The Debt Ceiling: Enough Already

By David Bernell and Thomas Graham

President Biden and Kevin McCarthy continue to talk about how to resolve the conflict over the debt ceiling and avert a US default on its national debt for the first time ever in the country’s history. But there may be little use to further talking. Kevin McCarthy seems to hold his job as Speaker of the House as his highest priority, so he cannot agree to anything close to what the President would or should accept, or he’ll lose his job. By the same token, President Biden has made it clear that he won’t cave in to the GOP’s unreasonable demands, saying, “it’s time for Republicans to accept that there is no bipartisan deal to be made solely—solely—on their partisan terms.”

The House Republicans, consistent with the party’s long-term objectives, want to significantly cut federal spending on domestic social programs such as Social Security, Medicare, and Medicaid. But they cannot pass a budget that they want that would also be approved by either the Senate or the President. Legislation to raise the debt ceiling is the only leverage they have, and they are demanding that President Biden agree to largely reverse all that he fought for and got through Congress in the first two years of his presidency. While the debt limit is arguably in place to serve a worthy goal, in practice it has become a political vehicle to squeeze benefits from people who are poor, elderly, sick, or disabled. Its use is destructive to American politics and the economy.

The legislation that established a debt ceiling was adopted in 1917. The irony is it was meant to give the executive branch more leeway in issuing new debt. Prior to this time, whenever the US wanted to sell bonds, Congress would have to authorize it, including the amount and type of debt. During World War I, however, this was deemed to be cumbersome and inefficient, and a hindrance to the war effort. So Congress permitted the Treasury Department to take on new debt without getting approval each time, as long as the total remained under a fixed amount. The debt ceiling has been raised in dozens of instances over the years, including three times during the Trump Administration, which Republicans voted for every time. The current standoff is the only the latest instance, almost all driven by the Republican party, including one time in 2011, when the stated goal of the Congressional Republicans was simply to “make Obama a one-term president.” At that time, an agreement between the Republican-run House and the Obama Administration averted a catastrophic default at the last minute, but it imposed long-term spending cuts for a decade.

This time things feel different. It seems that the lesson President Biden learned from 2011 was not to be held hostage and give away too much. The Republicans – at least the more extreme group of them, which is now a bigger faction than ever – learned that threatening default can get results they want. Now that the GOP controls the House of Representatives, and the most conservative wing, the self-styled “Freedom Caucus” holds vast sway, they are making sizable demands for spending cuts. If their requirements aren’t meant, they have said that they will refuse to raise the debt ceiling, which will have two effects.

First, this will send the US into default, which means that the United States would not pay back what it has already borrowed from those who have lent it money. The US borrows money by selling securities, such as Treasury bonds. Those securities collect interest, and then eventually when the securities mature, the principal also has to be paid back. If the US cannot borrow money to pay its bills, these payments stop. But the US government doesn’t borrow money only to cover old debts. It borrows money for all kinds of things. So a second impact of an unchanged debt ceiling is that the United States cannot borrow any additional money to pay for new things Congress already agreed to. The US doesn’t collect enough in taxes to finance everything it has promised to do. To that end, government agencies might not be able to pay people their Social Security benefits, or have Medicare pay people’s hospital bills, or pay defense contractors for planes and tanks, or pay anyone who provided a good or service to any federal agency.

The Republicans have a point. It’s a problem that that US accumulates so much debt, and that it has to borrow new money to pay old debts. The way to address this, as President Biden has offered, is through the budget process, by negotiating spending levels and tax rates to move toward a balanced budget. However, voters and the members of Congress they elect tend to prefer high levels of spending and low taxes, which results in deficit spending and more debt, even when there isn’t an emergency such as COVID.

With fiscal policy unable to effect change, the Republicans have turned to the debt ceiling, and they should be taken seriously. Enough of them appear to be willing to refuse to pay America’s bills unless they get everything they have called for. And Donald Trump is urging them on: “I say to the Republicans out there — congressmen, senators — if they don’t give you massive cuts, you’re going to have to do a default.”

