow money on credit of the United States by virtue of the debt ceiling acts going back to World War 1 1917.
Jack Sanker:Congress since then has, you know, temporarily, but it's been going on for over a 100 years now, temporary delegated borrowing authority to the treasury, which is an executive branch agency, but only up to the amount authorized by congress pursuant to the debt ceiling legislation, which again comes from congress's unique authority under article 1. So to me, and I think to a lot of people, that means that absent a congressional increase in the debt ceiling, we just can't borrow more money. And that means if we default, then we default. But didn't I just tell you that a lot of legal scholars think that defaulting itself is unconstitutional? Yes.
Jack Sanker:So what I'm saying is this is how I view the scenario, and this is kind of explaining what's happening in congress right now. So if congress does something that causes us to default on the debt, I think that that is inherently and explicitly prohibited by section 4 of the 14th amendment. Even though that's the case, the president can't simply just borrow more money because under article 1, he doesn't have that power unless he's authorized by congress. So it's unconstitutional to default, and it's unconstitutional for anyone besides congress to do anything about it. Right?
Jack Sanker:And congress, as we're watching, might not do anything about it. There is a potential release valve, though, and this is really what drew my attention to this issue in the first place. There's a lawsuit pending in Massachusetts that may punch a hole right through this issue. There's a union of government employees, federal government employees, that is suing Janet Yellen and president Biden to block enforcement of the debt ceiling, arguing that the debt ceiling law itself is unconstitutional. The theory is that if we reach the debt ceiling without the ability to borrow to pay down existing debt, the president then has to decide which bills get paid and which don't, sacrificing spending on current programs to fund interest payments to avoid default.
Jack Sanker:So the lawsuit argues that this would make Biden and, I guess, the treasury secretary Yellen basically have to pick and choose which items in our current budget authorized by congress get paid and which don't. Amounting to what the lawsuit alleges is a line item veto. I'm gonna quote from the complaint here. The debt limit statute is unconstitutional because it puts the president in a quandary to exercise discretion to continue borrowing to pay for the programs which congress has heretofore duly authorized and for which congress has appropriated funds or to stop borrowing and determine which of these programs the president and not congress will suspend, curtail, or cancel altogether, the complaint states. So if the president gets to pick and choose which congressionally authorized spending programs in our current budget actually get funded, I get what the complaint's saying.
Jack Sanker:The president really is effectively vetoing acts of congress unilaterally, which is itself unconstitutional, of course. Thus, because the debt ceiling forces this situation upon us all, the debt ceiling act itself must be unconstitutional, so the argument goes. Now going back to the complaint, quote, the 14th amendment requires the president to meet obligations to holders of federal debt. To do so, he must either borrow or find the necessary funds to do so from canceling suspending or refusing to carry out spending already approved by congress, unquote. For the lawyers in the audience here, you all will probably remember the, when president Clinton tried to do this back in the nineties.
Jack Sanker:Basically, exactly this. He got a bill for to sign into law and then lined out specific items that he didn't want, and then tried to pass it with these what was later called line item vetoes. Supreme Court held that unconstitutional, and the way this lawsuit is kind of positioned, I kinda get their argument here. If president Biden has to, by his own volition and, without congressional input, pick which programs get funded and which don't, And from the plaintiffs in this case, which again is an employee federal employee union, from their perspective, what they're worried about is Biden is picking which employees get paid and which don't. I think that that does amount to something like maybe a line item veto.
Jack Sanker:So it is possible that the debt ceiling act itself may be unconstitutional, at which point I would assume that the treasury, is given the green light to go ahead and borrow and go back to paying down our our existing debt. So as it stands, I actually like the lawsuit idea here. Get rid of the debt ceiling and make congress do their job to manage the budget and the debt. And kind of bigger picture, the idea that congress is able to pass spending bills without actually doing the math on how much of it goes on credit and how much of it gets gets paid cash, probably not a good thing long term. And as we've seen with the explosion of our national debt over the past couple of decades, it's probably gonna lead to a lot more borrowing.
Jack Sanker:So from a practical perspective, getting rid of this idea that the treasury has a credit card and can use it however once up to a certain limit and making congress appropriate which funds come from existing revenue streams and which funds come from borrowing, I think is probably a good idea long term. So let's not forget, folks. Congress got us into this mess. Congress ultimately has to get us out of it. One last thing I should add here is that the Massachusetts lawsuit is actually set for hearing on these issues.
Jack Sanker:I don't exactly know if it's a if it's a a pleadings motion or motion to dismiss or or something to that effect. I think it is a a hearing that, would result in maybe, like, a TRO, temporary injunction on the enforcement of the Debt Ceiling Act. That hearing is set for May 31st. What's interesting is that Janet Yellen says that if we don't bump the debt ceiling up, over the next few days by June 1st, we'll likely default. So there is this kind of possibility that exists where this Hail Mary of a lawsuit in a district court in Massachusetts enjoins the enforcement of the debt ceiling act and gives us more time to figure things out politically.
Jack Sanker:So we wanted to get this episode out before that happens, and, hopefully, over the course of the weekend, if folks are interested or don't wanna look into this more. As a reminder, the show typically comes out every other Tuesday. This is an off schedule one to account for the Memorial Day holiday and to get something in everyone's hands to think about and listen to as they pay attention to the sad state of the news coming out of Washington DC. Other than that, we'll talk to you in 2 weeks.
