Taking Care to Faithfully Execute All the Laws on the Debt Ceiling “X-Date”
May 17, 2023
By Joseph Fishkin
As we approach the so-called “x-date,” President Biden seems to be looking for a deal with congressional Republicans. Who has leverage in any such negotiation (now or in the future) depends very heavily on the question of what happens if there’s no deal. Many journalists, pundits, and politicians seem to assume that if there is no deal, the president has only two options: default (stop paying some of the nation’s obligations) or else pursue the “14th Amendment option”—a way to “work around Congress” and keep paying the bills.
But this way of looking at the problem has it backward. Default would thwart the will of Congress. Default would also violate the 14th Amendment, which is not an “option,” but a bedrock of our constitutional order—it is there whether or not anybody invokes it. The Biden administration has a constitutional duty to “take Care that the Laws be faithfully executed.” That means all the laws Congress has enacted, not just the debt-ceiling law.
Consider the statutory duties that Congress has imposed on the Biden administration. I do not mean the political demands of the current House majority. I mean the actual statutes. Most pundits and politicians are focused on the debt-ceiling law as though it were the only law in play; it’s not. Congress passes a variety of statutes which require—not permit, but require—the president to spend money: payments to bondholders; payments to Social Security recipients (“mandatory spending”); and annual appropriations, which means payments to defense contractors, federal employees, school districts, farmers, and so on down the line. President Biden doesn’t get to pick and choose about spending this money. He must spend what Congress has legislated in order to take care that those laws are faithfully executed. The beneficiaries of these expenditures have a statutory right to the funds and have accordingly ordered their affairs around receiving them: The school districts have hired the teachers, the federal employees have done their jobs every day, a defense contractor has built a nuclear submarine, and so on. They now have the right to the money the law says they’re owed. If Biden refuses to pay some of them today, that effectively creates IOUs for payments tomorrow. They’ll soon be in court to collect.
Meanwhile, separate from the spending statutes, Congress also passes statutes that raise revenue through taxes. And then finally, in 1917, Congress passed a third measure: a debt-ceiling statute (periodically updated) that gives the Treasury lots of discretion over how to borrow money but limits the total face value of the “obligations” (the debt) that the Treasury can borrow.
The so-called “x-date” is when the conflict between these statutes becomes acute. Continuing to faithfully execute Congress’s mandates to spend money—which Biden is obligated by law to do—would seem to entail taking on more debt than Congress’s other command, the debt-ceiling statute, allows. The question is what the Biden administration should do at that point in the face of these conflicting statutory obligations. (Mike Dorf and Neil Buchanan explain all this in a pathbreaking article from 2012.)
The 14th Amendment plays an important role, but not in the way most commentators describe. Section 4 of the 14th Amendment (“14.4”) says: “The validity of the public debt of the United States, authorized by law . . . shall not be questioned.” Some have suggested that what President Biden should do on or around the x-date is simply declare that the debt-ceiling statute is unconstitutional under 14.4 and that he will therefore not follow it, and will borrow in excess of the limit. While this is a plausible approach, I do not think it is the best one. And, more fundamentally, it misunderstands the role of the 14th Amendment in our story.
Rather than being an “option,” like some kind of magic card to pull from one’s hand and play in case of emergency, the 14th Amendment’s strange and wonderful universal admonition that “The validity of the public debt of the United States, authorized by law . . . shall not be questioned” looms over whatever choices the Biden administration makes. It looms equally large over Congress, where senators and representatives should—and undoubtedly will—cite it as justification for passing their preferred versions of the debt-ceiling extension. President Biden might cite 14.4 as justification for prioritizing some government obligations over others (which is an exceptionally bad idea). But even if 14.4 didn’t exist, the Biden administration is obligated to obey both the money-spending statutes and the debt-limit statute. Even absent 14.4, as Bob Hockett pointed out in a terrific op-ed, there are good reasons to think that the spending statute should have priority over the debt-limit statute when we apply ordinary principles of statutory construction, including the simple fact that the spending statutes are generally more recent in time.
There are several ways for the Biden administration to comply with all the relevant statutes, with the goal of appropriately and responsibly adhering to the president’s constitutional obligation to “Take Care” that the laws are faithfully executed. One has received considerable attention: minting a platinum coin. I will not discuss it at length here, except to say that I think it is legally sound, but may not be well received by investors because of its seeming gimmickry.
There are two additional strategies available to the Treasury that rely on it issuing unusual—though plainly permissible—types of bonds: either consols or premium bonds. Consols are “perpetual” bonds that never mature. They pay a set rate of interest, really just a set stream of payments, in perpetuity. The face value and interest rate are up to the Treasury. If the face value is very low or zero, they could add very little or zero to the debt for purposes of the debt limit statute. The US has issued consols before and the Treasury has the authority to do so again. Another option is to issue so-called “premium bonds”: bonds that have a maturity date like normal bonds, but that pay extra-high rates of interest—so that, for example, the Treasury might be able to sell a $500 bond paying lots of extra interest for the same amount it would normally sell a $1,000 bond, but the face value, which is what the debt limit actually limits, could be much lower.
