A Legal Exploration—and An Answer—to the Debt Ceiling Crisis

The United States is on course to a catastrophic default on its public debt within a matter of weeks if steps are not taken soon to head off that result. Speaker McCarthy and the House Republican caucus continue to hold the necessary increase to the public debt limit hostage to their bad faith demand for unacceptable budget cuts to discretionary programs such as Social Security, Medicare and Medicaid.

The debt limit was reached on January 19, and default is being fended off by the Department of the Treasury’s “extraordinary measures.” Those measures are projected to be insufficient at some point in June, with a resulting default on the debt if nothing is done sooner. The response of the administration and the Democratic minority in the House to this threat has been to express hope that enough Republican House members will join the Democratic minority to force a floor vote in the House on extending the debt limit. In a crisis of this magnitude, hope is not enough. Despite the catastrophic economic consequences of a default the legal obligations of the federal government, there has been no apparent consideration by the administration of any alternative remedy if Republican intransigence continues to preclude an amendment to the Public Debt Limit law to extend the limit.

There is, however, a course of action that President Biden or Secretary of the Treasury Janet Yellen can take to deal with that threat by using an available legal mechanism in federal law. Briefly, that would be to eliminate the public debt limit by a legal finding of the Attorney General that the Public Debt Limit law is violative of the Constitution.

The unconstitutionality of the Public Debt Limit law, 31 U.S. Code § 3101, has been discussed in connection with earlier instances in which increasing the limit was used as leverage to attempt to extort concessions from a Democratic administration such as occurred in 2011. In those instances, the constitutional issue was not pursued because there was no discerned mechanism for clearly establishing the law’s invalidity, and because it ultimately was determined that an amendment to increase the limit could be forced through Congress. Before proceeding to the mechanism that can be used to establish the invalidity of the law, it is necessary to establish how the law is in violation of the Constitution.

The Public Debt Limit Law, insofar as it can cause repudiation of the public debt, exceeds the authority granted to Congress by Article I, Section 8, of the Constitution

The Public Debt Limit law precludes the Treasury from borrowing amounts to pay the debts of the United States once the total amount of the public debt reaches the limit set by the law. Therefore, existing obligations that fall due after that point cannot be paid, i.e. they must be repudiated. The law is, in that respect, beyond the power of Congress to enact.

Article I, Section 8 of the Constitution says in relevant part:

The Congress shall have the power:

1. To . . . pay the Debts . . . of the United States . . . ;
2. To borrow Money on the credit of the United States. . . .

Note that Clause 1 gives Congress the power to “pay the Debts.” By enumerating the power to pay, but not the opposite power, i.e. the power to repudiate, the language excludes the power of repudiation under the common rules of statutory construction (expressio unius est exclusio alterius). Since the effect of the Public Debt Limit law when the debt limit is breached is to repudiate existing debts, its imposition is, therefore, beyond Congress’ Constitutional authority.

Clause 2 refers to borrowing on “the credit of the United States.” The meaning of “credit” in this application is the grant of assurance of repayment to the creditor by the United States. Referring to Clause 2, the Supreme Court, in Perry v. United States, 294 U.S. 330, 351 (1935), said,

By virtue of the power to borrow money "on the credit of the United States," the Congress is authorized to pledge that credit as an assurance of payment as stipulated, as the highest assurance the Government can give, its plighted faith. To say that the Congress may withdraw or ignore that pledge, is to assume that the Constitution contemplates a vain promise, a pledge having no other sanction than the pleasure and convenience of the pledgor. This Court has given no sanction to such a conception of the obligations of our Government.

Therefore, adoption by Congress of a law that operates to repudiate the obligation to repay borrowed amounts is beyond its authority under both Clauses 1 and 2, and any law so adopted is void.

Invalidity of the Public Debt Limit under Section 4 of the Fourteenth Amendment to the Constitution

The Public Debt Clause in Section 4 of the Fourteenth Amendment to the Constitution, says in relevant part, "The validity of the public debt of the United States, authorized by law, . . . shall not be questioned." If the debt limit set out in 31 U.S. Code § 3101 is not raised before the total public debt reaches the limit, the effect would be to cause a default on debt which has been incurred pursuant to appropriation bills; that is, it would cause default on "public debt . . . authorized by law. . . ." Default would certainly constitute or at least cause a questioning of that debt. Therefore, the Public Debt Limit law would, in operation, be unconstitutional under Section 4 of the Fourteenth Amendment.

