Friday, July 08, 2011

14th Amendment And The Debt—Nice Try But No Cigar

With the days dwindling down to a precious few until D[isaster]-Day—the day on which the Secretary of the Treasury predicts he will no longer be able to pay the obligations of the United States without the Congress increasing his authority to borrow—people are grasping at straws to find a way to save us from the temper tantrum currently being waged by Republicans in the House of Representatives. One of these straws is the argument that under Section 4 of the Fourteenth Amendment to the United States Constitution the statutory borrowing limit contained in section 3101 of title 31 of the United States Code is unconstitutional and that the President is free to ignore it. “Obama could play constitutional card,” Washington Post, July 7, 2011, print edition, page A4. Unfortunately, this argument is a very short straw.

The Fourteenth Amendment provision being relied on to get us out of our predicament reads, in its entirety:

”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. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.”

This post Civil War provision was designed to assure that debts incurred by the United States in fighting the war would be honored but that debts incurred by states or the Confederacy in fighting against the United States or claims for emancipated slaves could not be paid.

The proponents of the Fourteenth Amendment salvation argument rely on just 14 words from Section 4 of the amendment: “The validity of the public debt of the United States . . . shall not be questioned. “ They argue that these 14 words somehow make it unconstitutional for the Congress to impose a statutory limit on the amount of money that the Secretary of the Treasury can borrow. Aside from the fact that they quote these 14 words out of context, the Fourteenth Amendment proponents show a marked ignorance about the financial operation of the Federal Government.

Because they had experienced first-hand the tyranny that could arise from placing too much power in a single person, the drafters of our constitution placed control over financing for the new Federal Government in the Congress. This “power of the purse” is contained in two provisions of the constitution. Article I, Section 8, clause 2 of the constitution grants to the Congress the power “To borrow Money on the credit of the United States.” Article I, Section 9, clause 7 provides “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” Under these two provisions, only the Congress can appropriate and only the Congress can borrow.

The Congress has implemented its borrowing power by enacting what is now Chapter 31 of Title 31 of the United States Code. In this chapter the Congress delegates to the Secretary of the Treasury the authority to borrow on behalf of the United States and specifies the various securities (bonds, notes, certificates) that the Secretary may issue in securing this borrowing. Section 3101(b) of title 31 provides: “The face amount of obligations issued under this chapter and the face amount of obligations whose principal and interest are guaranteed by the United States Government . . . may not be more than $[X], outstanding at one time.” Whatever amount the Congress substitutes for the “X” in this section is the borrowing limit (referred to as the “Public debt limit”). The Secretary of the Treasury may not borrow in excess of that limit and, presumably, any securities he issues in excess of that amount would not be valid obligations of the United States. During recent decades, in which the United States has been operating on a deficit basis, the Congress has had to raise the borrowing limit from time to time to allow the Secretary to borrow sufficient funds to pay off the government obligations that the Congress authorized in appropriations acts.

Reader, it seems clear to me that the statutory limit that the Congress has placed on the authority of the Executive Branch to borrow funds is a direct exercise of its borrowing power under Article I, Section 8, clause 2. What can there be in Section 4 of the Fourteenth Amendment that would make this exercise of the Congress’ exclusive borrowing authority unconstitutional?

Although the Fourteenth Amendment provision was specifically directed at public debt incurred during the Civil War, the Supreme Court of the United States has made it clear that it applies equally to public debt obligations issued after its ratification. Perry v. United States, 294 U.S. 330 (1935). In the Perry case, the Court was dealing with a Fourth Liberty Loan bond for $10,000 issued in 1918 that called for payment “in United States gold coin of the present standard of value.” A Joint Resolution of the Congress passed June 5, 1933, however, provided that bonds could only be paid at their face value “in legal tender currency.” This significantly reduced the amount that was payable under the bond. The Court held that the 1933 joint resolution was unconstitutional because the Congress did not have the authority to change the terms of public debt obligations after they were issued. The Court interpreted the term “validity of the public debt” in the Fourteenth Amendment as “embracing whatever concerns the integrity of the public obligations.” 294 U.S. at 354.

So, precious reader, does 31 U.S.C. section 3101(b) run afoul of the Fourteenth Amendment? No. The statute does not declare any existing debt obligation to be invalid. It does not change the terms of any existing debt obligation. In fact, it does not apply to existing debt obligations at all. It only restricts the authority of the Secretary of the Treasury to issue new debt obligations, an authority which the Secretary only has by delegation from the Congress in the first place. Section 3101(b) does not question the validity of the public debt of the United States because, in the words of the Supreme Court, it does not “concern the integrity of [any] public obligations.”

We need to stop relying on miraculous constitutional theories to get out of our debt crisis. The Congress needs to do its job and raise the statutory borrowing limit so that the Secretary of the Treasury can pay the Federal Government’s debt. Only the Congress can avoid D[isaster]-Day.

No comments: