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Why Do We Have a Debt Limit?

This is a big week for the debt limit. Since 1941, the federal government has had a statutory limit on the overall face value of securities—bonds, notes, bills, etc.—that can be outstanding at one time. Because the government has become increasingly reliant on borrowing, the limit now acts as a kind of ex post occasion to bargain over government expenditures: If the limit isn’t raised, the government doesn’t have an obvious path to raise immediate revenue and will (as spending continues) eventually run short of cash. This week, President Biden and Speaker McCarthy are negotiating over the limit. Next week, if Treasury’s estimates are correct, the government is expected to run short of cash.

I left the Justice Department’s Office of Legal Counsel last week to begin the move to academia. (I’m starting as an associate professor of law at Washington University in St. Louis this summer.) Leaving the Department also seemed like the right time to post my job-market paper, which is about the debt limit. I wrote the paper in 2022, after thinking a lot about the showdown over the debt limit in the fall of 2021—and also thinking about appropriations law for much of the previous four years at DOJ—but encountering only a small number of articles on the limit. (The most stimulating of these was Neil Buchanan and Michael Dorf’s paper on the presumed constitutional “trilemma.”). Obviously, the issue has now recurred.

Depending on what happens in the days to come, I hope to write a series of posts that address some of the technical legal details of debt limit—such as why reaching the so-called “X Date” doesn’t lead to a default on the national debt, where I think Buchanan and Dorf get it wrong on the constitutional “trilemma,” and the scope of the federal government’s authority and obligation to make payments when it runs short of cash. (Some of these views are previewed in a short Wall Street Journal op-ed I wrote with my friend and OLC colleague Kristin Shapiro, and a short piece in The Atlantic.) But in this initial post I’ll address a historical question and some of its implications: Why do we have a debt limit at all?

This is something of a pox-on-both-houses history. Critics of the debt limit are certainly onto something: The modern limit wasn’t intended as an ex post check on federal spending, and it has become divorced from its original purpose. But the debt limit is also part of a much older constitutional and statutory tradition than is typically appreciated—and that casts doubt on the questionable but fashionable argument that the debt limit is at odds with the 14th Amendment’s Public Debt Clause.

The conventional story of the debt limit starts in 1917, but this is a somewhat random and formalistic point in time. During the First World War, Congress did aggregate some previous bond-issuance authorities in a single law, the Second Liberty Bond Act. In the decades that followed—and as the government borrowed much more—the revisions in the statutes at large all tended to refer to the Second Liberty Bond Act. But limits on Executive Branch borrowing go back much further, and there really isn’t much inherent difference between the statutory limits one sees in the 1790s and the limit of today. The big difference is how much the government spends and borrows.

The simple reason why we have debt limits is that Article I gives the borrowing power to Congress, so whenever Congress delegates a borrowing authority to the Executive Branch, that delegation necessarily has the limits of the authorizing legislation. There isn’t a great deal in Madison’s notes on why Congress gets the borrowing power specifically, but a straightforward hypothesis is that it’s for general power-of-the-purse reasons: To limit executive power. Every borrowing authority since 1790 has followed this simultaneous authority-and-limit form. The appropriations legislation for the year 1790, for example, authorized the President to “make such loans as may be requisite to carry into effect the foregoing appropriations”—no more and no less.

My paper recounts legislative practice in the 18th and 19th centuries at some length, but two points in particular are worth drawing out. First, the executive branch appears to have obeyed all these statutory limits. Treasury’s early borrowing records are quite detailed, and you can match them up against the statutory authorities. The borrowing tracks the authority. One possible exception occurred in 1789, when Hamilton obtained loans on his own authority to “meet expenses incurred at the beginning of the present government of the United States.” But Hamilton conceded the next year that the loan was “the result of necessity,” and told Congress it wouldn’t happen again: “Obvious considerations dictate the propriety, in future cases, of making previous provision by law for such loans as the public exigencies may call for, defining their extent, and giving special authority to make them.” It’s a great little story, but generally seems to support the early notion that Congress is supreme.

Second, the existence of several hundred different statutory limits on borrowing going back to 1790 makes it hard for me to take seriously the idea of a facial conflict between a debt limit and the 14th Amendment. I find it hard to distill much specific and affirmative meaning from the scant history and cryptic text of the Clause: “The validity of the public debt of the United States . . . shall not be questioned.” (Though I know Anna Gelpern, Adam Levitin, and Stephen Lubben are working on a new theory of the Clause.) But I do find it a little easier to say what the Clause does not forbid. Based on overwhelming sweep of historical practice, it’s hard to believe the 14th Amendment forbids statutory debt limits. I say a bit more about this in The Atlantic. Whether there might be a reasonable as-applied challenge today is something Kristin and I consider a bit in our Journal piece and something about which I hope to say more in the days to come.

Still, the modern debt limit wasn’t intended as a check on spending. The big change is 20th Century legislative practice is that debt authorities and limits became divorced from annual spending. In early American history, borrowing authorities (and their limits) were typically attached to annual appropriations laws, like the 1790 example above. And they tended to be somewhat instrument specific—longer term bonds for this project, shorter term notes for that one, and so forth.

As the nation’s finances became more complicated in the first half of the 20th century, the proliferation of these laws and instruments became something of an administrative inconvenience for Treasury, which asked for the separation of borrowing and spending that we see today. In Treasury’s 1930 annual report on the state of American finances, for example, Treasury Secretary Andrew Mellon wrote with recommendations for amendments to the Second Liberty Bond Act: “[I]t is obvious that the orderly and economical management of the public debt requires that the Treasury Department should have complete freedom in determining the character of securities to be issued.” The idea was that a single statutory debt limit, separate from individual appropriations, would make Treasury’s life easier. Whoops.

Congress acceded to Mellon’s request. By 1941, Congress had combined all the statutory borrowing authorities and limits into the single cap that persists today. But the idea was never to limit spending. As one Senator put it in 1939 (recorded in the Congressional Record): “The only time to control a debt is when appropriations are made which contribute to the debt.”