This assertion is supported by case law and legal scholars who have examined the matter. In Perry v. United States, 294 U.S. 330, 354 (1935), the Supreme Court said,

The Fourteenth Amendment, in its fourth section, explicitly declares: "The validity of the public debt of the United States, authorized by law, . . . shall not be questioned." While this provision was undoubtedly inspired by the desire to put beyond question the obligations of the Government issued during the Civil War, its language indicates a broader connotation. We regard it as confirmatory of a fundamental principle, which applies as well to the government bonds in question, and to others duly authorized by the Congress, as to those issued before the Amendment was adopted. Nor can we perceive any reason for not considering the expression "the validity of the public debt" as embracing whatever concerns the integrity of the public obligations.

We conclude that the Joint Resolution of June 5, 1933, in so far as it attempted to override the obligation . . . , went beyond the congressional power.

While Perry was decided before the current version of the Public Debt Limit law was enacted in 1937, it addressed the effects of legislation that would, like the Public Debt Limit law, create doubt about the validity of the public debt or, if Congress failed to take action to extend it, cause repudiation of or default on the public debt. It is, therefore, on point as to the Public Debt Limit law.

There are two particularly relevant scholarly articles that have examined the constitutionality of the Public Debt Limit law in recent years. The first, Train Wrecks, Budget Deficits, and the Entitlements Explosion: Exploring the Implications of the Fourteenth Amendment's Public Debt Clause, was written by Michael B. Abramowicz in 2011. It examines the continuing vitality and meaning of the Public Debt Clause in Section 4 of the Fourteenth Amendment and how it applies in the case of the Public Debt Limit law. At page 37, it states:

The Public Debt Clause promises bondholders not just that bonds will remain valid, but that their validity will not be questioned. The debt limit will necessarily lead to the repudiation of governmental obligations in the absence of congressional action, as the statutory scheme leaves open to question whether a later Congress will honor the public debt by changing the laws. The debt ceiling thus fails the objective test for debt questioning. Even if the Clause allowed one Congress to count on a future Congress to pay required debts, the debt limit statute is still suspect, because in the absence of the statute, repayment would necessarily occur. The debt limit thus takes an affirmative step toward repudiation and places into question Congress’s commitment elsewhere expressed to pay the debt. [Emphasis added.]

It ultimately concludes at page 51 that,

The Clause applies at least to governmental promises embodied in written agreements with debt-holders, and Congress cannot take any action making it possible that the government will break such promises. As a result, not only would a governmental failure during a budget impasse to make bond or other debt payments be unconstitutional, but the federal debt-limit statute making such an impasse possible is also invalid.

The other article is The Debt Limit and the Constitution: How the Fourteenth Amendment Forbids Fiscal Obstructionism, 62 Duke Law Journal 1227, by Jacob D. Charles (2013). It is a deep examination of the development and original meaning of the Public Debt Clause of the Fourteenth Amendment. It makes clear that the Public Debt Limit law is not only in conflict with the Public Debt Clause when it causes actual repudiation of or default on the public debt, but even when Congress’ threats to refuse to increase the debt limit cast doubt on the validity of the debt. It concludes at page 1266 that,

Directed by well-defined constitutional guideposts, the president should disregard the debt limit when congressional obstructionism rises to the level of creating substantial doubt about the continuing validity of the public debt.

In other words, the issue becomes ripe short of actual repudiation or default, as in the current instance of serious doubt about validity of the public debt occasioned by Speaker McCarthy’s holding extension of the debt limit hostage to unreasonable demands such as slashing safety net programs.

