Debt Ceiling Redux?
Global markets would cheer if the US president ignores debt-ceiling law
James Leitner and Ian Shapiro
YaleGlobal, 20 February 2014
NEW HAVEN: The world just dodged a bullet on the US debt ceiling. But danger still lurks as the Republicans regroup and plan a second strike.
In early February, Treasury Secretary Jacob Lew warned that the government would soon reach its borrowing limit. House Republicans quickly began concocting laundry lists of concessions to extract from the Obama administration in return for raising the ceiling. Texas Senator Ted Cruz piled on, declaring on Bloomberg that the debt ceiling should not be increased "without significant structural reforms that address the out of control spending and out of control debt in Washington."
Then House Speaker John Boehner surprised the media and his own caucus by bringing a "clean" bill to the floor and passing it with minimal Republican support. The Senate also voted up the clean bill, but not before Cruz infuriated vulnerable Senate Republicans by filibustering it. That forced five Republicans, including minority leader Mitch McConnell and Senate Republican Whip John Cornyn who both face Tea Party challenges for reelection this fall, to vote to end the filibuster or face blame, along with Cruz, for a new debt-ceiling fiasco.
Many foreign officials agree that the US should reduce its debt, but most place the blame for the brinksmanship squarely on Republicans. If default again became imminent, global trade would stall; interest rates would rise worldwide; China and other lenders would reduce purchases of treasury bonds; intransigence could well push the world back into recession. A China Daily editorial was direct: "It is pitiful that the US is now putting the fragile world recovery under renewed threat with its mind-boggling political infighting." Embarrassing given the source, but accurate.
It would be folly to think that Republican leaders who backed away from a confrontation were acting on anything other than short-term tactical considerations. All indications are that they will hold onto the House of Representatives in November. More important, polls show that Republicans have a good chance of retaking the Senate. Unless, that is, they self-destruct by starting another fight like the one that drove their popularity to historic lows during the squabble over the government shutdown last fall.
If the Republicans do win the Senate and hold the House, the gloves will come off next March when the ceiling must be raised again. Senate leaders would be in a better position, and more inclined to take on a weakened administration that would be a year deeper into lame duckhood. McConnell and Cornyn will either have been reelected to six-year terms or perhaps replaced by more extreme leaders. Cruz will have more leverage.
Of course, the Democrats might keep the Senate. Boehner changes his view so often that it is anyone's guess what it will be in 2015 - assuming he is still House speaker. Other factors might well intervene. But it is appalling that that the full faith and credit of the United States is hostage to such vicissitudes.
There is a better way for the United States to deal with the debt-ceiling problem.
Throughout the debt-ceiling saga, no one seems to have come to grips with the fact that the debt-ceiling law is unconstitutional. This is not because of the Fourteenth Amendment's declaration that US public debt "shall not be questioned." Constitutional scholar Laurence Tribe and others note that this is a shaky basis for attacking the debt-ceiling law. It would mean that any budget deficit, tax cut or spending hike that increased the risk of default even slightly could be considered unconstitutional.
The law is unconstitutional for a more straightforward reason: It forces the administration to make discretionary choices about what obligations to pay, thereby violating the Supreme Court's 1998 proscription of doing just that in Clinton v. New York. In that decision the court struck down the 1996 Line Item Veto Act because it ceded to the president the power to amend legally enacted statutes.
That is exactly what would happen if the debt ceiling were breached. Tax receipts would continue coming into the Treasury, which would then have to determine its spending priorities. Many Republicans advised exactly that course during the last debt-ceiling crisis. After all, debt service was a mere 6.23 percent of all federal outlays in 2013. The Treasury could keep servicing the federal debt and cut or delay something else.
There's the rub. Any such course involves unilateral executive branch changes to spending bills passed by Congress - exactly what the court in Clinton said violates the Presentment Clause of Article I of the Constitution. In prioritizing, the Treasury would be acting illegally.
The Treasury could still prioritize payments despite the illegality. While servicing the federal debt, the Treasury would be defaulting on the other payments that it failed to make - whether to veterans, retirees, taxpayers waiting for refunds, or anyone else due money from the federal government.
Any of those injured parties would then have standing to sue, citing Clinton. This would throw US fiscal policy into the federal courts in the midst of a financial meltdown. The political fallout is hard to predict, but it seems implausible that the administration would stand idly by in the face of a mushrooming financial catastrophe. As the White House has noted in the past, prioritization would not likely calm panicky markets or ratings agencies. Avoiding prioritization makes sense.
There are alternatives.
One option would be for the Treasury to refuse to pay any bills and shut down the government. Secretary Lew and President Obama could declare that they have no legal alternative. This would be unwise.
Last year's shutdown was unconnected to the political jockeying over the debt ceiling. It was resolved separately, without major financial fallout other than the $20 billion cost of the shutdown itself. Shutting the government over the debt ceiling would join the two matters at the hip. Contagion would spread from financial markets to the political system.
If default were imminent, markets would tank. Interest rates would skyrocket. But funds would flow into the Treasury daily without being spent. As a result, the White House would be pilloried as contributing to the mess if the president shut the government and declared he could do nothing more. People would demand a more responsible course. There is one.
If another debt-ceiling breach is threatened in 2015, President Obama should simply announce that, lacking the legal authority to prioritize payments, the administration will ignore the debt ceiling. Instead, the Treasury will continue issuing debt and paying bills as if there were no debt ceiling.
This would send a clear signal to financial markets that Washington will not indulge in another round of debt-ceiling chicken. It would also keep the matter out of the courts where US fiscal policy surely does not belong. No one would suffer a particularized injury due to the Treasury's action, so no one would have standing to sue.
The House of Representatives might impeach the president, but even if the Republicans had won the Senate, no one believes that they would have the 67-seat majority needed to remove him from office. Ignoring the debt ceiling would force the matter to the top of the public agenda in the 2016 election.
The debt ceiling is a cowardly law. It lets legislators vote to spend money and then refuse to pay when the bills come due, hiding - preposterously - behind sanctimonious speeches about fiscal rectitude. If they don't want the Treasury to borrow, they should raise taxes to pay for the spending they mandate.
It's that simple - and foreign analysts would cheer strong leadership that bucks the reckless extremists.
James Leitner is president of Falcon Management based in Wyckoff, N.J. Ian Shapiro is a professor of political science at Yale.
Rights:Copyright [c] 2014 The Whitney and Betty MacMillan Center for International and Area Studies at Yale
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|Author:||Leitner, James; Shapiro, Ian|
|Date:||Feb 20, 2014|
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