Office Hours: Calamity around the corner! What should Biden do about the debt ceiling?

Time is running out to avoid an economic cataclysm

Time is running out for Congress to raise the nation’s debt ceiling and avoid an economic catastrophe as soon as June 1.

For months, Biden has said he would not negotiate over the debt ceiling — the legal limit on how much the United States can pay on the debts it already owes. If the Biden administration allowed House Republicans to blackmail it with the debt ceiling, they’ll do it repeatedly.

But yesterday Biden met with House Speaker Kevin McCarthy and other top congressional leaders, seeking a deal to fund the federal government next year that would also raise the debt ceiling.

The business community and some corporate Democrats are putting huge pressure on the Biden administration to make a deal with the Republican House in order to avoid a default.

Hence, today’s Office Hours question: Should Biden negotiate? If not, what should he do about the debt ceiling?

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In my view, Biden should go on national television soon and make the following 8 points:

1. He will continue to seek an agreement with McCarthy and Republicans on the budget in order to avoid a government shutdown in the Fall, but not on the debt ceiling bill. Whatever budget cuts are agreed to will not be tied to the debt bill.

2. Once a budget deal is in place, a "clean" debt ceiling bill should pass with a bipartisan majority.

3. The debt ceiling was lifted  3 times during the Trump administration. There is no reason to hold it up now.

4. If Republicans won’t agree to raising the debt ceiling, Biden has a constitutional duty to continue paying the nation’s bills. Section 4 of the Fourteenth Amendment to the Constitution states that “The validity of the public debt of the United States … shall not be questioned.” As the supreme law of the land, the Constitution has greater weight than the debt ceiling. A debt ceiling that prevents the federal government from honoring its existing financial commitments violates the Constitution.

5. Biden will continue federal payments on the nation’s debts in the form of IOUs.

6. If Republicans object, they can take the Biden administration to court. Even the Republican radicals on the Supreme Court will likely support you. No “originalist” interpretation of the Constitution could read that document differently.

The Constitution makes it clear that Congress’s power to borrow money does not include the power to default on such borrowing. The original intent of the drafters of the Constitution in 1787 was to give Congress the power to tax and borrow to pay debts and to provide for the common defense and public welfare. As Alexander Hamilton wrote in Federalist No. 30, the power to tax and borrow was established to ensure payment of debt or to prevent a default. The “Second Founders” who amended the Constitution after the Civil War explicitly forbade Congress, or anyone, from repudiating or defaulting on the debt.

7. As to the nation’s debt, during Trump’s time in office the national debt rose by almost $7.8 trillion. That is the third-biggest increase, relative to the size of the economy, of any U.S. presidential administration in history. And unlike George W. Bush and Abraham Lincoln, who oversaw the two larger relative increases in deficits, Trump did not launch two foreign conflicts or have to pay for a civil war.

Although we needed massive deficit spending during the COVID-19 crisis to ward off an economic cataclysm, federal finances under Trump became dire even before the pandemic. That was due to Trump’s 2017 tax cut, which went largely to big corporations and the wealthy, and the lack of any serious spending restraint (see chart below).

8.  So, yes, we must tame the national debt, but we’ll do it equitably, starting with repealing Trump’s 2017 tax cut.

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