Is The Debt Ceiling Unconstitutional? - Ep. 41

Explaining the debt ceiling, the history of the 14th Amendment, & Massachusetts lawsuit with merit argues the debt ceiling is unconstitutional.    

Episode Transcript

Jack Sanker (00:07):
Welcome to litigation nation. I'm your
host, Jack Sanker, bringing youthis bonus episode today, a
little off schedule. Today,we're talking about debt ceiling
from legal perspective, not apolitical or partisan
perspective. Just a quick noteon scheduling. Normally, we get
this out to you every otherTuesday, but with holiday this
Monday and and with the ending,debt ceiling debates and crises,

(00:29):
which will probably go on overthe weekend.
We wanted to get you something alittle early this week, so we're
off schedule. But, I thinkeveryone's gonna wanna have the
opportunity to dig into thisstuff, before the weekend. So if
you're like me, you've beenhearing about the debt ceiling
happening now in congress. Thesedays, I tend to treat the daily

(00:51):
news that comes out of congressabout whatever crisis du jour
The same way I do the reminderfunction in my Outlook calendar,
which is to say I ignore it, butsomething this week managed to
kinda permeate my membrane here.And what if I told you that the
debt ceiling itself might beunconstitutional?
Now there's a new lawsuit inMassachusetts, which may

(01:14):
actually have some merit. It'sset for hearing on May 31st. So
this entire discussion thatwe're gonna have today is kinda
trickled down from the ivorytower of legal academia onto the
public debate stage that'splaying out in the news right
now. The debt ceiling, the 14thamendment, and the constitution.
I keep telling everyone,including my producer, Kevin,

(01:34):
that one of these days, I'mgonna pull the rug out on this
podcast and turn it into a civilwar history show.
No one believes me yet, but Ipromise it's coming. And that's
why this issue, I think, kindaset off my spidey sense about
anything 14th amendment related,anything Reconstruction, which
is really, you know, in myopinion, kind of the second
founding of our country when youthink about it. It's just super

(01:55):
interesting to me as a lawyerand as someone who likes to know
why things are the way they are.So for this week, at least,
indulge me, please. Let mespeculate wildly about topics of
law that I've never practiced.
Let me wonder out loud about thehistorical intentions of the
Reconstruction founders and thespecific wording of the 14th
amendment, and we'll get intochapter 1, which is what is the
debt ceiling? The debt ceiling.I'm gonna read from a Wikipedia

(02:19):
article on this, and I'll I'lltell you all after why I chose
to start with Wikipedia. In theUnited States, the debt ceiling
or debt limit is a legislativelimit on the amount of national
debt that can be incurred by theUS Treasury, thus limiting how
much money the federalgovernment may pay by borrowing
more money on the debt italready borrowed. The debt
ceiling is an aggregate figurethat applies to gross debt,

(02:39):
which includes debt in the handsof the public and
intergovernment accounts.
Yada yada yada. And then there'sthis this part here, which says
many scholars argue that thedebt ceiling does not provide
the legal authority for theUnited States to default on its
debt. And that specific line isheavily footnoted in the
Wikipedia article. And thereason I quoted is because the
time that I wrote this, whichwas about 9 o'clock on,

(03:02):
Thursday, May 23rd, there's abunch of internal citations to
the quote of the Wikipedia,editors all arguing with each
other. One which is footnoted tosay, this may use weasel words
or too vague attribution.
So this kind of debt ceilingdebate is is even spread to the,
Wikipedia article editors.Anyways, here's the basics which

(03:23):
you need to know on the debtceiling. You'd be surprised to
know that much of what thegovernment spends is borrowed
money, like a lot of it.Currently, the national debt is,
like, $30,000,000,000,000. Andfrom the founding of the
republic until 1917, congresshad to specifically authorize
the issuance of new debt foreach congressional expenditure.

(03:44):
The country issues debt in theform of US Treasury securities.
You'll hear them called t bonds,for example. The bonds mature at
various intervals, 1 year, 10years, 30 years, whatever. Lots
of options in between. They canroll over, and these are traded
globally.
That's how the US raises capitalto spend on programs enacted by
congress. So what happened in1917? Well, World War 1, and at

(04:06):
that point, I guess, congressgot sick of having to
specifically authorize theissuance of new debt for every
new spending program. So in1917, congress passed the
Liberty Bond Act, whichbasically said that congress
delegates to the executivebranch agency, which is the
Department of the Treasury inthis case, the ability to borrow
up to x amount of dollars tofund whatever spending bills the

(04:26):
government incurs. Now this justmakes for a smoother process
rather than specificallyauthorizing the treasury to
issue debt in a specific amount,congress sets a debt limit.
So think of, like, the debtceiling kind of just like the
limit on your credit card.That's basically all it is. You
can buy on credit up to thatlimit, at which point you can't

