The Not-So-Happy Anniversary of the Debt-Ceiling Crisis

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The 2012 election will decide the real political meaning of the showdown over whether the U.S. would pay its debts.

Reuters

One year ago, the United States was engulfed in the debt-ceiling crisis of 2011, a self-inflicted wound as egregious as it was avoidable. As events proceeded in July of last year, people around the world surely must have wondered whether politicians in the United States had gone mad. They were threatening to default on the nation's debt and destroy the world economy. Although the crisis was eventually resolved, it produced a downgrade of the country's credit rating, and some economists believe that the resulting hit to consumer confidence significantly damaged the economic recovery from the Great Recession. A year later, it is worth asking what it all meant. The debt-ceiling crisis was a failed attempt to stage a revolution in American politics with control of only one house of Congress; but the larger meaning of the crisis will depend on the 2012 presidential election.

The crisis began when congressional Republicans announced that they would refuse to authorize what had previously been a routine increase in the debt ceiling. By itself, raising the debt ceiling does not increase federal spending. It merely authorizes the Treasury Department to float new government bonds to pay the money that Congress has already appropriated.

Some congressional Republicans, particularly those allied with the Tea Party, argued that the nation had simply spent too much in the past and that the debt ceiling should not be raised at all. When confronted with the likely economic consequences of this strategy, they either downplayed or denied them. Other Republicans well understood the consequences, but they decided to use the debt ceiling as a fiscal hostage: They refused to vote for an increase unless President Obama agreed to significant cuts in government programs. The Republicans' ostensible goal was debt reduction, but they refused to allow any tax increases to achieve it. All debt reduction would have to come solely from spending cuts.

One solution to the long term deficit problem: Just do nothing. But the fear is that the combination of new taxes and spending cuts will precipitate a new recession.

In the past, some politicians (including then-Senator Barack Obama) have voted against debt-ceiling increases for reasons of symbolism or protest, but not in situations where there was any actual danger that the increase would not occur. Now Republicans changed the rules of the game: They used the threat of economic catastrophe to force the president to adopt their preferred policies. As Senate Minority Leader Mitch McConnell put it in an excess of candor, threatening to default on the nation's debts was "a hostage that's worth ransoming [because] it focuses the Congress on something that must be done."

Obama was caught off guard. He had neglected to include a debt-ceiling increase in the April 2011 budget agreement because he did not believe that the Republicans would dare attempt such a maneuver. Seemingly confounded by the new strategy, he agreed to protracted negotiations with congressional Republicans in the summer of 2011 to resolve the crisis through cuts in federal programs, much to the consternation of his political base. In the meantime the press was filled with insistent warnings that continued intransigence on raising the debt ceiling would send the world economy off a cliff.

After weeks of negotiations, Democrats and Republicans agreed on the Budget Control Act of 2011, which was signed into law on August 2, 2011. The Budget Control Act cut spending by approximately $917 billion over the next decade and simultaneously raised the debt ceiling by $900 billion. (It's important to note that there is no necessary connection between the amount the debt ceiling is raised -- which concerns only spending already appropriated -- and the amount planned for future spending). The act also created a "supercommittee" of six senators and six representatives -- three from each party -- charged with identifying additional cuts that would be presented to both houses for a up-or-down vote. If Congress passed the supercommittee's proposal, or sent a balanced budget amendment to the states, the debt ceiling would be raised by an additional $1.5 trillion.

Neither of these things happened. The supercommittee failed to offer a proposal by the statutory deadline, and on November 18, the House failed to obtain the necessary two-thirds majority to approve a balanced budget amendment. Under the terms of the act, the president was then entitled to authorize an additional $1.2 trillion increase in the debt ceiling, but a series of automatic cuts of approximately $1.2 trillion over 10 years automatically go into effect in January 2013. Approximately half of these cuts will come from defense spending. Not entirely coincidentally, the Bush tax cuts, which had been extended in December 2010, also expire in January 2013. The resulting change would return tax rates to the levels that applied during the Clinton Administration, with a top tax rate of 39.6 percent for income over $250,000. If all of the spending cuts and tax increases go into effect, the Center on Budget and Policy Priorities has calculated that the government will gain $7.1 trillion in new revenue. Meanwhile, the Congressional Budget Office has estimated that the annual federal deficit will decline by more than 80 percent, from a projected $1.1 trillion to less than $200 billion.

One might think that this is the perfect solution to the long-term deficit problem: Just do nothing. However, the fear is that the combination of new taxes and spending cuts will further slow the already weak economy and precipitate a new recession. Members of both parties, depending on their politics, also object to cuts to defense and social programs. As a result, the final outcome of bargaining will probably produce less revenue and reduce the deficit less than the do-nothing solution. Even so, the combination of the sequester and the expiration of the Bush tax cuts creates a completely different bargaining situation than the one prevailing during the debt crisis of 2011 -- one that greatly favors the Democrats over the Republicans.

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During intense political struggles, opposing sides often turn to the Constitution to justify their positions, and the debt-ceiling crisis was no exception. Probably the most important constitutional debate centered around section 4 of the 14th Amendment, which provides that "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." There were two arguments. The first, which is probably correct, is that both Congress and the president have a constitutional duty not to bring the validity of the public debt into question. Section 4 was enacted out of fear that the Southern senators and representatives returning to Congress after the Civil War would attempt to hold payment of the country's debt hostage to block or repeal Congress's efforts at Reconstruction. The purpose of section 4 was to put such hostage-taking maneuvers beyond ordinary politics so that future politicians would not try to threaten the country's finances in order to get their way. This interpretation, however, does not settle what parts of the budget constitute "the public debt of the United States;" nor does it tell us what it means to put the validity of that debt "into question." The narrowest reading of the amendment would hold only that the government may not repudiate payments of interest on existing bonds and similar obligations.

The second and more controversial argument about section 4 was that if Congress refused to act, the president had authority unilaterally to raise the debt ceiling by instructing the secretary of the Treasury to issue new bonds without congressional approval. This argument is more of a stretch. Article I, section 8 of the Constitution gives Congress, not the president, the authority to borrow on the credit of the United States. The best version of the argument would be that the president has been caught in a catch-22: Congress has ordered him to spend appropriated money, but it has forbidden him to issue new debt to do so. If these contradictory commands would cause the president to violate section 4, then he has a constitutional duty to treat at least one of the laws as unconstitutional as applied to the current circumstances. The president could therefore treat the debt ceiling limit as unconstitutional and order the Treasury to issue new debt. However, even if the president had this authority, it would only exist if he had no other practical alternatives to issuing new debt. It is likely that the president would have some alternatives. Moreover, as explained below, things would probably never come to that point.

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Jack M. Balkin is Knight Professor of Constitutional Law and the First Amendment at Yale Law School, and the founder and director of Yale's Information Society Project, an interdisciplinary center that studies law and new information technologies. More

Professor Balkin is a member of the American Academy of Arts and Sciences, and the author of over a hundred articles in different fields including constitutional theory, Internet law, freedom of speech, reproductive rights, legal philosophy, and social theory. He writes political and legal commentary at Balkinization. His books include Living Originalism; Constitutional Redemption; The Constitution in 2020 (with Reva Siegel); The State of Play: Law Games and Virtual Worlds (with Beth Noveck); Cybercrime: Digital Cops in a Networked Environment (with James Grimmelmann et al.); Cultural Software: A Theory of Ideology; The Laws of Change: I Ching and the Philosophy of Life; What Brown v. Board of Education Should Have Said; and What Roe v. Wade Should Have Said.

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