House Republicans narrowly passed a bill April 26, that would raise the debt ceiling into mid-2024 in return for steep spending restrictions, stricter work requirements for recipients of government aid, and a repeal of Democratic climate policies. President Joe Biden wants the debt ceiling increased with no strings attached, arguing the House GOP bill would slash programs that millions of Americans depend on.
The White House says a debt default would result in “severe damage to the economy” with a potential loss of 8 million jobs and a 6.1% drop in GDP. Biden is scheduled to meet with Republican House Speaker Kevin McCarthy and other congressional leaders at the White House on May 9.
House Democrats have also begun the discharge petition process that could allow them to bypass the chamber’s Republican leadership to force a floor vote on a clean debt ceiling raise, but they would need support from at least five GOP representatives. But what could be done if the impasse remains unresolved and the default X-date draws closer?
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In an article for The American Prospect, Zasloff writes that a bondholder could file a lawsuit alleging that the United States failing to pay off its debts is unconstitutional, and that Yellen as Treasury Secretary, should be obligated to continue making debt payments.
Would a bondholder have standing to file such a lawsuit? Zasloff says the Treasury bond is a contract under which the lender provides money to the government, expecting to be paid back later with interest. The federal government would be breaking that contract because the debt ceiling statute would deny the Treasury the necessary borrowing capacity to cover already accrued debts.
Zasloff argues that “anyone who holds federal government debt and would therefore by owed money by the Treasury” would have standing to bring such a lawsuit to court. He wrote:
“If I hold a T-bill, and the Treasury says it will not pay me on June 1, then I have all concrete and imminent injury necessary to bring a suit. That injury is caused by the debt ceiling. And it can be redressed by finding that ceiling unconstitutional, enabling the executive to pay the government’s debts.”
Chicago labor lawyer Thomas Geoghegan, writing in The New Republic, said that millions of people besides bondholders “have the concrete injury necessary for standing to challenge the Debt Limit Statute.”
“The elderly, especially the poorest widows, may need those small Social Security checks in order to survive; countless people might perish if hospitals hold off health or nursing care for which they may never be paid,” Geoghegan wrote.
The New York Times reported that Biden administration officials are debating whether to ignore the debt ceiling statute if the government runs out of cash and mounts a legal challenge to its constitutionality. During the Obama administration, Republicans twice held the debt ceiling hostage in 2011 and 2013. Former President Bill Clinton said he would have raised the debt ceiling “without hesitation” and “force the courts to stop me.” But President Barack Obama rejected that advice saying his lawyers “are not persuaded that that is a winning argument.”
Zasloff says there’s a distinct advantage if a challenge to the constitutionality of the debt ceiling is not done by Biden, but rather by someone outside the administration who would sue Yellen. “In moving ahead with the suit, progressives should beat conservatives at their own game, and choose a venue most likely to support them,” Zasloff wrote.
There is no liberal equivalent of the single-judge districts in Texas where Judge Matthew Kacsmaryk can be counted on to do the GOP’s bidding. But Zasloff said there are two districts where liberals might have an advantage—the Northern District of California headquartered in San Francisco, where every judge is either an Obama or Biden appointee, or the District of Massachusetts in Boston, where seven of the nine active judges are Democratic appointees, and every member of the appeals court is a Democratic appointee.
Zasloff suggested that such a lawsuit might get “an interesting assist” since the defendant would be the U.S. Treasury led by Yellen, and the Justice Department’s Office of Legal Counsel could issue an opinion that the debt ceiling is unconstitutional. Would the Biden administration bother offering much of a defense in a case where they basically agree with the plaintiffs? Zasloff said House Republicans would scream and try to intervene, but it isn’t clear that they would have standing to do so.
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Geoghegan questioned whether the case would even reach the Supreme Court. If a plaintiff were to sue and win a declaratory judgment, or even a preliminary injunction, from a district court, the Biden administration could simply decide not to ask for a stay or file an appeal and accept the decision, letting the legal controversy end.
And even if Republicans could somehow get the case to the Supreme Court, there’s no guarantee that the conservative majority would overturn lower court rulings to get rid of the debt ceiling. Zasloff wrote that the court might “be reluctant to destroy the full faith and credit of the United States. The GOP’s billionaire contributors do not want a market meltdown. Neither does Harlan Crow.”
What a dilemma for Justice Clarence Thomas. Ginni and Harlan might have different opinions on this one. Zasloff concluded:
“If the Supreme Court does overrule the lower courts, it will be clear for all to see who is responsible for the ensuing catastrophe. The House GOP’s entire strategy has been to crash the economy while avoiding blame. A nakedly partisan Supreme Court judgment would block that path.
“No legal strategy is foolproof, and litigation cannot solve the basic problem of a lawless Republican Party bent on destruction. But given the House GOP’s eagerness to take the world economy hostage, the best tack here is simple: take away the terrorist’s gun.”
The strongest argument for ruling the debt ceiling unconstitutional can be found in Section Four of the post-Civil War 14th Amendment, ratified in 1868.
“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.”
One of its main sponsors, Republican Sen. Benjamin Wade of Ohio, spelled out very clearly the intent of this provision. Wade wrote:
“I have no doubt that every man who has property in the public funds will feel safer when he sees that the national debt is withdrawn from the power of a Congress to repudiate it and placed under the guardianship of the Constitution than he would feel if it were left at loose ends and subject to the varying majorities which may arise in Congress.”
But a later-day Ohio Republican, House Speaker John Boehner, would use the debt ceiling for hostage-taking.
Geoghegan wrote in The New Republic that even without the 14th Amendment, the original 1787 Constitution provides grounds for doing away with the debt ceiling. He cited Article I, Section 8 of the Constitution: “The Congress shall have Power to Lay and Collect Taxes, Duties, Imposts, to pay the Debts and provide for the Common Defence and General Welfare of the United States; To borrow money on the credit of the United States.” He wrote:
“For the Framers, the payment of the debt was an important factor in providing for the “Common Defence and General Welfare.” In Federalist Number 30, [Alexander] Hamilton explains that the power to tax and borrow is conferred on the new government only for the purpose of preventing a default or ensuring the payment of the debt. Article I is not open-ended but a grant of limited powers for specific purposes. If Hamilton is right, then it is a mistake to argue—as some legal scholars have—that the power to “borrow money on the credit of the United States” includes the “lesser” power of not paying the debt and willfully ruining the credit.”[…]
Were Congress to use its power to willfully trigger a debt ceiling default, it would be no ordinary constitutional violation. It would be a repudiation of the Constitution in a much more fundamental way, a betrayal of the very purpose of leaving the Articles of Confederation—which did not grant borrowing powers to Congress—behind; that is to say, it rebukes the very thing that gives our Constitution its legitimacy. From the perspective of Hamilton in Federalist 30, it would be tantamount to terminating the Constitution itself.
Well, guess who recently called for the termination of the Constitution? None other than Donald Trump, the titular leader of the GOP.
Last December, Trump posted on his Truth Social platform a ridiculous call that he should either be declared the “rightful winner of the 2020 presidential election or a new election should be held. He said that massive election fraud “allows for the termination of all rules, regulations, and articles, even those found in the Constitution.”
And how appropriate is it that the GOP MAGA nihilists who are so ready to push the country toward default have chosen as their leader a TV reality show businessman who defaulted on his debts in multiple bankruptcies? “It is typical of the GOP to treat the country’s debts as dishonorably as Trump treats his own. Default is his business model. The Framers would be horrified if we made it the country’s model too,” Geoghegan wrote.
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