Invalidity of the Public Debt Limit under the Due Process Clause of the Fifth Amendment to the Constitution

In Lynch v. United States, 292 U.S. 571, 579-580 (1934), the Supreme Court considered the validity of a new law that repealed an earlier law under which existing contractual rights had been created. The new law purported to nullify the rights of the beneficiaries of those contracts. The question was whether that nullification violated the due process rights of the beneficiaries under the Fifth Amendment’s Due Process Clause. The Court found that,

The Fifth Amendment commands that property be not taken without making just compensation. Valid contracts are property, whether the obligor be a private individual, a municipality, a state, or the United States. Rights against the United States arising out of a contract with it are protected by the Fifth Amendment. . . . When the United States enters into contract relations, its rights and duties therein are governed generally by the law applicable to contracts between private individuals. . . . [T]he due process clause prohibits the United States from annulling them. . . .

The Court concluded that, “Congress was without power to reduce expenditures by abrogating contractual obligations of the United States.”

The public debt consists of contractual obligations to repay, so a default on the public debt caused by the public debt limit is an abrogation of contractual obligations, and the law that compels that abrogation is, therefore, beyond Congress’ Constitutional authority. That is, the Public Debt Limit law violates the due process rights of the obligees of the federal debt, so it is unconstitutional and, therefore, inoperable.

Conclusion

A thorough search produces no case law or scholarly writings that take a position contrary to the foregoing cases and articles. Therefore, it is clear that the Public Debt Limit Law is, in operation, contrary to Article I, Section 8 of the Constitution, the Public Debt clause of Section 4 of the Fourteenth Amendment and to the Due Process Clause of the Fifth Amendment. Therefore, the Treasury is not bound to observe the Public Debt Limit law and may honor all public debt, even if the total public debt exceeds the amount set by the Public Debt Limit law.

Process for establishing the unconstitutionality and invalidity of the Public Debt Limit law

Since there is no case law specifically addressing the constitutionality of the Public Debt Limit law, and since it has not been possible to litigate the question to finality without having a catastrophic repudiation or default on the public debt, there has been a reluctance by administrations in prior public debt crises in 1995-6 and 2011 to assert the unconstitutionality of the Public Debt Limit law insofar as it would cause a repudiation or default, or even causing doubt about the validity of the public debt. There is, however, an existing mechanism that can be used to find the Public Debt Limit law to be inoperable because of its unconstitutionality.

The principal function of the Office of Legal Counsel (OLC) in the Department of Justice (DOJ) is to provide legal advice to the Executive Branch, to include all of the agencies therein. The OLC provides legal opinions of the Attorney General when requested by the President or the heads of executive branch agencies as provided in 28 U.S. Code §§ 511 and 512.

The OLC can and does render opinions that find laws adopted by Congress to be unconstitutional and, therefore, unenforceable. One such opinion, rendered on July 8, 2021, found the provision in 42 U.S.C. § 902(a)(3) that prevented the President from removing the Commissioner of Social Security to be unconstitutional and, therefore, unenforceable. There is no reason that the same approach cannot be used with regard to the Public Debt Limit law.

In light of the stated intent of the Speaker and his caucus in the House to allow the debt limit to be exceeded by the public debt if they do not get unreasonable concessions from the administration, thereby putting the public debt in question and perhaps outright default or repudiation, the President or the Secretary of the Treasury can request an opinion from the OLC pursuant to 28 U.S. Code § 511 or § 512, respectively, concerning the constitutionality of the Public Debt Limit law, 31 U.S. Code § 3101. As the discussion above has established, that opinion would confirm that the Public Debt Limit law is unconstitutional under one or more of the three provisions of the Constitution. The Department of the Treasury can then, in full confidence, continue to honor the public debt without regard to the Public Debt Limit law.

In theory, an opinion of the OLC can be challenged in a judicial action. However, in the current instance, that appears unlikely to happen because it is difficult to think of any party who can show imminent, concrete, and particularized injury caused by the opinion’s result. As noted in a 2011 article on this point by Robert A. Levy, the only party that might be able to argue that it has standing to bring such an action is Congress, and to bring an action would require a joint resolution, which would be impossible in the current divided Congress.

To eliminate the threat to the economy posed by a potential default on the public debt by breach of the public debt limit, either the President or Secretary of the Treasury Yellen should, without delay, request an opinion from the OLC. The law is so straightforward that an opinion finding the Public Debt Limit law to be unconstitutional and, therefore, inoperable could be issued in short order, before Treasury’s extraordinary measures can no longer prevent the debt limit from being breached.