Stop me if you’ve heard this one before: In a month or so, the US will hit the debt ceiling, a legal limit on how much outstanding debt the federal government can hold. The Democratic president and his party want to raise it, but Republicans in Congress are promising to block them. If nothing happens, the debt ceiling will be breached and the US likely plunged into recession.
This sort of fight happened in 2011, again in 2013, and is set to happen yet again this year. The debt ceiling has become a kind of apocalyptic Groundhog Day in American life. Everyone knows that breaching the ceiling would be almost incomprehensibly bad. The specific ramifications are hard to estimate, but Beth Ann Bovino, chief US economist at Standard and Poor’s, was hardly alone in 2017 when she predicted that “the impact of a default by the U.S. government on its debts would be worse than the collapse of Lehman Brothers in 2008, devastating markets and the economy.”
And yet America keeps doing this. For years, Republican leaders, almost always including Senate Minority Leader Mitch McConnell, have threatened to filibuster or otherwise block bills to increase the debt ceiling as a way to embarrass or extract concessions from the Democratic administration.
Luckily, there is a way out of this dilemma: ending the debt ceiling once and for all.
The obvious solution, proposed by Georgetown Law professor and congressional procedure expert David Super, would be for Democrats to use the budget reconciliation process to eliminate the debt ceiling with a majority vote in the Senate. That path faces myriad procedural obstacles, though, and unless Congress moves decisively toward pursuing it, the Biden administration needs to start thinking about backup options.
Some of these options might seem unacceptably extreme. But an absurd crisis calls for absurd solutions. The Biden administration should, if Republicans in the Senate continue to promise a filibuster of a debt ceiling increase, unilaterally abolish the ceiling using executive powers.
There are at least four available to President Joe Biden, each with their own advantages and disadvantages:
- Minting super-high-value coins to fund the government
- Invoking the 14th Amendment to nullify the debt ceiling
- Issuing more debt as the “least illegal” option available to the Treasury
- Creating a new class of bond to fund the government while it cannot issue Treasury bonds
Each of these actions would effectively make the debt ceiling law a dead letter. Congress (or a minority thereof) would no longer be able to threaten default as a means of extracting concessions from the president, and the single biggest source of inter-branch conflict in the federal government would cease to exist.
The short-term political implications could be tough for the Biden administration to bear. But if the choice is between default and a presidential power grab, a power grab is the only defensible course of action. A responsible leader does not plunge his people into a wholly preventable financial crisis. If backed against a wall, Biden mustn’t flinch. He must kill the debt ceiling once and for all.
The debt ceiling, for beginners
The US debt ceiling is, in international terms, very unusual. Out of the OECD group of wealthy democracies, only Denmark and Poland join the US in having a hard legal limit on debt. Peer countries like Japan, Canada, the UK, France, and Germany get along just fine without debt ceilings. They just pass laws setting up their tax and spending policies, and issue debt to make up the difference.
The US is different. Congress has to both regularly pass tax and spending laws, and then manually increase the debt ceiling — literally the amount of debt the federal government can hold — to make sure it’s keeping up with those laws. If Congress doesn’t keep up, the effects could be incredibly dire. At “best,” the US stops making legally mandated payments, like salaries for members of the military or benefits for veterans. At worst, it stops making interest payments on existing debt, meaning default, a move that could cause a global financial crisis.
“There’s no historical basis for modeling what happens if a country voluntarily chooses to put itself in this position,” Jason Furman, a former top Barack Obama economic aide involved in that administration’s debt ceiling talks, told me. That means analysts can’t responsibly put hard numbers to the cost of breaching it — but it also means Americans can’t properly prepare for a breach, given we have no idea what could happen next.
The debt ceiling has always been a point of partisan contention. As far back as John F. Kennedy and Lyndon B. Johnson’s presidencies, House Republicans were overwhelmingly voting against their opponents’ debt ceiling hikes (Senate Republicans were more prudent). But until the Obama administration, most votes against raising the limit were cheap talk. Voting against an increase allowed politicians (including first-term Sen. Barack Obama) to posture as serious about balancing the budget, but the ultimate passage of the measure was never in jeopardy.
2011 marked a turning point. House Speaker John Boehner and his new Republican majority explicitly held the debt ceiling hostage to gain leverage and force concessions from the Obama administration. It worked: on July 31, just two days before the Treasury Department’s stated deadline for raising the debt ceiling, Obama and Boehner reached a deal in which a debt ceiling increase would be paired with big spending cuts.
Thus a precedent was set. What used to be a routine bit of governance has now become a recurring drama in Washington.
The best way around the debt ceiling
McConnell, the Senate Republican leader, has repeatedly stated that he has no interest in helping Democrats raise the debt ceiling. Indeed, he hasn’t even demanded concessions this time — he’s just pushing Democrats to use the budget reconciliation process to raise the debt ceiling on partisan lines, in hopes that a vote to authorize more debt will come back to bite them in the 2022 midterms.
