In a strongly worded New York Times op-ed, professor Michael McConnell of Stanford’s Hoover Institution makes the following correct legal observations:
1.) Only the Congress, not the executive, has the authority to impose taxes.
2.) Only the Congress, not the executive, has the authority to approve debt.
From this, he concludes that the Executive Branch must negotiate with Congress over spending and agree to such cuts in federal programs as Congress—specifically, the Republican majority in the House of Representatives—demands, in order to obtain an increase in the debt ceiling.
Not so fast.
For as McConnell admits, the “power of the purse” includes the power to spend. Only the Congress, not the executive, may authorize, appropriate, or otherwise direct public spending. The executive has no authority to spend without legislation. The executive also has no discretion to withhold spending previously directed by Congress. And that—not cuts in future spending not yet authorized—is what a “default” threatens to do.
That the executive may not selectively or otherwise refuse to spend what Congress has directed is well-established—by Supreme Court decision, by the Budget and Impoundment Control Act of 1974—which does contain a provision for “rescission,” needing 51 votes in the Senate—and in later battles to institute a “line-item veto.” Many presidents have wanted that power. They don’t have it.
Contrary to Professor McConnell, the mandate of the 14th Amendment is neither “far-fetched” nor unclear. It specifies that the “validity of the public debt” of the United States, “authorized by law… shall not be questioned.” Public debt includes pensions (the original purpose of the amendment was to protect Civil War veterans’ pensions) and all other payments “authorized by law.” This is the Constitution. Contrary to many commentators, it is not something the President may choose to “invoke.” It is a provision, like all the others, that he has sworn to uphold.
That said, the debt ceiling is also a law. It binds all US government officials. They may not issue new “debt” above the specified ceiling—currently $31.2 trillion. But what is debt, under that statute? For purposes of the ceiling, the quantity limited is precisely defined: “the face amount of obligations whose principal and interest are guaranteed by the United States government.” Note the specification: principal and interest.
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A payment by the US Treasury, in the form of a check or electronic order, does not constitute debt covered by the ceiling. The debt ceiling does not bar such payments, nor authorize any delay in making any of them. One may argue (as Professor McConnell does) that a failure to pay a debt on time does not necessarily constitute a challenge to its “validity.” But this only raises another question: was there a legal, practical, available way to make the payment, that could have been used?
What is forbidden—to the Treasury, by the debt limit—is to issue any guaranteed “obligation” as defined in the law. Something with principal and interest, such as a Treasury bond, note, or bill. Something to raise money, from the private sector, so that there will be cash in the Treasury General Account at the Federal Reserve. Any obligation lacking principal, lacking interest, or lacking a US government guarantee, is not covered by the law. Are there such things?
There are at least three: one for certain, the others somewhat less clearly permitted.
a) The famous platinum coin, which is permitted because the Constitution vests Congress with the power “to coin money and regulate the value thereof.” And Congress has already exercised that power, back in 1996, by delegating to the Treasury the power to mint a platinum coin in any denomination—such as, for example, a trillion dollars. Coins are not covered by the debt ceiling. The platinum coin, which could be minted overnight, would free the Treasury from any need to issue “obligations” subject to the ceiling.
b) Consols are a second option. Consols are instruments bearing a coupon—interest—to be paid forever. They have no expiration date, no face value, and so, no principal to be repaid. They are not covered by the debt ceiling.
c) A third possible option is “premium bonds.” These are guaranteed obligations, with principal and interest, but with a coupon above the market rate on the face value. They would bring in more cash than their face value. Whether they would violate the ceiling would depend, in part, on whether there still existed some leeway, below the ceiling, when they were issued, to cover the face value.
Whether the courts would uphold options (b) and (c)—clearly “gimmicks” intended to skirt the ceiling—is an interesting question. The coin is Constitutional, legal, and previously approved.
There is still another possibility. The Treasury could issue payments, not issue the bonds to cover them, and let the checks come back to the Federal Reserve, which maintains the Treasury General Account. What then? Could the Fed simply record an (interest-free) overdraft, and honor the checks? Explicit authority to do this disappeared in 1981, though there may be indirect means of achieving the same goal. An unsecured, interest-free overdraft on what are obviously valid payments would not violate the ceiling; however its legality on other grounds might be challenged.
And again, suppose the Fed bounces the checks? As I’ve written before, they then go back to the banks. Do the banks honor them, or not? A fair bet says that should this happen, Jamie Dimon would make a phone call and Congress would raise the ceiling within a few hours.
Long story short: there are multiple legal pathways to resolve this “crisis.” At least one—the platinum coin—is foolproof. The failure to take one of the options—or even to acknowledge their existence—bespeaks a political agenda.
What is that agenda? It is either to muscle the Republicans into submission, or to put on a show and then give in to the future spending cuts that Speaker McCarthy is demanding. The first would be worthy, but risky. The second is craven, cruel, and very dangerous.
The smart path? It is to follow all the laws, and the Constitution—while holding firm on principles and policy. It is to use the means that Congress has already approved to resolve a counterfeit crisis. To repurpose Professor McConnell’s conclusion, any other course is “dangerous nonsense.”