(04:47):
borrow anymore. So the debtceiling gets amended from time
to time, like, basically everyother year from 1917 to present.
I think it was amended about 80times to account for our growing
national debt, and the limit onour national credit card keeps
getting raised, basically.
So what's important to keep inmind is this. The debt ceiling
is set by an act of congress,which means that only congress

(05:09):
can amend it, I e raise it. Nowthe current shutdown is a fight
over whether congress shouldraise it or not. Both sides
fighting over the issue, takingopposite opinions on this. Now
I'm not an economist or afinance guy by any means, but,
you know, when I was aplaintiff's attorney, for
example, I used to say the onlymath I can do is dividing things
into thirds.
And now that I'm a defenseattorney who bills my time, I

(05:29):
count everything in 6 minuteintervals. But here's my very
limited 5th grade levelunderstanding of what happens if
we hit the debt ceiling withoutraising it. So first, right now,
we're in this cycle where you'reborrowing to pay interest on old
debt. So opening up a new creditcard to pay down old credit
cards, basically. And unless thedebt ceiling is raised, we can't
do that, which means interestpayments on debt have to be paid

(05:52):
without taking on new debt.
We currently don't really havethe budget to do that. We don't
really have the cash flow forthat. Our first options would be
for the government to do ashutdown type scenario where
government employees don't getpaid. Nonessential government
personnel get furloughed. Wedon't pay our contractors on
time while that cash is used topay down the debt to avoid
defaulting.
And put a pin in that becausethe lawsuit in Massachusetts

(06:14):
deals specifically with theissue of government employees
not being paid during ashutdown. Now for reasons I
discussed later, I thinkpresident Biden would be well
within his constitutionalauthority to do something, you
know, maybe outside the box,like hold a federal yard sale to
raise money, for example. Maybeliquidate the Smithsonian and
raise some extra scratch. Butthe point is, without new t

(06:37):
bonds, our budget gets stretchedmighty thin, mighty quick. And
that's the debt ceiling.
That's why it matters. Movingon. Chapter 2, 14th amendment.
Reconstruction amendments, baby.This is, as I said, my opinion,
the second founding of America.
There's too much historicalcontext to get into here, but
let's jump into it. Fourteenthamendment is 2 pages long. It's
incredibly substantial, and it'sas important a constitutional

(07:00):
document as the declaration or,like, the preamble, in my
opinion. There's 5 subsectionscontaining the revised
definition in citizenship insection 1, privileges and
immunities clause, renegotiationof how house representatives
will be accounted for in lightof emancipation, and so much
else. I just said there's toomuch historical context to get
into, but I'll give you someanyways.

(07:22):
After the civil war, the unionwas trying to figure out what to
do with the Confederate States,whether they should be punished,
whether they can be even beallowed to participate back in
normal government functions. Andfor all the kind of gnashing of
of teeth you hear over, youknow, wokeness and and debates
like that today. The debatearound the 14th amendment,
explicitly and openly within thehalls of congress talked about

(07:45):
ideas such as, for example,systemic racism, white
supremacy, universal rights,universal suffrage for freed
blacks and for women. Andthere's a, a really kind of
funny part if you look back intothe congressional record over
some of the debates about the14th amendment. I don't remember
which representative it was, buthe raised the issue of universal

(08:05):
suffrage for women, and the, theminutes from his speech on the
floor actually note, you know,crowd laughs.
So, the idea of giving, womenthe right to vote in the 7 the
18 sixties was, you know,apparently still a big joke. But
the point is these people werethinking big at this time. It
was, the 14th amendmentcould've, in many other

(08:28):
iterations, been even morewidespread than it was. 14th
amendment and the otherReconstruction amendments were
really something else. It waskind of a referendum and a
complete renegotiation of whatthe United States was going to
be that resulted in, in myopinion, almost a completely new
and different country from theone that existed from the
founding until the Civil War.

(08:48):
Now one of the areas where thiswas a problem was public debt.
The South and the Southernstates, the former Confederacy,
really didn't wanna pay for thedebt that the North incurred
during the Civil War. And theSouth also wanted compensation
for the freed slaves that wereemancipated, but, you know,
losers don't get to make therules. So the final version of
the 14th amendment, specificallysection 4, which is relevant to

(09:11):
this discussion today, reads asfollows. Quote, the validity of
the public debt of the UnitedStates authorized by law
includes debts incurred forpayment of pensions and bounties
for servicing and suppressinginsurrectional rebellion shall
not be questioned.
But neither the United Statesnor any state shall assume or
pay any debt or obligationincurred in native insurrection

(09:32):
of rebellion against the UnitedStates or any claim for the loss
of emancipation of any slave,but all such debts, obligations,
and claims shall be held illegaland void. So what's really
relevant for today's littlefield trip into constitutional
law is that first part. Quote,the validity of the public debt
of the United States authorizedby law shall not be questioned.

