This column identifies three fallacies about the technical consequences of any failure to increase the federal debt ceiling in the United States:
1. Failure to raise the debt ceiling will generate a default on the national debt. This is incorrect. Section 4 of the 14th Amendment provides that ‘the validity of the public debt of the United States, authorized by law…shall not be questioned.’ This prohibits Congress from repudiating the federal government’s lawfully incurred debts. In Perry v United States (1935) the Supreme Court made it clear that the provision ‘indicates a broader connotation (than civil war debt) protecting the nation’s debts as a whole.
The outstanding debt is not at risk in practice because the federal government’s $200 billion per month in tax revenues is more than enough to service all outstanding debt. Such debt holds preferred status over all other U.S. federal government commitments because of this constitutional protection.
2. The White House claims that Congress must raise the ceiling to pay bills that it has incurred. This is incorrect. The obligations protected as ‘debts’ by the 14th Amendment do not include entitlement programs such as Medicare, Medicaid and Social Security. These programs are not part of the ‘public debt’ which consists of loans that are made to the federal government through bonds and similar financial instruments. Instead, entitlement programs are political measures fully subject to the general rule that one Congress cannot, by simple legislation, prevent a future Congress from making cuts. This distinction was made clear by the Supreme Court in Flemming v Nestor (1960), a case that involved the power of Congress to modify Social Security benefits.
3. Nancy Pelosi and others have recently claimed that the president can rely on Section 4 as a pretext for raising the debt ceiling by himself. This is manifestly incorrect. Section 4 grants no power whatsoever to the president. Instead, the 14th Amendment grants Congress ”the power to enforce, by appropriate legislation, the provisions of this article.’ By the Constitution, Congress controls the power of the purse – the authority to raise taxes, borrow money and direct how revenues are spent. In particular, Article 1, Section 2 grants to Congress the power ‘to borrow money on the credit of the United States’. There is no similar grant of power to the president.
With these fallacies swept away, the debt ceiling issue becomes clear.The debt ceiling determines the proper level of federal spending. Should Congress fail to increase the debt ceiling, the effective result would be major government spending cuts, including cuts in entitlement spending.
President Obama taught constitutional law for ten years at the University of Chicago. Is it not more than a little odd that he does not appear to comprehend the wording of the Constitution on matters of such national importance?
Hat Tip: David B. Rivkin Jr. and Lee A. Casey, ‘The Myth of Government Default’, The Wall Street Journal, January 11, 2013
Messrs Rivkin and Casey are partners in the Washington, DC office of Baker Hostetler LLP, and served in the White House and the Justice Department during the Ronald Reagan and George H.W. Bush administrations.