Real Americans Hate the Debt Ceiling

Yesterday, the United States reached its official debt limit, and Treasury Secretary Timothy Geithner resorted to what he calls extraordinary measures to keep the government functioning financially. Republicans demand spending cuts in exchange for raising the debt ceiling, but if the fight drags out the federal government could run out of money as soon as August. The government could default.

With the full faith and credit of the United States on the line, more than brinkmanship-style politics may be at play. If the government fails to raise the debt ceiling it would likely be unable to pay its obligations, both to its citizens -- who are owed through programs like Social Security -- and to its debtors -- who hold government bonds. The current economic climate exacerbates the problem, because with the ailing economy, issuing new debt is the government's safest tool for raising new revenues. Since the federal government is constitutionally required to pay what it owes, many in the legal community are arguing that the debt ceiling is unconstitutional.

This theory comes from the often overlooked Section 4 of the 14th Amendment, which states: "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."

The origins of this obscure mandate come out of the Civil War. In order to finance the war, the government incurred a large amount of federal debt for the first time. The government also assumed the responsibility to pay the pensions of Union veterans but not Confederate veterans. After the war, Southerners preparing to rejoin Congress threatened to refuse to pay this new national debt. To resolve this conflict and make sure the United States did not default, Section 4 was added to the 14th Amendment, which gave former slaves citizenship and was ratified in 1868. Section 4 exists solely as an accident of history, meant to prevent a radical minority from derailing the full faith and credit of the nation.

Section 4 hasn't often been invoked, and there isn't a lot of precedent reaffirming it. Nor are there many experts coming forward to discuss the issue, mostly because it's been 150 years since the last time default was threatened. Though Congress began, by law, setting the debt ceiling in 1917, it has always raised it when necessary as a routine, bipartisan measure, including a whopping 17 times under Reagan and seven times under George W. Bush.

In 1935, however, in Perry v. United States, the Supreme Court did clarify and uphold Section 4. When Congress took the United States off the gold standard, a U.S. bondholder brought a suit. He was asking for more money than the bond was originally worth because, he argued, his bond lost value when the gold-clause was removed. While the Court denied his request, it did uphold Congress' responsibility under Section 4 to pay all U.S. debt on time and in full. The Court also ruled that any action which lowered the value of government-issued paper was unconstitutional: "By virtue of the power to borrow money 'on the credit of the United States,' Congress is authorized to pledge that credit as assurance of payment as stipulated -- as the highest assurance the Government can give -- its plighted faith," wrote the majority. "To say that Congress may withdraw or ignore that pledge is to assume that the Constitution contemplates a vain promise, a pledge having no other sanction than the pleasure and convenience of the pledgor." In other words, anything Congress did to deny full, timely payment was "beyond the congressional power."

It's hard to see why the debt ceiling, a congressional statute that could force the government to default on its obligations to seniors, the poor, the sick, and bondholders, is not similarly unconstitutional. "I think the Treasury would have a pretty good legal case," says James Galbraith, an economist at the University of Texas, Austin. The administration could say to Republicans in Congress "this is all fun and games and we would like to have the debt ceiling increased, but frankly, the Constitution requires us to act in respect of the full faith and credit of the United States."

Garrett Epps, a law professor at the University of Baltimore School of Law and a contributor to The Atlantic, agrees that Section 4 precludes the debt ceiling. "If a statute requires something that requires violating the Constitution," Epps says, "the Constitution always trumps a statute."

The idea that Section 4 is relevant to the current debt-ceiling debate is not simply a pet theory of the left. Bruce Bartlett, formerly of the American Enterprise Institute, recently urged the administration to ignore the debt ceiling and continue to issue government notes if Congress fails to act. Section 4, Bartlett wrote in The Fiscal Times, "could easily justify the sort of extraordinary presidential action to avoid default that I am suggesting. Given that the Supreme Court in recent years has been unusually deferential to executive prerogatives -- I feel certain President Obama would be on firm constitutional ground should he challenge the debt limit in order to prevent a debt default."

David Rivkin, a lawyer who worked in the Department of Justice under Presidents Ronald Reagan and George W. Bush, doesn't go as far in asking Treasury to ignore the debt ceiling, but he does think Section 4 takes doing nothing off the table. "Most of the Constitution is negative commands, but Section 4 is one of the few instances that is affirmative," he says. It denotes something Congress must do. But whereas liberals like Galbraith see Section 4 as a powerful negotiating tool for Democrats, Rivkin urges Republicans to use it to their own political advantage. He suggests raising the debt ceiling, but on the condition that the new debt issued only be used to pay off existing obligations -- a compromise that would comply with Section 4 but also achieve Republicans' goal of lowering overall spending.

It's unlikely that President Obama will invoke Section 4 in current debt-limit negotiations, but it's remarkable that not since Reconstruction has one party considered allowing the obligations of the federal government to go unpaid. In legal circles, not many have dedicated significant consideration to what Section 4 means when it comes to the constitutionality of the debt ceiling, so as this debate unfolds, it will likely set precedents quickly. "Even a few good lawyers," Epps says, "have never read past Section 1."

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