Constitutional Crisis? The Political And Legal Risks Of Ignoring The Debt Limit

July 5, 2011 1:45 a.m.

While the federal government has been playing chicken with U.S. credit, liberal academics — and even some Democratic members of Congress — have begun questioning whether the legislative branch actually has the power under the Constitution to force the federal government to default on its debts.

Their argument rests on a unique reading of the fourth section of the 14th Amendment, which seemingly forbids Congress from preventing the country from paying what it owes: “The validity of the public debt of the United States, authorized by law…shall not be questioned.”

It’s an interpretation that Sen. John Cornyn (R-TX) called “crazy talk,” and that President Obama refused to comment on at a recent press conference.

But even if it’s correct, and even though Republicans are holding the debt ceiling hostage to unpopular conservative legislative priorities, it’s not a step the administration wants to take, or would be able to take lightly.

Conversations with experts indicate that the president would likely need one of the most powerful offices in the government to agree with this view before they could blow past the debt limit. And even if Obama got the go-ahead, the White House would have to be prepared for epic political and legal battles with the GOP, which would no doubt follow if Obama took such drastic action.Because the constitutionality of the debt ceiling is such a weighty question, experts say the Justice Department’s Office of Legal Counsel — the office tasked with keeping the Executive Branch in compliance with the law — would likely have to issue a formal opinion on the question, and the administration would have to be prepared to defend its decision in court, in Congress and before the public.

“The president would not rely solely on the views of [the Office of Management and Budget] and Treasury even if they agree on the question, because of the novelty, and because of the Constitutionality of the question,” said Steve Bradbury, who headed OLC during President George W. Bush’s second term.

The current impasse bears a striking resemblance to a similar debt limit showdown between then-Speaker Newt Gingrich and President Bill Clinton in 1995. In that fight, as in the current one, the country teetered precariously on the edge of default, and the administration approached OLC for its informal advice on what methods the Secretary of the Treasury could use to delay hitting the debt ceiling.

Documents posted by the Clinton Library (PDF) lay out the process the Clinton White House followed as it tried to pull the country back from the brink.

Today, Treasury Secretary Timothy Geithner is relying on similar counsel. But what happens if time runs out?

Walter Dellinger, who headed OLC during the last debt limit fight, told TPM in an interview last week that no one in 1995 truly believed Democrats and Republicans would reach a crossroads where the administration would have to choose between default and ignoring the statutory debt ceiling.

“We did a number of opinions when I was head of OLC about the lawfulness of various financial moves the Secretary of the Treasury could make in order to postpone reaching the debt ceiling,” Dellinger told TPM.

“When we concluded that there were no more lawful moves, the Secretary so informed Congress and they raised the debt ceiling, so we never reached the question of how you handle issues surrounding either the 14th Amendment or whether the expenditure statute supersedes the debt ceiling statutes,” Dellinger said.

It’s one of the most pressing issues facing the country, and a question that’s never been tackled by federal courts, according to Bradbury. Under the circumstances, OLC would have to go further than it has in the past, and issue a formal opinion on the Constitutionality of the debt limit statute itself.

“This would absolutely require a significant written opinion by the OLC before the President would rely on it,” Bradbury said. If it came to crunch time, the office could have such an opinion ready in less than a day. “When the White House calls, OLC gets to work and gets the opinion to the White House.”

These procedural issues, though weighty in and of themselves, would be merely the opening salvos of a multi-round fight with the GOP if the administration determined it had the Constitutional authority to ignore the debt limit. The courts would get the final say on the legal question, and the political backlash would be swift. In 1995, some Republicans called for resignations at the Treasury Department over the comparatively minor steps Secretary Robert Rubin took to avoid default. Gingrich even convened a task force to explore legal action against the Clinton administration. If Obama ignored the debt ceiling statute altogether, calls for impeachment would surely follow.

Sen. Chuck Schumer (D-NY) acknowledged that President Obama might be able to issue debt beyond the limit without Congressional approval in order to avoid defaulting, but warned against doing so without extensive study.

“It’s probably not right to pursue at this point and you wouldn’t want to go ahead and issue the debt and then have the courts reverse it,” he said.

By Bradbury’s reading, Obama would have a hard time justifying issuing new debt to pay old debt. Based on the text of the amendment, and an analysis of the legislative debate at the time the 14th Amendment was ratified, Bradbury concludes, “I believe that this provision of the Fourteenth Amendment means that the federal government may not cancel or fail to honor debt previously issued with the authorization of Congress (including valid, previously issued Treasury bonds).

While it could be argued that this provision requires the federal government to continue paying interest on previously issued bonds that were authorized by law, I don’t think it could be read to permit the Executive Branch to incur new debt that is not authorized by law (i.e., to issue new Treasury bonds beyond the authorized limit set by Congress). Paying interest on previously issued debt is a current expense obligation of the United States, and funds to make such current expense payments are ordinarily appropriated in the current budget. I don’t believe that the Executive Branch would be empowered by this provision in the Fourteenth Amendment to issue new debt in order to meet current interest payment obligations on previously issued debt, where the issuance of the new debt would cause the United States to exceed a statutory debt ceiling set by Congress, and I also don’t think it would empower the Executive Branch to expend funds out of the Treasury on interest payments not covered by current appropriations of Congress. In other words, I don’t believe it trumps the bedrock imperative of the Appropriations Clause of the Constitution, Article I, section 9, clause 7, which stipulates: “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.”

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