Democrats’ Magical Thinking Won’t Reduce Deficit

Tuesday, 12 Jul 2011 06:54 AM

 

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July 12 (Bloomberg) -- In a sign of Washington’s increasing desperation over the debt-limit impasse, some Democrats are advancing the breathtaking argument that the limit itself is unconstitutional.

These journalists, academics and politicians say if Congress fails to increase the debt ceiling, President Barack Obama should invoke the 14th Amendment to carry on borrowing just as though Congress had increased it.

They also say Republican legislators would have no power to stop Obama, because the courts would not recognize any injury they could sue him for.

This theory is, perhaps, the perfect distillation of liberals’ yearning for a magical and painless escape from reality.

Some of them seem to believe that the government can simply keep spending beyond its means forever with no negative consequences. More of them wish that the 2010 elections had not gone so well for the Republicans and that conservatives, with their anti-tax obduracy, could be denied the enormous leverage the election gave them over fiscal policy. That way, Democrats could continue working on a new New Deal.

In fact, the 14th Amendment does have a bearing on the debt-ceiling debate, but it’s the opposite of what these advocates of presidential spending power are saying.

Default Unconstitutional

The fourth section of the amendment stipulates that “the validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”

This language does indeed make default on the national debt unconstitutional. But that doesn’t mean the federal government has to be able to borrow additional money. It means it has to dedicate its existing money to paying its debt-service obligations first.

For months, Republicans such as Senator Pat Toomey of Pennsylvania have been saying that Congress should pass legislation clarifying that in the event that the federal government runs up against its debt limit it must prioritize the repayment of creditors. One plausible reading of the 14th Amendment is that such legislation is unnecessary because the Constitution already commands that prioritization.

Don’t be misled by the amendment’s reference to “pensions,” by the way, into thinking that paying Social Security checks is also a constitutional command. The Supreme Court has ruled (in Flemming v. Nestor, 1960) that the program’s payouts are not a contractual obligation. It’s a tax-and-spending program that bears some resemblance to a pension.

Drastic Spending Cuts

The fact that default isn’t an option doesn’t mean Congress can leave the debt ceiling unchanged without cost. Refusing to raise it means forcing the budget into immediate balance in the middle of a weak economic recovery. The spending cuts would be drastic and painful.

For that reason, Republicans in Congress would probably raise the ceiling before too long. But even a temporary and partial government shutdown brought about by partisan brinkmanship may very well increase fears of a future default, and thus increase interest rates and weaken the currency. Presumably this is why Treasury Secretary Timothy Geithner dismisses the Toomey solution.

But it would also be risky for Obama to decide that the 14th Amendment grants him an unlimited power to borrow that almost nobody has previously perceived.

For one thing, opponents would have some legal options. The threat of litigation over the worth of any new Treasury bonds issued in this way would make investors leery of buying them. Remember, the amendment says debts “authorized by law” are unquestionably valid. Congress would not have authorized these bonds.

Banana-Republic Feel

The banana-republic feel of the whole thing -- the advocates of presidential borrowing power are, after all, mere inches away from announcing that the president has previously unsuspected powers to impose taxes unilaterally as well -- would endanger confidence in America’s credit. That effect would be compounded if, as is likely, Republicans reacted to Obama’s actions by beginning impeachment proceedings.

Although the argument that the debt ceiling is unconstitutional is weak, there is a reasonable case that having one is a bad idea. Most countries don’t. It’s a little peculiar for the government to set spending and taxing levels that imply an increasing debt and then hold a separate vote to ratify that implication. The drawback to having a debt ceiling is that hitting it can yield an unnecessary fiscal and economic crisis.

The upside of a ceiling is that the political difficulty of increasing it at a time of high public concern about deficits could provide leverage for needed budget reforms.

A Smaller Deal

Leaks to the news media suggest that some budget negotiators, including Obama, want a $4 trillion deficit- reduction package as part of the deal. That seems unlikely. Republicans will not accept a net tax increase as part of the deal, and Democrats won’t go for spending cuts of that magnitude.

But a smaller deal, say one of $2 trillion in spending cuts over 10 years, might be feasible. Such a deal could start with the Medicare legislation proposed by Republican Senator Tom Coburn and independent Senator Joe Lieberman. That package of cuts reduces costs without following Republican Representative Paul Ryan’s proposal to replace the program with subsidized private insurance, which would be a deal-breaker for Democrats.

It could also include an end to the tax expenditures -- such as subsidies for energy companies -- that Obama has recently been denouncing, with corporate tax rates reduced to match (a formula that former President Bill Clinton and other Democrats have endorsed).

That’s the best-case scenario for the outcome of this year’s budget drama. And it’s a deal along these lines, not fanciful constitutional theories, that Washington ought to be seeking.

(Ramesh Ponnuru is a senior editor at National Review and a Bloomberg View columnist. The opinions expressed are his own.)


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