Six Legal Reasons the President Should Ignore the Debt Ceiling

Republicans threatening to cause a financial crisis by refusing to raise the debt ceiling unless their agenda is enacted are practicing extortion, plain and simple (“extortion”: the act or practice of wresting anything from a person [or persons] by force, by threats, or by any undue exercise of power). It is not negotiation.

Any advisors or other members of his administration who are telling the president that he shouldn’t issue an executive order for the Secretary of the Treasury to ignore the debt ceiling and keep paying the government’s bills (if that becomes necessary) are deeply mistaken.

Concerns that the Supreme Court would somehow intervene and create a financial crisis are overblown. The President doesn’t need the court’s permission. If it becomes necessary, he should demonstrate leadership and present the court with a fair accompli.

Concerns that the President taking unilateral action to avoid a financial crisis would somehow create a comparable financial crisis are simply stupid.

Robert Hockett, is the Edward Cornell Professor of Law and a Professor of Public Policy at Cornell University; Senior Counsel at Westwood Capital, a socially responsible investment bank; and a Fellow of the Century Foundation think tank. He has worked at the International Monetary Fund and the Federal Reserve Bank of New York and serves in a consultative capacity for a number of U.S. federal, state, and local legislators and regulators.

Writing for Forbes magazine, he provides six legal reasons why adhering to the federal budget takes precedence over the debt ceiling law. You might not care to read so much on this subject. I just wish the damn president, his new chief of staff, the Secretary of the Treasury and the Attorney General would:

Writing in outrage for over a decade about the illegality of the putative ‘debt ceiling as I, along with several distinguished colleagues, have been doing, I am not a little relieved to see some of our longstanding arguments gaining traction. I am a little bit troubled, however, by how attention has centered almost solely upon the 14th Amendment to the U.S. Constitution.

The 14th Amendment is, to be sure, one of the grounds upon which the ‘debt ceiling’ must be declared null and void – for reasons even beyond those we’re hearing right now, as I’ll indicate. But there are at least five additional such grounds. It might then be helpful to elaborate them, along with their mutual complementarities, in summary fashion.

Let’s start with the constitutional and legislative backdrop …

Articles I and II of the Constitution vest both Congress and the President with budgetary roles. All spending and revenue-raising must be legislated, and valid legislation must be passed by both chambers of Congress and signed into law by the President. Final budgets, such as they are, are accordingly joint Congressional and Presidential products – save in such rare circumstances as those in which Congress overrides a Presidential veto with a supermajority vote.

The Constitutional provisions that I have just channeled are broadly worded and prescribe very little as to the details of federal budget processes. These are determined, instead, by more legislation. In 1921, through the Budget & Accounting Act, Congress vested primary budget formulation responsibility with the President, establishing both detailed timetables and the predecessor of today’s Office of Management and Budget (OMB) to help shepherd the process along.

The ‘debt ceiling’ is rooted in this era, during which Congress relinquished its previous role as legislator of every distinct federal bond-issuance. Congress did this to afford the President – by their own law our primary budget-formulator – more flexibility in determining revenue sources for funding the growing variety of legislated programs. That’s right, the original ‘ceiling’ was about affording the President more discretion, not less.

It is no accident that the Liberty Bond Act of 1917 (original source of the ‘ceiling’), the 1913 vintage 16th Amendment to the Constitution authorizing the federal income tax, the thereby enabled Revenue Act of 1913, the Federal Reserve Act of 1913, and the aforementioned Budget & Accounting Act of 1921 all came in rapid succession. In effect, these enactments, all passed by Congress and signed into law by the President, constituted one coherent federal budget regime.

All of this changed, however, in 1974. The ‘crisis’ that occasioned the change was brought on, like so many others of the era, by President Richard Nixon. Nixon had an unfortunate tendency to think himself more ‘imperial’ than the Constitution allowed, and took it upon himself to decide with unprecedented frequency what Congressionally legislated and funded programs, even though he had signed them into law in the first place, were worthy of actual execution and funding.