(09:56):
Now a lot of people, yours trulyincluded, thinks that this means
what it says. The United Stateswill always pay its debt.
United States is like theLannisters. You know, we'll
always pay. In fact, thisamendment makes it
unconstitutional for the US todefault on debt, in my opinion.
I'm not alone here. TimGeithner, former treasury

(10:18):
secretary, agrees, so does legalscholar Garrett Epps, who's also
the author of an incrediblebook, I've been reading on the
14th amendment called DemocracyReborn, the 14th Amendment and
the Fight for Civil Rights inPost Civil War America.
There's Harvard Law professorLawrence Tribe. All these folks
tend to agree with the positionI just articulated generally,

(10:39):
that it's unconstitutional forthe US to default. And I think
that's ultimately, you know, agood thing. I suspect it has no
small part in why the US dollaris the reserve currency for the
world economy, but it kindabrings us into our current
political conundrum. If it'sunconstitutional to default, and
even if we drastically cutspending without raising the
debt ceiling, we're probablygoing to default, what can we

(11:00):
do, and what should we do?
Some people think it's thepresident's obligation to uphold
section 4 of the 14th amendmentand to, without authorization of
congress, direct the treasury toissue more debt without
congressional approval. I thinkthat's dumb, personally. We can
we're gonna get into why I thinkthat's unconstitutional a little

(11:22):
bit later, but I also think, youknow, why would anyone buy bonds
that weren't authorized bycongress anyways? I don't know
if there'd be any market forthat debt. And, theoretically,
once things get straightened outin congress, those bonds could
just be ignored.
So I I don't know exactly thatthat really solve our problem
even if we went that route.There's also people that think
that Biden should, quote, mintthe coin. And if you don't know

(11:43):
anything about this idea, I findit delightful even if it's
ridiculous. There's an act ofcongress which allows the US
Mint to, to create these, like,commemorative coins, which
you've probably seen on, like,late night infomercials. We can
mint coins, that have, you know,pictures of Thomas Jefferson on
it that are made of, you know,white gold and are worth $25,

(12:05):
whatever.
Their commemorative coins aresouvenirs, but, technically, at
least according to proponents ofthis idea, the US Mint can mint
coins of any kind for anyamount, which means, you know,
theoretically, they can mint a$1,000,000,000,000 coin, put,
you know, Joe Biden's face onit, and then take it over to, I

(12:26):
guess, the bank teller at thetreasury department and make a
deposit and thereby paying downour debt a $1,000,000,000,000.
Now if that seems like bullshitto you, frankly, you're not
alone, but, you know, I wouldask you to ask yourself how much
of the rest of the financialsystem also feels like bullshit.
And I think the more you thinkabout it, minting the coin is as

(12:46):
ridiculous as some of the otherthings we're already doing, like
quantitative easing, forexample. So, you know, whatever.
Mint the coin, move on.
I don't know. I mentionedearlier that I like the idea of
a presidential yard sale whereyou get Biden out on the White
House lawn pawning off the bustof, George Washington or Teddy
Roosevelt's cowboy boots orwhatever. You probably get a few
billion out of that. But,anyways, that brings us to our

(13:08):
last segment, chapter 3,constitution, and what it has to
say about the debt ceiling.Article 1 of the constitution
gives congress the exclusivepower to, quote, borrow money on
credit of the United States byvirtue of the debt ceiling acts
going back to World War 1 1917.

(13:28):
Congress since then has, youknow, temporarily, but it's been
going on for over a 100 yearsnow, temporary delegated
borrowing authority to thetreasury, which is an executive
branch agency, but only up tothe amount authorized by
congress pursuant to the debtceiling legislation, which again
comes from congress's uniqueauthority under article 1. So to

(13:50):
me, and I think to a lot ofpeople, that means that absent a
congressional increase in thedebt ceiling, we just can't
borrow more money. And thatmeans if we default, then we
default. But didn't I just tellyou that a lot of legal scholars
think that defaulting itself isunconstitutional? Yes.
So what I'm saying is this ishow I view the scenario, and
this is kind of explainingwhat's happening in congress

(14:12):
right now. So if congress doessomething that causes us to
default on the debt, I thinkthat that is inherently and
explicitly prohibited by section4 of the 14th amendment. Even
though that's the case, thepresident can't simply just
borrow more money because underarticle 1, he doesn't have that
power unless he's authorized bycongress. So it's
unconstitutional to default, andit's unconstitutional for anyone