Let’s be clear: With a Democratic President, a Democratic House, and a Democratic Senate, Democrats have every tool they need to raise the debt limit. It is their sole responsibility. Republicans will not facilitate another reckless, partisan taxing and spending spree.
— Leader McConnell (@LeaderMcConnell) September 15, 2021
Love or hate him, McConnell is right about this. Democrats can absolutely raise the debt ceiling on their own, using the reconciliation process. Importantly, they can also do this without involving the large omnibus spending bill they also hope to pass through that process.
A decent summary of the budget reconciliation process is that Congress has to pass one piece of legislation per budget cycle with only 50 Senate votes, rather than the 60 needed to clear a filibuster. But that summary elides some important details. The Congressional Budget Act allows three uses of reconciliation per budget resolution: one to affect taxes, one to affect spending, and one to affect the debt ceiling. Usually major legislation affects both taxes and spending; the omnibus reconciliation bill that Democrats are preparing does this.
But this nuance leaves open an option of addressing taxes and spending in the omnibus bill (to be passed later this fall after more negotiating), and separately raising the debt ceiling in a different bill that can pass with less drama.
By the same token, they could and should use this clean debt ceiling bill to eliminate the debt ceiling altogether. John Yarmuth, the House Budget Committee chair, has endorsed my idea of raising the debt ceiling to “a gazillion dollars” to render it inoperative, though he seems dubious this can be done in time this fall; David Super, the Georgetown professor, has proposed legally tying the debt ceiling to however much debt the US happens to have, so it’s never breached.
The difficulty, as Super explained to the Washington Post, is that Congress has to say it’s doing this in the budget resolution it passes. The fiscal year 2022 budget resolution has already been adopted, so Congress would have to reopen and amend it before it could pass changes to the debt ceiling this way.
But amending the resolution is easier said than done. Roll Call’s Paul Krawzak has written a very clear description of this problem if you need more details, but the upshot is that Republicans on the Senate Budget Committee could block an increase in the debt ceiling, just as Senate Republicans generally could block an increase from passing through normal, non-reconciliation procedures. If a single Republican on the committee — say, Sen. Mitt Romney — showed up to the hearing, the amended resolution could proceed and the debt ceiling could be raised with Democratic votes, but there’s no guarantee such a Republican would step up.
The difficulty of that process led Yarmuth to tell Punchbowl News that it’s “virtually impossible” to pass the amended resolution and a debt ceiling increase or abolition before the debt ceiling is breached (sometime between mid-October and mid-November).
It’s still worth trying to get Romney or another Republican on board with assisting passage of a clean debt ceiling increase. But if there is no time, and/or no Republican desire to keep the government from defaulting, then Biden has to start thinking about more exotic options.
Last-ditch options to kill the debt ceiling
When the Obama administration was negotiating over the debt ceiling with Republicans in Congress, it repeatedly ruled out any options that would enable it to unilaterally ignore or nullify the debt ceiling. Furman told me that the administration’s assumption was that it would be forced to prioritize payments in the event of a debt ceiling breach, ensuring that payments were still made to owners of Treasury bonds, then paying Social Security checks and military salaries, while nearly everything else, from Medicare to the FBI to the Food and Drug Administration, went unfunded.
This is a smart negotiating posture for an administration, because it defines the cost of congressional inaction as armageddon, where the government and economy likely grind to a halt.
But any administration, if it were truly faced with such a calamity, would not actually be helpless. There are at least four different ways a president could nullify the debt ceiling without Congress.
None of these are free from risk, and all would likely spark considerable litigation. That litigation could in turn cause market turmoil as market actors debate the value of US debt issued under these conditions. But all would be preferable to defaulting on US debt.
How beautiful a $1 trillion coin could be.
1. Mint the coin
If you were following the news during the 2011 and 2013 debt ceiling crises, you’ll remember this one. Way back in 2010, Carlos Mucha, a blog writer and commenter using the name Beowulf, noticed a strange federal law giving the US Treasury secretary the power to issue platinum coins of any value she wishes. The original intention behind the law, as its author, former Rep. Michael Castle (R-DE), told me back in 2013, was to make it easier to produce platinum coins for the international coin collector market. It had nothing to do with the debt ceiling.
But in 2011, Mucha revived the idea in the context of the debt ceiling standoff. The Federal Reserve, he noted, owns trillions in Treasury bonds. The Treasury secretary could issue, say, a platinum coin worth $2 trillion, deposit it into the Treasury’s account at the Fed, and use those funds to sustain the government until the debt ceiling is raised.
The best part of the “Mint the Coin” plan is that the idea of funding the government with a literal $2 trillion coin is extremely funny. The worst part is that it’s extremely funny, and thus seems insufficiently serious for the US government. That’s part of why the Obama administration rejected the idea.