The practice in which he manifested this proclivity was known as ‘impoundment.’ The idea was that instead of spending what Congress had instructed him to spend and what he had agreed, by signing their legislation, to spend, Nixon was routinely spending only what he wished to spend, while ‘impounding’ the rest – in effect, holding it hostage.

Congress put an end to this chicanery by passing the Congressional Budget and Impoundment Control Act of 1974, pursuant to which both Congress and the President go through detailed procedural steps in formulating their own budgets, which budgets are then ‘reconciled’ and collated before being legislated into law piecemeal through sundry program authorization and appropriations acts passed by Congress and signed by the President. (The Supreme Court closed all plausible loopholes in the Act in Train v. City of New York one year later.)

This is also the origin of the Congressional Budget Office (CBO), designed as a counterpart to the President’s OMB. In effect, then, what we have had for the past 50 years is an altogether new budget regime superseding the regime put in place 50 years before then. The earlier regime, in other words – including its ‘debt ceiling’ component – was implicitly repealed by the later regime.

You can see this by noting the logic – or shall we say the arithmetic – of the post-1974 regime. Pursuant to that regime the duly legislated federal budget first determines both revenue and spending, then assigns the President and his Treasury Department the task of filling any gaps between the former and the latter through debt issuance. And, since the President is prohibited under this regime from not spending what the budget mandates he spend, the regime effectively mandates that he borrow any time mandated spending exceeds mandated revenue.

We are now situated to see why the 1917 ‘debt ceiling’ as presently wielded like an AR-15 by a rump faction of the House Republican Caucus is actually no more than a leaky water pistol. For there is literally no way for the President to comply with the putative ‘ceiling’ … that does not entail his violating the federal budget itself — as formulated pursuant to the 1974 regime that superseded the early 20th century regime. Here are the six reasons why…

Reason 1. The ‘Take Care’ Clause: Article II, Section 3 of our Constitution requires that the President ‘take care that the Laws be faithfully executed.’ President Nixon effectively violated this provision by not spending as Congress, through that law which is the federal budget, mandated that he spend. President Biden would be doing the same were he not to spend as the last federal budget requires that he spend, and were he not to borrow in so doing as that budget arithmetically mandates that he borrow.

Reason 2. The ‘Presentment’ Clause, a.k.a. ‘Line-Item-Veto’ prohibition: Article I, Section 7 of our Constitution requires that bills passed by both chambers of Congress be ‘presented’ as wholes to the President, which the latter then signs into law or vetoes. In Clinton v. City of New York (1998), our Supreme Court held that the Line Item Veto Act of 1996 violated this clause by purporting to permit the President to ‘cherry-pick’ which budget items would become law and which ones would be left on the cutting room floor.

Were President Biden to ‘prioritize’ payments mandated by the current federal budget as the aforementioned rump faction of the House Republican Caucus suggests, he would be doing precisely what the Court held that President Clinton couldn’t do and that Congress could not authorize.

Reason 3. The 14th Amendment: Article XIV, Section 4 of our Constitution provides that ‘[t]he validity of the public debt of the United States, authorized by law… shall not be questioned.’ The framers’ intention in enacting this Constitutional provision is of particular interest right now. The self-styled ‘Confederate States of America,’ controlled by slave owners, had pulled their members from Congress and endeavored to destroy our federal union ‘from without’ by launching military attacks … in 1861. President Lincoln and Congress incurred unprecedented federal debt (multiplying it 80-fold, from a bit over 64 million to 5.2 billion), in the form of Treasury securities sold to millions of Americans, in financing the successful effort to end that rebellion.

As the nation began healing at the Civil War’s end, concerns grew that Southern legislators readmitted to Congress would continue their effort to destroy our federal union, save now from within, by repudiating the war-occasioned federal debt that American statespersons since Alexander Hamilton had recognized as the essential financial binding agent holding our union together. Indeed, Southern legislators were quite open about their intentions on this score, which is precisely what occasioned the requirement that Southern states ratify the 14th Amendment as a condition of rejoining the Union rather than remaining militarily occupied conquered territories.