These types of bonds comply with the plain terms of the debt limit statute, which limits the “face amount of obligations” (31 U.S. Code § 3101(b)). The debt limit statute has some additional clauses that sometimes cause “face value” to mean something other than its obvious meaning; to make sure none of those clauses applies to these new premium bonds or consols, the Treasury ought to make the bonds “redeemable before maturity at the option of the holder” (at their low face value only, without interest), and in addition, to be safe, the Treasury ought to be sure to sell the bonds not “on a discount basis” but instead for a premium well above their face value. (Do not worry, reader, that is as deep in the weeds as we’re going to get.) The bottom line is that by carefully following the words of the statute, the Treasury Department can sell bonds, either to investors or to the Fed, that raise plenty of funds, but whose face value is very low. In that way, the government can stay in compliance with the debt limit as well as its spending obligations.
One important question remains: How might the Supreme Court respond, given that anything the Biden administration chooses if we reach the x-date—including doing nothing—will draw a chaotic flurry of lawsuits? A careful, self-restrained court would be looking for ways not to issue an order telling the government to default. Apart from its destructive effect on the national economy and on America’s creditworthiness, such an order would also have a destructive effect on the Supreme Court. There are ample jurisprudential means by which a court could avoid ordering a default, the most obvious being that nobody actually has standing to sue to force the government to default on its debts. (A court could also abstain on the grounds that default is a “political question,” etc.) The off-ramps for a court wishing to exercise restraint are plentiful. There are good reasons for the court to defer to the president’s judgment here about how to faithfully interpret and execute conflicting laws.
But if the court pressed ahead anyway—and this is where the bond maneuver does its work—the court would have to ignore the plain text of the debt-ceiling statute, which focuses on “face value,” in favor of some broader reading of the spirit and purpose of statute rather than its text. That is all fine and good, but keep in mind, the actual purpose of the debt limit statute, when enacted in 1917 during World War I, was to expand the power to borrow, not constrict it!
The court would have to decide its non-textualist reading of the debt-limit statute trumps the other, more recent statutes passed by Congress that require the government to spend, to pay all the veterans, social security recipients, employees, contractors, and so on who are owed money by law. Why would anyone think that in a conflict between those statutes, it’s automatically the debt limit that wins? Indeed, it’s much worse than that. Ordering a default would mean ordering the Biden administration to pick and choose among its spending obligations, in a way that violates not only abstract separation-of-powers principles but also very clear Supreme Court precedents eliminating, in other contexts such as the line-item veto, the power of the executive to pick and choose among spending obligations set by Congress. The president doesn’t get to do that. But the court would effectively be ordering the Biden administration to do it. And perversely, it wouldn’t even fix the problem: As Dorf and Buchanan showed in 2014, every unilateral spending cut actually adds to our “obligations” under the debt-limit statute. The IOUs that all those defense contractors, Social Security recipients, school districts, and so on are effectively accumulating as we fail to spend the money Congress appropriated are “obligations” that will later need to be paid—and that courts will enforce. They increase our overall obligations. To order a default, the court would have to pretend that these are not real obligations, that bondholders are specially favored and that the United States’ many other creditors (everyone to whom we owe money at a given moment) do not count.
At the end of the day, the only real justification for ordering a default—for elevating the debt ceiling above other statutes, for blowing up the separation of powers regime on spending, for deciding that some obligations count and others don’t, and ultimately, for destroying the good credit of the United States—would be an underlying commitment on the part of the court to a particular, fundamentally austerity-centered vision of constitutional political economy.
That is certainly the view of Kevin McCarthy and his caucus in the House. They may not agree on much, but they all seem to agree that the debt-limit statute, a statute originally enacted for the opposite purpose from the one to which it is now being put (it was enacted to make borrowing easier!), is some kind of super-statute that trumps the president’s obligation to take care to faithfully execute all the other laws that require spending money. The underlying reason the House Republicans believe this is because they want to build a constitutional political economy with a weakened federal government, hamstrung by restrictions that make it operate more like a business with a balance sheet and less like a democratic sovereign through which the people and their representatives can steer the nation’s economic development.
That is their constitutional vision. It is the key to making sense of why they assume the debt-ceiling statute trumps Congress’s other (and more recent) enactments that require the money to be spent. But there is no reason for the rest of us to adopt this deeply misguided and destructive vision of constitutional political economy. And there is every reason for the Biden administration to make it as hard as possible for a court sympathetic to that vision to turn it into law.
The Biden administration faces a complex legal and political optimization problem: how best to fulfill all its statutory and constitutional duties in a way that the courts, the markets, and the American public are most likely to accept? If it turns out that we really are being ruled by a right-wing faction in robes—that is determined to impose on us all an austerity-centered vision of constitutional political economy in which the debt-limit statute is transfigured into the pro-austerity super-statute of Kevin McCarthy’s dreams—the administration has a range of options to make it as difficult as possible for them to effectuate that vision. Instead of strategies like “prioritizing payments,” the administration should choose an approach that carefully complies with the letter of the law. Doing so should give even this Supreme Court what it needs to step back from the brink.
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About the Author
Joseph Fishkin is a professor of law at UCLA School of Law, where he teaches and writes about employment discrimination law, election law, constitutional law, education law, fair housing law, poverty and inequality, and distributive justice. Before joining the UCLA faculty, he taught for a decade at the University of Texas School of Law, where he was the Marrs McLean Professor in Law; he was also a visiting professor at Yale Law School.