The Debt Ceiling Statute and Constitutional Limits on U.S. Economic Policy

Abstract

The United States government has experienced repeated political crises since 2011, caused by the Republican Party’s legislative strategy of threatening to refuse to increase the statutory limit on gross public borrowing, also known as the debt ceiling. This thesis considers what the president must do if Congress passes spending and taxing laws that can only be carried out with additional federal borrowing, and when Congress then fails to increase the debt ceiling to accommodate that needed borrowing. The standard view in U.S. political circles is that the president would have to refuse to pay some of the parties to whom money is owed, that is, to cancel spending. That view is incorrect, because the U.S. Constitution requires the president to borrow sufficient funds to meet all federal financial obligations, even if doing so requires borrowing in excess of the statutory ceiling. This thesis offers several independent arguments in support of this conclusion. First, failing to pay obligations when due would violate the Public Debt Clause of the Constitution. Second, the proper separation of executive from legislative powers is violated when the president engages in picking winners and losers through the power of the public purse, especially because doing so would necessarily cause irreversible harms to innocent parties. Third, failing to pay the government’s obligations in full and on time would prevent an increase in debt to a level in excess of the debt ceiling only if accompanied by a clear repudiation of the obligations, not merely a delay. But repudiation is a clear constitutional violation, whereas a delay is merely another name for borrowing. Failing to pay obligations when due is thus a violation of the Public Debt Clause or fails to avoid the violation of the debt ceiling that it purports to avoid. All of these problems are of constitutional dimension, not merely statutory in nature. Finally, a debt ceiling crisis would put the Federal Reserve in the position of having to lend money to the federal Treasury, which would put the central bank in the position of taking a side in a dispute between Congress and the president. This would threaten the continued independence of the central bank, because Congress could respond by putting political constraints on the central bank (if not dismantling it entirely). This thesis explains why the central bank should continue to be politically independent, focusing on the role that monetary policy plays in creating and mitigating economic crises, and demonstrating that the central bank needs to be independent to prevent political manipulation of monetary policy and thus avoid damaging, self-serving choices by Congress and the president.