The applicability of the 14th Amendment to the present ‘debt ceiling’ insanity grows quite clear when we recall this history. It is a striking fact both that the aforementioned rump faction of the House Republican Caucus nearly all hail from former Confederate or Confederate-border states, and that many of them have called for a ‘national divorce’ …. It is equally striking that most of these … Republicans have been transparent about their aims … to sow chaos and thereby pave the way for a Weimar style anti-constitutional putsch by their criminal ringleader and serial bankrupt in Mar-a-Lago, Florida – who has himself now explicitly called for default on the national debt.

Reason 4. The ‘Later in Time’ Rule: It is a well established judicial canon of statutory construction that when an old law appears to conflict with a newer law or treaty, the older law must either be interpreted in a manner that does not conflict with the newer law, or be treated as having been implicitly repealed by the newer law. There are two ways in which this canon is applicable to our present ‘debt ceiling’ imbroglio.

First, the 1974 budget regime clearly displaces the earlier regime, including its ‘debt ceiling.’ This is made dramatically clear in the 1974 regime’s requiring both that the President execute the budget in full (no impoundments), and that s/he issue debt in so doing to fill any gap between spending and revenue. And second, any current budget enacted later in time than the last ‘debt ceiling’ hike of course supersedes the latter.

It is for this reason that I’ve often written that ‘the budget is its own “debt ceiling.”’ Indeed, in light of the anti-impoundment content of the 1974 Act, it is clear that the budget is both its own floor and its own ceiling. It is self-contained. It is the be all and end all of federal budgeting. It is the entirety of the law governing spending, taxing, and borrowing, with no role left to be played by the old 1917 Liberty Bond Act ‘ceiling.’

Reason 5. The ‘Absurd Result’ Canon: It is also a well established canon of statutory construction that, when a legal provision – either as written or as it would be applied – can be construed in more than one way and one such way would yield a result so absurd that the legislature cannot plausibly be taken to have intended it, the interpretation yielding that result must be considered mistaken.

In the present context, it is clear that the interpretation of the ‘debt ceiling’ proffered by the aforementioned rump faction of the Republican House Caucus would yield multiple absurdities of the relevant sort. It would require the President to violate contract obligations (which US borrowings assuredly are), the last-legislated federal budget of 2022, the 1974 Congressional Budget and Impoundment Control Act, and one or more of the three Constitutional provisions assayed above.

And that is to say nothing of the cataclysm that default on our national debt, which we’ve never reneged on before, would bring to the US dollar, to US debt servicing costs, to the US banking and financial sectors, to the nation’s pension and mutual fund holders, to the nation’s inflation rate and its broader economy, and indeed to the world’s capital markets and trading economy.

It is simply impossible to imagine the framers of the Liberty Bond Act of 1917 – who were seeking to facilitate the financing of the First World War effort – or indeed any member of Congress prior to the aforementioned rump faction of the House Republican Caucus, ever having intended even one of these outcomes, let alone all of them.

Reason 6. The ‘Constitutional Avoidance’ Doctrine: Finally, it is also a well established canon of statutory construction that, when a legal provision – either as written or as it would be applied – can be construed in more than one way and one such way would raise a Constitutional issue, the interpretation yielding that result should if possible be considered mistaken.

The applicability of this doctrine to the present imbroglio is, like those of the previous legal doctrines, quite clear as well. The ‘debt ceiling’ as interpreted by today’s [MAGA] Republicans would squarely conflict with the 14th Amendment as noted above. Either the interpretation, then, or the ‘ceiling’ itself must be deemed without legal force.

I hope that the point is now made. Neither the President, nor the Treasury Secretary, nor any responsible member of Congress need worry that there would be anything ‘legally questionable’ about either or both Congress’s and the President’s simply disregarding the ‘debt ceiling’ and continuing to make good on the nation’s legal obligations as always. No court would find otherwise.

There simply is no uncertainty here. Indeed, the law quite clearly, quite certainly and quite squarely requires one thing. It requires that Congress and the President alike recognize that the old 1917 relic known as the ‘debt ceiling’ as presently applied is null and void, and has been so both since its inception and especially since Congress smacked down the would-be ‘imperial’ President Nixon a half-century ago.