One worrying problem is that many members of the GOP seem to actually want a default. For Trump, economic chaos or a downturn is likely to hurt President Biden in the 2024 election, thereby helping Trump. At the same time, it appears that many members of the GOP don’t understand or don’t care that default could mean disaster in the form of bond markets crashing, interest rates rising, stock markets falling, domestic and global economic turmoil, and a huge blow to American credibility and leadership.

It’s well past time to stop playing this game of chicken. It’s time for President Biden to end this conversation and start a new one. He should invoke the 14^th Amendment to the Constitution, which says that, “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.” This means that the US government cannot refuse to make good on its debts. It has to pay them.

When the 14^th Amendment was adopted in the years after the Civil War, the debt of the United States had grown to unprecedented levels, and there was concern that members of Congress from southern states could repudiate it, considering that much of that debt had been incurred fighting the war against their own states. The debt clause limited the ability of future presidents and Congresses to politicize payment of the debt (or so it was believed), by mandating in the Constitution that it had to be paid.

In theory, this clause means that President Biden has the authority to continue to pay America’s debts without additional Congressional approval to raise the debt ceiling. However, in practice, this view of the debt clause has never been tested. No president has ever used the debt clause to make the debt ceiling moot, but recently President Biden said that, “I’m looking at the 14^th Amendment as to whether we have the authority. I think we have the authority.” Now is the time to take this action.

One criticism of this path, which President Biden himself has acknowledged, is that subsequent litigation, which would be certain to happen, would create uncertainty in markets, as investors waited to see if debts would be honored. The United States would be likely to have higher borrowing costs during the time that the courts considered this question. However, this option would be far better than facing certain default if an agreement cannot be reached.

The politics would be risky for all involved, but on balance probably good for Biden and the Democrats. During the time the country awaits a legal decision, Republicans would be arguing in court that the United States should not only be allowed to default on its existing debts, but that it should not continue borrow to pay for Social Security, Medicare, defense, education, transportation, or any federal program.

Judges, going all the way up to the Supreme Court, would be in a difficult position too. They are unelected officials who would find themselves in the position of having to decide fiscal policy, and whether they should choose a fiscal policy that would bring about an economic crisis. While they might decide to choose to require a default, a more likely outcome would be a judicial finding that either permits invoking the 14^th Amendment, or that refuses a ruling and sends the issue back to the executive and legislative branches to work out.

Beyond the immediate politics, by taking the initiative, President Biden has the opportunity to end this whole predicament of periodic posturing and hostage-taking over the federal budget. It’s good policy. While the Washington Post argued that it is questionable to make the case that a president can, “declare the World War I-era law creating the debt ceiling to suddenly be void a century later,” the Constitutional argument is reasonably strong. Though the law that established the debt ceiling was originally a useful solution to the problem of efficiently financing public expenditures, it has evolved into a political instrument whose current use now makes it Constitutionally suspect. By such reasoning, challenging the debt ceiling isn’t an unreasonable measure of desperation. It is instead an untested argument – pitting the 14^th Amendment of the Constitution against a 1917 statute – that has a decent chance of carrying the day.

Recent history suggests that the Republicans themselves have few qualms about the courts reinterpreting laws that seem to have long been settled. The Supreme Court has struck down law after law in the past decade – on voting rights, reproductive rights, and gun safety, to name a few – that the American public had relied upon and considered settled for a long time. Justice Alito even relied in part on a medieval scholar in his majority opinionoverturning Roe v Wade and depriving women of their reproductive rights.

Well, it isn’t the Middle Ages and it isn’t the World War I era either. It’s 2023 and we find ourselves in our own predicaments. Laws change frequently to respond to new conditions and circumstances, as do Constitutional interpretations (if not the actual words in the document). We’ve now reached the (il)logical ends of the decades-long fight over the debt ceiling. The 14^th Amendment offers a way out of this ongoing crisis for good. President Biden should use it.

About the Authors

Ambassador Thomas Graham Jr. is former acting director of the U.S. Arms Control and Disarmament Agency under President Clinton, and the special representative of President Clinton for Arms Control, Nonproliferation and Disarmament. He served as General Counsel of ACDA during the presidencies of Jimmy Carter, Ronald Reagan and George H.W. Bush. He is the author of several books on nuclear arms control, U.S. foreign policy, and American politics.