There has been much discussion and hand-wringing in recent days about the threat to the American economy and the world economy posed by the radical right wing of the House Republican caucus holding the necessary increase to the public debt limit hostage to extort large and unacceptable budget cuts to discretionary programs such as Social Security, Medicare and Medicaid. As of January 19, the debt limit was reached, and default is being fended off by the Department of the Treasury’s “extraordinary measures.†The response of the administration and the Democratic minority in the House has been to express hope that enough moderate Republican House members will join the Democratic minority in using a discharge petition to force a floor vote in the House on extending the debt limit. In the case of a crisis of this magnitude, “hope†is not enough. As the Department of the Treasury website frames it, “Failing to increase the debt limit would have catastrophic economic consequences. It would cause the government to default on its legal obligations.â€
There is 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 that it is violative of Section 4 of the Fourteenth Amendment to 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 threats to refuse to increase the debt limit were used as leverage to extort concessions from the Democratic majority, such as occurred in 2011. In those instances, the constitutional issue was not pursued because it 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.
There are two separate Constitutional provisions under which the Public Debt Limit law can be invalidated, specifically the Due Process clause of the Fifth Amendment, and the Public Debt clause of Section 4 of the Fourteenth Amendment. The discussions of the unconstitutionality of the Public Debt Limit law in 2011 and in discussions and a number of published articles concerning the current public debt limit standoff were based on Section 4 of the Fourteenth Amendment to the Constitution. That provision will, therefore, be addressed first.
- Fourteenth Amendment
Section 4 of the Fourteenth Amendment 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 breaches 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 is, in operation, 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 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, by Michael B. Abramowicz (2011), is published by GW Law Scholarly Commons at https://scholarship.law.gwu.edu/cgi/viewcontent.cgi?article=1198&context=faculty_publications. 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 language and history of the [Public Debt] Clause indicate that it was not merely a prohibition on the repudiation of Civil War bonds. Rather, the Clause was and is a promise that Congress will pay its debts. 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. [Emphasis added.]
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 having agreed to the demand of his party’s radicals to hold extension of the debt limit hostage, even to the point of causing default on the debt.
- Fifth Amendment
In Lynch v. United States, 292 U.S. 571 (1934), the Supreme Court found legislation that would invalidate existing contractual obligations of the United States government to be void because it violated the Fifth Amendment’s Due Process clause. The relevant language of the Fifth Amendment is, “No person shall . . . be deprived of life, liberty or property, without due process of law; nor shall private property be taken for public use without just compensation.†The Court held at page 579 of that Lynch that, "The United States are as much bound by their contracts as are individuals. If they repudiate their obligations, it is as much repudiation, with all the wrong and reproach that term implies, as it would be if the repudiator had been a State or a municipality or a citizen," and further that “the due process clause prohibits the United States from annulling [such obligations]. . . .†The Court concluded at page 580 that, “Congress was without power to reduce expenditures by abrogating contractual obligations of the United States. To abrogate contracts in the attempt to lessen government expenditure would be not the practice of economy, but an act of repudiation. . . . The United States are as much bound by their contracts as are individuals. If they repudiate their obligations, it is as much repudiation, with all the wrong and reproach that term implies, as it would be if the repudiator had been a State or a municipality or a citizen."
The public debt consists of contractual obligations to repay, so a default on the public debt caused by the Public Debt Limit law would be an abrogation of contractual obligations. Under the rationale of Lynch, the abrogation of the government’s contractual obligations would therefore be beyond Congress’ Constitutional authority; that is, the Public Debt Limit law would be unconstitutional and, therefore, void.
- Conclusion
There are no cases 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 both the Public Debt clause of Section 4 of the Fourteenth Amendment and 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 law.
Since there is no case law directly 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 of 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 the law 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 void the public debt limit 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. Pursuant to 28 U.S. Code §§ 511 and 512, OLC provides legal opinions of the Attorney General when requested by the President or an executive branch agency head, respectively.
The OLC can and does render opinions that find laws adopted by Congress to be unconstitutional and, therefore, unenforceable. For example, an opinion rendered on July 8, 2021, found the provision in 42 U.S.Code § 902(a)(3) that prevented the President from removing the Commissioner of Social Security to be unconstitutional and, therefore, unenforceable. That opinion appears at https://www.justice.gov/olc/file/1410736/download.
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 could request an opinion from OLC concerning the constitutionality of the Public Debt Limit law, 31 U.S. Code § 3101. Once the opinion is issued to confirm that the Public Debt Limit law is unconstitutional, Treasury can 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 an article on this point, 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. (Defaults, Debt Ceilings and the 14th Amendment, By Robert A. Levy (July 7, 2011), at https://www.cato.org/commentary/defaults-debt-ceilings-14th-amendment.)
To eliminate the threat of causing 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, unenforceable could be issued in short order, before Treasury’s extraordinary measures can no longer prevent the debt limit from being breached.