Balkinization: The Fourteenth Amendment Option(s) on the Debt Ceiling: A Quick Primer

The Fourteenth Amendment Option(s) on the Debt Ceiling: A Quick Primer

Joseph Fishkin

[This post has been updated to briefly note what I thought was a good counter-argument at one point below. I get deeper into this in a subsequent post.]

I’m hearing a lot of loose talk from journalists and politicians about the Biden Administration’s Fourteenth Amendment “option” as a way to “work around Congress” to pay the nation’s bills. This framing really misapprehends the situation. This blog post is a quick primer on why. Almost everything I say here has already been said by others, but not all together in one place and maybe not in a way that journalists found easy to understand. So here goes.

Congress passes statutes which require the President to spend money: payments to bondholders; payments to Social Security recipients (“mandatory spending”); annual appropriations which means payments to defense contractors, school districts, farmers, and so on down the line. President Biden doesn’t get to pick and choose about spending this money. He must spend it in order to take care that these laws passed by Congress are faithfully executed. Congress also passes statutes that raise revenue. And finally, Congress has passed a third thing, a debt ceiling statute that limits the total face value of the debt that the Treasury can borrow. The “x-date” that’s coming up around June 1 according to Janet Yellen is the date when the conflict between these statutes becomes acute: continuing to faithfully execute Congress’ mandates to spend money—which Biden is obligated by law to do—would seem to entail taking on more debt than Congress’ other command, the debt ceiling statute, permits. The question is what the Biden administration should do at that point in the face of those conflicting statutory obligations. (Michael Dorf and Neil Buchanan have been pointing all this out for some time.)

Section 4 of the Fourteenth Amendment (“14.4”) says: “The validity of the public debt of the United States, authorized by law . . . shall not be questioned.” Some have suggested that what President Biden should do on or about the x-date is simply declare that the debt ceiling statute is unconstitutional under 14.4 and that he will therefore not enforce it. Then just continue to borrow in excess of the statutory debt limit. This seems to me not the best answer, and also an overly wooden way of thinking about the role of the Fourteenth Amendment in our story.

Rather than being an “option,” like some kind of magic card to pull from one’s hand and play in case of emergency, the Fourteenth Amendment’s strange and wonderful universal admonition that “The validity of the public debt of the United States, authorized by law . . . shall not be questioned” looms over whatever choice the Biden administration makes. It looms equally large over Congress, where Senators and Representatives should—and undoubtedly will—cite it as justification for passing their preferred versions of the debt ceiling extension. President Biden might cite 14.4 as justification for prioritizing some debt obligations over others (which by the way is a very bad idea). But anyway, even if 14.4 didn’t exist, the Biden Administration is obligated to obey both the money-spending statutes and the debt limit statute. Even absent 14.4, as Bob Hockett pointed out in a terrific op-ed this week, there are good reasons to think that the spending statute should have priority over the debt limit statute when we apply ordinary principles of statutory construction, including the fact that the appropriations are more recent in time.

But in fact, there are arguably several ways the Biden Administration can both spend the money Congress has required it to spend and avoid the need to raise the debt limit, thereby complying with all of Congress’ commands.* I am aware of three such ways:

First, and most famously, the Treasury could mint a platinum coin and deposit it at the Fed. (This is basically a form of printing money; the amount of money the Treasury can print is generally restricted by statute, but the statutes allow a platinum coin of any amount.) Legally this is a very solid approach, but because much of the American punditocracy finds it a little silly, it’s not the best approach. Debt politics is about public confidence, and if people think you’re being silly, that can cause real harm to American credit.

Second, the Treasury can issue what are called consol bonds. These are bonds with no face value, just a stream of specified interest payments indefinitely into the future. Because the bonds don’t say “$1,000” or some other face value, they do not add to the debt according to the debt ceiling statute.

Third, the Treasury can issue what are called premium bonds, which are just bonds that pay an extra-high rate of interest, and that therefore investors are willing to buy for much more than their face value. Imagine that a $1,000 bond matures, and this time, instead of doing what it normally does and issuing another $1,000 bond, Treasury issues a $500 bond that pays extra interest—enough extra that the market will pay as much for this bond as it did for the old one that just matured. But the new one’s face value is much lower, which again means less debt according to the specific terms of the debt ceiling statute. These options can be found in columns 4 and 5 on my handy chart, which is pasted and updated below.

If he chooses one of these options, President Biden should also “invoke” the Fourteenth Amendment—but this time, he should invoke it in terms of constitutional avoidance. Biden would be saying, in effect: I’ve got conflicting statutory obligations, and I think the Constitution might require me to prioritize the spending statutes. But good news: I can avoid this conflict and the need to reach the constitutional issue, by instead issuing [consols, premium bonds, or a platinum coin]—which is why I am doing exactly that. Constitutional avoidance is an important value. Here, Biden has a path toward avoiding default that doesn’t require declaring any statute unconstitutional.

So finally let me return to the incorrect assertion that “invoking the Fourteenth Amendment somehow means “going around Congress.” The only sense in which that framing makes any sense is a political sense. Political narratives often drive press coverage; that’s why people say this. The political situation is very simple: the current Republican House majority—which is not the Congress that passed either the current spending appropriations or the debt limit statute—wishes that Biden would somehow feel more bound by the debt ceiling than by the other laws such as those that require money to be spent. Politically, any workaround the President chooses from the options on the chart below other than the first column (disorderly default) would be in that sense “working around” the will of the present Kevin McCarthy-led House. But the desires and dreams of McCarthy’s current caucus are not a statute. The spending statutes and debt limit statutes, in contrast, are statutes. The President is bound to take care that all of them be faithfully executed. The best options are the ones in column 5 of the chart below: Comply with both the debt ceiling and the money-spending statutes. That’s the way to go. Constitutional avoidance is a very reasonable way to get there.

And then, if someone really wants to take the Biden administration to court for failing to treat the debt ceiling law like some kind of super-statute, well ok, have at it. As in the Gold Clause Cases—discussed in a recent post by Gerard Magliocca in this connection—any court, even the present Court, will be extremely reluctant to blow up the United States financial system in a way that is directly traceable to a single court case they decided on novel grounds. Anything is possible, but this is quite unlikely. Sometimes the best thing—the only thing—to count on from this Court is that the Justices are paying plenty of attention to the politics of what they are doing. And the politics of using a novel lawsuit to force the United States into default do not look good.

Strategy: Criteria:	1 Do nothing; preside over a disorderly default	2 Prioritize payments in orderly way (stiff some payees)	3 Continue issuing debt; declare debt ceiling unconstitutional based on 14^th Amendment	4 Mint platinum coin; deposit at Fed	5 Issue consols (bonds without face value or redemption date) OR premium bonds (bonds that pay higher interest and sell for more than face value)
Technically feasible	Yes	No	Yes	Yes	Yes
Follows all relevant statutes*	No	No	No	Yes	Yes
Appears Very Serious rather than silly (note: this matters to domestic pundit class and, in turn, to global investor class)	Yes	Yes	Yes	No	Yes
Minimizes damage to U.S. credit	No	No	Yes	Yes	Yes

*Michael Dorf and Neil Buchanan have long been skeptics of the strategies in columns 4 and 5, and Dorf has a very good blog post this week making the case that the best reading of the debt limit statute would be one that would nullify these strategies. Other readings of the debt limit statute would allow them to work. For judges who might wish to avoid ordering the government to default, the latter readings might be attractive, and justifiable on grounds of constitutional avoidance. For my own examination of this set of issues, see this subsequent post.

Posted 9:30 AM by Joseph Fishkin [link]