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If Biden calls debt ceiling unconstitutional, what next?

Last week, I delivered a commentary that began with the assertion that the debt ceiling law was in direct conflict with the Constitution and ended with the following recommendation for President Biden:

“If the Republicans refuse to raise the debt ceiling, Biden should say the debt ceiling is unconstitutional and refuse to abide by it. He can then order the Treasury to borrow money over and above the debt ceiling.

Let the Republicans sue --- by the time the suit gets to the Supreme Court, the Democrats will have swept the extremist Republicans out of power in the 2o24 elections.”

[For those reading this who do not remember last week’s argument, I reproduce it here: “So this is my strong recommendation as to what Biden should do. He should say that the debt ceiling law is unconstitutional because it conflicts both with section four of the 14th Amendment and with the original rules prescribed for Congress in Article One, Section 8, Clause 1 of the Constitutiion. The latter reads in part “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts …”. Now I don’t know about you but there is nothing there that gives Congress the right to REFUSE to pay the debts. The 14th Amendment emphasizes that point when it says, “The Public Debt of the United States … is not to be questioned.” In short – when you combine both of these sections of the Constitution, we find the debt ceiling law is in direct conflict. If the Republicans refuse to raise the debt ceiling, Biden should say the debt ceiling is unconstitutional and refuse to abide by it. He should then order the Treasury to continue borrowing money to meet the obligations that Congress HAD ALREADY VOTED FOR.”]

Now, this legal analysis has never been tested because the US government has never actually gotten to the point of default, though we did get close back in 2011 as I noted in the longer written version of last week’s commentary. And certainly, if the Biden Administration opted to take this tack, the case would end up in the courts almost immediately.

[Here’s some interesting background: Back in 2011, former President Bill Clinton said he would have unilaterally raised the debt ceiling to avoid a default and forced the Courts to stop him. (see https://www.cbsnews.com/news/bill-clinton-i-would-raise-the-debt-limit-and-force-the-courts-to-stop-me/)

In 2013, there was another debt ceiling controversy and, in that context, CNN.com explored the possibility for President Obama to do exactly what I recommended last week. (See Bill Mears, “Constitution and the debt: Can the president go it alone?” CNN.com, October 4, 2013 available at https://www.cnn.com/2013/10/03/politics/shutdown-debt-ceiling-constitution/index.html)]

If we begin the discussion where I left things last week, the first question is, would the Biden Administration take such a drastic step? Would the Justice Department think that the argument presented about the Constitution would work? I am not a lawyer, but I have spoken with many lawyers who think it would have a fighting chance. Obviously, the Biden Administration won’t even think of this until the Republicans show they really are trying to force a default. The reason I think the Administration might consider this is because a default would be too much of a disaster for them to let it happen --- yet allowing the Republicans to hold the debt ceiling hostage just encourages them to do it next time. (And even the “coming close” back in 2011, did lead to a temporary downgrade of US debt instruments which ended up costing money as the interest the US paid went up. International markets would get skittery long before the final debt ceiling breach actually occurred.)

So, once we get to the Biden Administration deciding to call the debt ceiling unconstitutional, how does that action get into the courts? The first interesting issue would be, who would have standing to sue the Biden Administration for blowing through the debt ceiling?

[The idea of legal standing involves being able to show that you have some REASON to sue. You have to prove you were injured by the person or entity you are suing.]

Perhaps members of Congress could have standing because the Biden Administration would be disregarding a law. But they could not file as individuals but only as representatives of the institution. Would every Republican in the House vote to empower the Speaker to sue on behalf of the entire House? (I think we can be pretty certain that no Democrat would vote to force a default. Would EVERY Republican?)

OK, so some individual members of Congress might sue. But why would they have standing? How would they be able to claim they had been “harmed” by the Biden Administration’s blowing through the debt ceiling? I actually think it would be extremely hard to claim that they had been harmed when the Biden Administration’s disregarded the debt ceiling. That is because breaching the debt ceiling does not add a penny to the deficit that hasn’t already been voted for by Congress. In fact, I would argue that many individuals could make strong cases that they AS INDIVIDUALS would be harmed by a failure of the Biden Administration to spend money Congress has already appropriated.

Instead, the issue might get to the courts from another direction. A law professor friend suggested that creditors (banks, insurance companies, even individuals) might ask a court for a declaratory judgement that money borrowed in defiance of the debt ceiling must be honored just like all US government debt --- that would in effect ask a Court to validate what the Biden Administration was doing. They would have standing because they want guarantees that the bonds they own will keep their value – something that would definitely not happen if the US were to default.

Next question. Would the Supreme Court grab the issue onto their Shadow Docket and enjoin the Biden Administration from doing what I have recommended?

I don’t think so. If the Supreme Court were to, in effect, preemptively order the Biden Administration to default on America’s debt, they would be subjected to howls of protest and efforts to “reform” them. And much of the protest would come from top corporate executives as well as individuals suddenly not getting their social security checks, federal employees not getting paid, etc. I believe the Supreme Court would let it travel through the District and Circuit Courts rather than grab it onto the shadow docket. BUT --- they might agree to an accelerated appeal process so it would get to them rather quickly.

SO how will the Court rule? I imagine that leaders of business, particularly bankers and other people in finance would want to weigh in on the issues. The lawyers for the Biden Administration will be able to present expert witnesses to explain the economic disasters for the world economy as well as our own should the Court side with the Republicans and order a default. Last week’s longer version available on the WAMC website, has a reference to some predictions by Mark Zandi of Moody’s Analytics as to what would happen if we were to default.

I believe Chief Justice Roberts would do everything in his power to find at least 5 votes to either refuse to intervene and let the Biden Administration do what they want or to affirmatively support what the Biden Administration was doing. But Roberts would have to find one more vote from among the five other right-wingers on the Court. My Law Professor friend predicted that Barrett and Kavanaugh would be the two people Roberts would target. (I personally thought Gorsuch – and I know Alito and Thomas are hopeless.). If Chief Justice Roberts is able to persuade one or both of those that the future of the country depends on the Court NOT ordering a default, the “good guys” will win and the debt ceiling will have been banished from relevance forever.

If I am right, then the important thing to hope for is that the Biden Administration will be willing to make this their last resort tactic to prevent a default. The idea of them yielding to the hostage takers is too awful to contemplate. There are a few months before push will come to shove. Right now, Biden has asked Speaker McCarthy to “show me your budget” so they can actually have something to talk about. After March 9, when the President’s proposed budget is released I will undoubtedly have lots of things to say.

Michael Meeropol is professor emeritus of Economics at Western New England University. He is the author with Howard and Paul Sherman of the recently published second edition of Principles of Macroeconomics: Activist vs. Austerity Policies

The views expressed by commentators are solely those of the authors. They do not necessarily reflect the views of this station or its management.

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