Thursday, January 10, 2013

Poorly understood facts about the debt ceiling

Contrary to White House claims, Congress's refusal to permit new borrowing by raising the debt ceiling limit will not trigger a default on America's outstanding public debt, with calamitous consequences for our credit rating and the world's financial system. Section 4 of the 14th Amendment provides that "the validity of the public debt of the United States, authorized by law . . . shall not be questioned"; this prevents Congress from repudiating the federal government's lawfully incurred debts. ...

This means that a failure to raise the debt ceiling—to prevent new borrowing—does not and cannot put America's current creditors at risk. ...

...the federal government's roughly $200 billion in tax revenue per month is more than sufficient to service existing debts. ...

Second, despite White House claims that Congress must raise the debt ceiling to pay the bills it has incurred, the obligations protected as "debts" by the 14th Amendment do not include entitlement programs such as Medicare and Social Security. ...

This fundamental and vital distinction is clear from both the text and the drafting history of the 14th Amendment's Section 4. The wording of the section was revised before its enactment and ratification to replace the term federal "obligations" with that of "debts," a far more narrow (and manageable) category.

The distinction was recognized by the Supreme Court in Flemming v. Nestor (1960), which involved the power of Congress to modify Social Security benefits. ...

Congress can reduce a wide range of payments to various beneficiaries at any time by amending the statutes that authorize them or simply by failing to appropriate sufficient funds to pay for them. Nor does Congress have any legal or constitutional obligation to borrow money to pay for entitlements.

Third, assertions, most recently made by Nancy Pelosi, that the president can rely on Section 4 as a pretext for raising the debt ceiling by himself are manifestly incorrect and constitutionally dangerous. Section 4 grants no power whatsoever to the president—instead, the 14th Amendment grants Congress the "power to enforce, by appropriate legislation, the provisions of this article." ...

In particular, Article I, Section 2, grants to Congress the power "to borrow money on the credit of the United States." There is no similar grant to the president. Any effort by the chief executive to borrow money without congressional action would be every bit as injurious to our constitutional system as presidentially ordered taxation. ...

Once these false arguments are cleared away, the real issue in the debt-ceiling debate becomes clear: the proper level of federal spending. Should Congress fail to increase the debt ceiling as much as the president wants, the effective result would be major government spending cuts, with payments on public debt excluded.
--David Rivkin Jr. and Lee Casey, WSJ, on why failing to raise the debt ceiling is a somewhat credible threat. Yale Law professor Bruce Ackerman agrees on the safety of U.S. creditors' claims.