But the legal case for minting the coin is as solid as platinum; just ask former US Mint head Philip Diehl, or Sen. Mike Lee (R-UT), who has introduced legislation to close the platinum coin loophole. The plain text of the law clearly allows the Treasury secretary to do this, and Jay Powell, the Fed chair and in a past career an expert on the debt ceiling and its dangers, is arguably legally required to accept the coin as a deposit.
You can also imagine more serious variations on the concept. Progressive economist Mike Konczal once proposed issuing a $20 billion coin every day to keep the government running, until Congress agrees to abolish the debt ceiling for good. And a $20 billion coin is a little less silly than a $2 trillion one, surely?
2. Invoke the 14th Amendment
Section 4 of the 14th Amendment, passed in the wake of the Civil War and partially dealing with debts incurred in financing the conflict, specifies that “The validity of the public debt of the United States, authorized by law … shall not be questioned.” Some legal scholars, notably Yale’s Jack Balkin, have argued that this clause renders the debt ceiling unconstitutional, as it threatens the validity of the US’s public debts by creating the possibility of default.
This is hardly a consensus position among constitutional law experts (former conservative federal appeals judge Michael McConnell thinks the debt ceiling is clearly constitutional) but if Biden were to declare he was ignoring the debt ceiling because it’s unconstitutional, it’s not clear that anyone would have legal standing to sue Biden and challenge the decision. That helped encourage a number of political actors, from then-House Minority Leader Nancy Pelosi to former President Bill Clinton, to urge Obama to invoke the 14th Amendment during his debt ceiling showdowns.
3. Declare ignoring the debt ceiling to be the “least unconstitutional” option
University of Florida law professor Neil Buchanan and Cornell law professor Michael Dorf have, in a series of papers, proposed a way out of the debt ceiling that’s related to but distinct from the 14th Amendment option.
Buchanan and Dorf note that Congress, by setting spending and tax policy as well as a debt limit, has given the president three mandates: to spend the amount Congress authorizes; to tax the amount Congress authorizes; and to issue as much debt as Congress authorizes. When the debt ceiling is breached, it becomes impossible for the president to obey all three of these legal requirements.
Prioritizing spending on certain activities and cutting it elsewhere usurps Congress’s spending power, by cutting spending unilaterally. Raising taxes without congressional authority would usurp Congress’s taxing power. And ignoring the debt ceiling would usurp Congress’s power to set debt limits.
The last option — respecting Congress’s taxing and spending powers while ignoring its debt limit — is the “least unconstitutional” option, Buchanan and Dorf argue. This judgment would no doubt be challenged in court, but it’s arguably less dramatic than the president unilaterally declaring the debt ceiling a violation of the 14th Amendment.
4. Issuing quasi-debt while the crisis plays out
Steven Schwarcz, a professor at Duke Law and expert on capital markets, has proposed getting around the debt ceiling by having the Treasury Department create a “special-purpose entity” to issue new securities, distinct from traditional Treasury bonds, that can pay for government expenditures. Because they’re not Treasury bonds, these securities would not be subject to the debt limit.
This may seem bizarre, but Schwarcz got the idea from state and municipal finance in the US; many states raise most of their debt with special-purpose entities, rather than by directly issuing bonds, often so they can get around their own state debt limits.
The debt ceiling needs to end, one way or another
I am personally agnostic as to which of the four above options Biden should choose, if Congress fails to act, and it’s entirely possible there are other options to evade the debt ceiling not listed above. But Biden should choose one of them.
The debt ceiling is a structural feature of the US government that encourages risky, high-stakes crises. Even one former Republican negotiator from the 2011 standoff has urged repealing the limit, given the role it plays in encouraging political instability.
The ceiling is particularly dangerous in the context of the long-run erosion of democratic norms in the US. As scholars like Juan Linz have documented, presidential systems of democracy create two rival centers of legitimacy: the legislature and the president. Presidential systems consequently often experience crises in which these two institutions square off, with each having some claim to speak for the people, making a definitive resolution difficult.
And disturbingly often, these crises are resolved with a coup, either with the president asserting authoritarian powers (as in Peruvian President Alberto Fujimori’s autogolpe or “self-coup” of 1992) or Congress deposing the rightfully elected president (as in the Honduran coup of 2009).
The aftermath of the 2020 election demonstrated that a clear-cut ballot loss can be enough to prompt an attempted self-coup by a sitting president. The debt ceiling creates another such opportunity to delegitimize the government, one which sooner or later the president or Congress will likely seize.
It’s imperative, then, that Biden heads off such a crisis with an assertion of executive power. His opponents may call it a coup, or worse. But they will be wrong. It would be a modest and reasonable increase in executive powers needed to avert a much worse sequence of crises.
Such an action would not be costless. It will be challenged in court, and that could in turn roil the global economy. But the costs of keeping this law on the books are far greater. Biden needs to use all the tools at his disposal to end debt ceiling brinkmanship once and for all.
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