The Debt Limit Fight and What Democrats Conveniently Ignore

To hear the pundits talk, there is an impending royal battle developing over raising the debt ceiling sometime in February. Having given in on raising taxes in the “fiscal cliff” battle, Republicans won a sort-of victory by taking off the table giving the President control over the debt limit ceiling, something he demanded through his surrogate, Tim Geitner, in negotiations. That proposal resulted in some rather strong language from both Mitch McConnell and John Boehner among others. Simply put, Congress is not going to cede that power to the Executive Branch, nor should they regardless of who controls Congress or the White House. If Obama was serious about “holding the debt ceiling hostage,” instead of having that power to raise the debt ceiling ceded to the Executive branch, perhaps a better solution would be to propose some legislation that would trigger automatic increases based on benchmarks that can be negotiated. In other words, the whole process would be placed on auto-pilot, these fights would be avoided in the future, and both sides- Congress and the President, Democrats and Republicans- would be forced to ensure the benchmarks are met before the debt ceiling is raised, but without all the accounting gimmickry that goes on in Congress and at the Treasury Department. That, of course, would mean that the Congress would actually have to pass a budget and stick to it, that “emergency appropriations” would be only for defined emergencies only, that Obama cannot count anticipated “savings” from troop withdrawals from Afghanistan in his equations ad infinitum, etc. This is legislative utopia, but I can dream…

Obama, soon after basically winning the battle of the fiscal cliff, set the tone for negotiations over raising the debt limit. Specifically, he stated: “I will not debate with this Congress over whether or not they should pay the bills that they’ve already racked up through the laws they passed.” My understanding of Barack Obama’s biography is that he was a teacher of constitutional law at the University of Chicago (we can debate his “professorship” another time). If this is true, this president is truly ignorant of some basic constitutional tenets or he concentrates on other areas or whatever. But, in civics I learned a long time ago that after Congress passes a law, it is the President who signs that law into effect. Looking at his above statement, Obama places the entire blame for the current debt of this country at the feet of Congress as if he never signed any of that legislation. How much debt was added in the first two years of his administration when the Democrats controlled both houses of Congress? The $800 billion “stimulus” alone illustrates the problem. How much will be added to the debt of this country through passage of Obamacare whose cost estimates seem to shift weekly as new things come to light? This was an Obama piece of legislation, something he took pride in having named after him in the 2012 campaign (his words). The fact is it takes two to tango and Obama ignores his deficit spending tendencies and Democrats and liberals do the same.

As February draws nearer, we will hear the dire warnings of not increasing the debt ceiling, of giving the president a free pass here to continue to add to the national debt. There will be warnings about threats to the global economy, about a downgrade in the nation’s credit rating, about senior citizens not getting their Social Security checks, etc. Take the example of social security first. We hear from the Democrats and liberals that social security is sacrosanct, that it should not be touched in any spending reform package, that the system is solvent. If the system is solvent and funded through a dedicated trust fund whose source is FICA taxes, then senior citizens and other Social Security beneficiaries should have nothing to fear. After all, the funding for the source of those checks have nothing to do with the national debt or budget deficits according to the liberals; to them, the system is perfectly funded as is, is in no need of reform, has no effect on deficits or debt, etc. Of course, everyone knows that not to be case. There is no money in that dedicated trust fund beyond a series of IOUs from the general treasury.

Regarding those credit ratings, I have no idea what criteria any agency uses to determine these ratings. I do know that during the years leading up to the great financial crisis of 2008-09 that they were giving triple-A ratings to financial instruments of dubious value. The fact is that Democrats and liberals now are using “credit ratings” from agencies as ammunition in their fight to get their way when a few short years ago these very same rating agencies were whipping boys in the financial meltdown. If ratings from these agencies were of dubious value then, they are of dubious value now.

