What Should the President Do When Debt Limit Inaction Forces Him To Violate The Law?

When Congress increases spending and cuts taxes then fails to extend the nation’s debt limit, it effectively orders the president to run deficits while prohibiting him from borrowing the money needed to support those deficits. It requires the executive to defy the laws of logic and arithmetic, as well as the law of the land.

Logically trying to solve an illogical set of conditions may be a fool’s errand, but let’s play out what this means.

By passing spending and tax bills, Congress ordered presidents Trump and Biden to spend $7 trillion in fiscal year 2021 (starting October 1, 2020) and collect $3.5 trillion in receipts. Now it says that once the government hits the debt limit, it can no longer borrow to meet this 2:1 ratio of spending to revenue. Nor will it be able to borrow to achieve the more modest 3:2 ratio of roughly $6 trillion in spending and $4 trillion in receipts that President Biden has proposed for fiscal year 2022 (starting this week).

With no new borrowing, Congress is requiring a balanced budget for all future spending. But that would force the president to violate congressional demands for new spending that exceeds the taxes it already has authorized. In effect, the Executive Branch would be in an impossible position: It could not spend more than the receipts it collects while simultaneously fulfilling congressional demands to spend trillions of dollars more than the available receipts. Even Houdini would find trouble creating an illusion to get out of this mess.

But this raises an interesting question. If Congress requires the Executive Branch to violate either one law or another, how much power does the president have to pick which law to violate? 

In recent years, the Treasury starts by invoking some legal extraordinary measures, such as suspending issuance of special securities to the Thrift Savings Plan and waiting to credit interest to the Civil Service Retirement and Disability Fund. Then it effectively issues a promise to pay them back later.

But isn’t that borrowing? It’s an intra-governmental transfer that can be achieved by some fancy accounting, but, by calling it “extraordinary,” Treasury indicates that it might not normally be OK. After all, the action is not unequivocally without risk. If Congress never increases the debt limit, where does the money come from to repay those accounts?

Suppose all those extraordinary measures become fully exhausted. Could the president go the next step and cut the size of Social Security checks, as Secretary of the Treasury Janet Yellen has warned could happen?  Could he set some stricter price limits on drug payments by Medicare? 

Maybe Biden could refuse to spend on programs he considers wasteful or wrong-headed. A half-century ago, Congress passed a law barring President Nixon from “sequestering” funds from programs he did not like. But by failing to increase the debt limit, would Congress effectively empower Biden to sequester government funds? It would seem so.

Why stop with direct spending?  After all, many tax benefits are effectively spending. Could the president block them? Or to go another step, why couldn’t the president unilaterally raise taxes or increase withholding of taxes in return for an IOU that would be repaid…eventually?  

Imagine the litigation to determine which normally illegal actions would be allowed in this new world. But, again, follow the logic to its natural conclusion. The list of items that would have to be cut would be substantial since Congress already has required that the Executive Branch spend $2 for every $1 or $3 for every $2 coming in. Exempt critical operations such as national defense, homeland security, and disaster relief, and the cuts to everything else would be enormous. Logically, almost no item would be sacrosanct.

Ah, how the imagination sparkles with ideas once you start traipsing through a debt limit Wonderland where Congress effectively forces the president to violate the law in defiance of logic and arithmetic.

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