(14:34):
besides congress to do anythingabout it. Right?
And congress, as we're watching,might not do anything about it.
There is a potential releasevalve, though, and this is
really what drew my attention tothis issue in the first place.
There's a lawsuit pending inMassachusetts that may punch a
hole right through this issue.There's a union of government
employees, federal governmentemployees, that is suing Janet

(14:57):
Yellen and president Biden toblock enforcement of the debt
ceiling, arguing that the debtceiling law itself is
unconstitutional. The theory isthat if we reach the debt
ceiling without the ability toborrow to pay down existing
debt, the president then has todecide which bills get paid and
which don't, sacrificingspending on current programs to

(15:19):
fund interest payments to avoiddefault.
So the lawsuit argues that thiswould make Biden and, I guess,
the treasury secretary Yellenbasically have to pick and
choose which items in ourcurrent budget authorized by
congress get paid and whichdon't. Amounting to what the
lawsuit alleges is a line itemveto. I'm gonna quote from the
complaint here. The debt limitstatute is unconstitutional

(15:42):
because it puts the president ina quandary to exercise
discretion to continue borrowingto pay for the programs which
congress has heretofore dulyauthorized and for which
congress has appropriated fundsor to stop borrowing and
determine which of theseprograms the president and not
congress will suspend, curtail,or cancel altogether, the
complaint states. So if thepresident gets to pick and
choose which congressionallyauthorized spending programs in

(16:04):
our current budget actually getfunded, I get what the
complaint's saying.
The president really iseffectively vetoing acts of
congress unilaterally, which isitself unconstitutional, of
course. Thus, because the debtceiling forces this situation
upon us all, the debt ceilingact itself must be
unconstitutional, so theargument goes. Now going back to

(16:27):
the complaint, quote, the 14thamendment requires the president
to meet obligations to holdersof federal debt. To do so, he
must either borrow or find thenecessary funds to do so from
canceling suspending or refusingto carry out spending already
approved by congress, unquote.For the lawyers in the audience
here, you all will probablyremember the, when president

(16:48):
Clinton tried to do this back inthe nineties.
Basically, exactly this. He gota bill for to sign into law and
then lined out specific itemsthat he didn't want, and then
tried to pass it with these whatwas later called line item
vetoes. Supreme Court held thatunconstitutional, and the way
this lawsuit is kind ofpositioned, I kinda get their
argument here. If presidentBiden has to, by his own

(17:10):
volition and, withoutcongressional input, pick which
programs get funded and whichdon't, And from the plaintiffs
in this case, which again is anemployee federal employee union,
from their perspective, whatthey're worried about is Biden
is picking which employees getpaid and which don't. I think
that that does amount tosomething like maybe a line item

(17:32):
veto.
So it is possible that the debtceiling act itself may be
unconstitutional, at which pointI would assume that the
treasury, is given the greenlight to go ahead and borrow and
go back to paying down our ourexisting debt. So as it stands,
I actually like the lawsuit ideahere. Get rid of the debt

(17:52):
ceiling and make congress dotheir job to manage the budget
and the debt. And kind of biggerpicture, the idea that congress
is able to pass spending billswithout actually doing the math
on how much of it goes on creditand how much of it gets gets
paid cash, probably not a goodthing long term. And as we've
seen with the explosion of ournational debt over the past
couple of decades, it's probablygonna lead to a lot more

(18:14):
borrowing.
So from a practical perspective,getting rid of this idea that
the treasury has a credit cardand can use it however once up
to a certain limit and makingcongress appropriate which funds
come from existing revenuestreams and which funds come
from borrowing, I think isprobably a good idea long term.
So let's not forget, folks.Congress got us into this mess.

(18:37):
Congress ultimately has to getus out of it. One last thing I
should add here is that theMassachusetts lawsuit is
actually set for hearing onthese issues.
I don't exactly know if it's aif it's a a pleadings motion or
motion to dismiss or orsomething to that effect. I
think it is a a hearing that,would result in maybe, like, a

(18:59):
TRO, temporary injunction on theenforcement of the Debt Ceiling
Act. That hearing is set for May31st. What's interesting is that
Janet Yellen says that if wedon't bump the debt ceiling up,
over the next few days by June1st, we'll likely default. So
there is this kind ofpossibility that exists where

(19:19):
this Hail Mary of a lawsuit in adistrict court in Massachusetts
enjoins the enforcement of thedebt ceiling act and gives us
more time to figure things outpolitically.
So we wanted to get this episodeout before that happens, and,
hopefully, over the course ofthe weekend, if folks are
interested or don't wanna lookinto this more. As a reminder,

(19:42):
the show typically comes outevery other Tuesday. This is an
off schedule one to account forthe Memorial Day holiday and to
get something in everyone'shands to think about and listen
to as they pay attention to thesad state of the news coming out
of Washington DC. Other thanthat, we'll talk to you in 2

(20:02):
weeks.