There are some recent statements from Democratic leaders like Nancy Pelosi that Obama should use the 14th Amendment to unilaterally raise the public debt ceiling. Section 4 of that amendment states in pertinent part: “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.” The part about insurrections and rebellions is obviously of historical interest only and applies to debt incurred as a result of the Civil War. What Democrats and liberals fail to mention is the most important three words in that sentence: “authorized by law.” Limiting the national debt by imposition of a “ceiling” is a duly enacted law. In a cursory reading, only existing national debt is not “questioned” and must be paid. But Republicans are not arguing against paying that debt; they are arguing against incurring any more debt.

Some legal scholars have mentioned the stark wording- “shall not be questioned”- gives the president broad power to unilaterally raise the debt limit without congressional authority. Nowhere else is the wording as stark save for the 13th Amendment. Besides the “authorized by law” wording in the 14th Amendment, there is an even more important clause in the text of the Constitution itself- Article I, Section 8. This section lays out specific Congressional powers. Most pertinent to this discussion is the power to raise taxes and to borrow money on the credit of the United States. No one disputes the fact that the legislation allowing for limits on the public debt- the ceiling- is a constitutional use of Congressional power. It is a duly enacted law signed by a president. The debt ceiling authorization, in sum, does not violate the Constitution. Furthermore, nowhere in the 14th Amendment does it state that Congress must cede its Article I, Section 8 powers to the president. If Obama acts unilaterally, then he is effectively nullifying or repealing a law and we are truly on our way to a dictatorship at worse and an emboldened imperial presidency at best.

Let us assume that Obama does use this constitutional “nuclear option” and unilaterally raises the debt limit. In order to establish standing under the Constitution, Congress would have to pass a joint resolution challenging his actions before the Supreme Court. The House may likely pass such a resolution, but it would go nowhere in the Senate. I am not going to get into the heads of Supreme Court Justices and see how they would hypothetically rule should standing even be established, which is doubtful. Absent standing, Obama would “win.”

But, what type of win would that be? Would these credit agencies not downgrade their ratings simply because the debt limit was unilaterally raised? A unilateral presidential action would likely have the same effect on ratings, interest rates, ability to pay existing debt, etc. as not raising the debt limit at all. And technically, it is not a default on current debt, only a restriction on taking on additional public debt. Some legal experts have argued that a unilateral action by the President absent Congressional approval has occurred in the past and in the hypothetical. For example, the President, as Commander-in-Chief, could take unilateral action to defend the country from foreign attack absent Congressional action. That much is true. But again what they fail to note is that Congress has the power of the purse to fund that endeavor. And no Supreme Court would or has questioned the congressional power of the purse. They have ruled that once funds are duly appropriated, the Treasury is under an obligation to pay. Although a part of the Executive Branch, the Treasury is the vehicle by which appropriations of Congress are disbursed. Absent Congressional funding and/or authorization, it is difficult to see how an Executive Branch department can surreptitiously assume an enumerated congressional power. The “authorization” noted above is the debt ceiling and whether it should or should not be raised.

Thus, if Obama was to unilaterally increase the debt limit without congressional approval, as some Democrats and liberals have argued and as some liberal legal scholars have suggested, the real world effect would likely be the very state of affairs they wish they avoid and which they use as scare tactics now in order to get their way. Republicans and conservatives realize that existing obligations need to paid. No one is suggesting in this impending fight that we simply wipe the slate clean and start all over again. That would be nice, but it ain’t happenin’. Instead, this all about incurring additional debt and forcing Obama into realistic and needed reforms. Practically every credible economist out there concludes that entitlements, not discretionary spending, is the main driver towards federal deficits and accumulating debt. To ignore true reform in these areas is the real danger to this country’s fiscal standing. There are working frameworks on both sides to address these issues. Congress simply needs the intestinal fortitude to force Obama and liberals to get serious in this area. In the fiscal cliff fight, Republicans made concessions on taxes in order to keep their political leverage on the spending side. It is time now to use that leverage to full effect and if that means “default,” then so be it.