The U.S. is said, by the Biden administration Treasury Department, to be three weeks from an historic default on federal bond payments. This is due to the federal government spending $1.4 trillion more than it’s taking in this year in taxes, thus exceeding the statutory debt ceiling of $31.4 trillion.
But Democratic President Joe Biden doesn’t like the debt limit bill passed by Speaker Kevin McCarthy’s Republican majority in the House, taking issues with its fiscally conservative riders. As a result, Biden is once again invoking the Fourteenth Amendment as path to unilaterally raise the debt limit to pay bondholders.
For most Americans with a more than a passing familiarity with the Constitution, the Fourteenth Amendment is known as one of the three great post-Civil War civil rights amendments, with the Thirteenth Amendment outlawing slavery, the Fourteenth requiring equal protection under the law on both the federal and state levels, and the Fifteenth prohibiting the denial of the right to vote based on race, color, or prior status as a slave.
But the Fourteenth Amendment contains five sections, with Section 4 dealing with the federal debt as well as the debt owed by the states that were previously in rebellion as part of the defeated Confederacy. Simply put, Section 4 says that the national debt cannot be questioned while the debt incurred by the Confederacy was illegal and void.
In the context of Biden’s threat to invoke it, should Congress not pass a debt limit bill to his liking, what does Section 4 of the Fourteenth Amendment mean?
At the time of the Fourteenth Amendment’s passage, the fear among majority Republicans was that, as Southern states were readmitted into the Union, Southern Democrats would object to being taxed to finance the large national debt incurred in ensuring their defeat in the late Civil War. To prevent that, Section 4 was added to the draft of the Fourteenth Amendment.
For our purposes, the relevant passages of Section 4 are: “The validity of the public debt of the United States, authorized by law… shall not be questioned.”
There is broad agreement among constitutional scholars that the public debt portion of Section 4 means that it would be unconstitutional for Congress, or the President, to repudiate the debt – something not unheard around the world then as now.
There is also substantial agreement that that it would be a violation of Section 4 to default on the debt as well – meaning to miss a payment on maturing bonds. While this is a step short of repudiation as the debt would remain valid, it does transgress into questioning the validity of the public debt as default would roil the debt markets and impose a risk premium on U.S. debt, resulting in higher interest rates to attract buyers of U.S. securities.
But there’s a third argument some constitutional scholars make as well, namely, that a combination of political tension and economic conditions might also trigger violation of Section 4 should the “validity of the public debt… be questioned.” In this case, the argument goes, if Congress refuses to act on a required debt limit increase to avoid default, especially in a difficult economic environment with weak government revenue projections might give rise to debt markets questioning the safety of the U.S. debt.
Given these factors, where do things stand today?
According to the Congressional Budget Office (CBO), using “well-established ‘extraordinary measures’” the Department of the Treasury can continue operating through at least July and as late as September before running out of cash to service the debt.
Most importantly, the U.S. House of Representatives passed a bill increasing the debt limit by a party line vote of 217 to 215 on April 26 with the condition that federal spending be frozen at last year’s historically high level for ten years – yielding 14% less spending over time while asking welfare recipients to work and reasserting America’s energy dominance.
Speaker McCarthy’s win in the House places the debt limit ball firmly in the Democrats’ court with action required from Senate Majority Leader Chuck Schumer and President Biden.
Thus, Biden’s threat to invoke the Fourteenth Amendment appears to be both premature and misdirected. The threat is premature, because the House has acted, meaning that with the Senate’s action and the President’s signature, the threat of default will pass. The threat is misdirected because the President retains several options that could avoid default, for instance, temporarily scaling back federal payments to match income. The federal government expects to take in $4.8 trillion in fiscal year 2023 while spending $6.2 trillion for a projected deficit of $1.4 trillion – that provides general cash flow to juggle debt obligations for a time while the political process sorts itself out.
But there’s even a larger threat to the “validity of the public debt” growing rapidly on the horizon – one that Speaker McCarthy’s plan would avoid – and that’s the unsustainable trajectory of federal spending and the mounting federal debt. Next year, the CBO projects the federal debt to exceed 100% of the economy. Only five years later, the federal debt as a share of the GDP will have reached its highest level in history, surpassing the debt accumulated to defeat the Axis powers in WW2.
Eventually, interest payments on the debt along with Social Security and Medicare entitlements, will swamp the ability of America’s taxpayers and creditors to keep the whole system afloat. And with that, the tyranny of math will present the most dangerous threat to the “validity of the public debt.”