The debt ceiling isn't what you think it is

Four myths debunked

Perhaps the most challenging thing about standing on principle as an elected official is that when you take a public position on a controversial item, people frequently judge you not on the basis of your reasoning applied to facts but instead on the basis of whatever narrative has taken hold.

I don’t really blame most people.

It’s hard for someone at home to know precisely what’s going on in Lansing or Washington or anywhere else for that matter. We’re all busy with our own lives. We rely on individuals and organizations we trust—often politicians or media, as much as we hate to admit it—to distill complex public policy matters or legislation into something more accessible.

Of course, the politicians and media we rely on routinely take shortcuts themselves. They’re also busy and have deadlines to meet. They rarely read bills or dig deep into subjects they’re covering, so they too rely on others for summaries and talking points.

Given how this all unfolds, especially when partisanship and bias get tossed into the mix, it’s hardly surprising that misinformation abounds. When a narrative becomes widespread, it’s easy to get sucked into thinking that an alternative view is wrong simply because it’s not one believed by most people. If 433 members of Congress say one thing, and Justin Amash and Thomas Massie say another, it’s difficult to accept that the lone dissenters might be right.

In fact, the main reason I developed the practice of using Facebook to explain all my votes in the Michigan Legislature and Congress was that I knew I couldn’t depend on my colleagues or the press to accurately present information to the public. It wasn’t just about making sure my constituents knew how I was voting; it was also about making sure we were all working with the same set of facts.

It’s in that spirit that I bring you this piece titled “The debt ceiling isn’t what you think it is.”

As you may be aware, Treasury Secretary Janet Yellen has been signaling that if Congress fails to raise the debt ceiling by as early as June 1, the United States won’t be able to “pay its bills.” She’s even gone so far as to warn that “we face economic and financial catastrophe” if Congress doesn’t act.

The secretary isn’t the only one predicting doom if the stalemate between President Joe Biden and congressional Republicans isn’t resolved. You can’t watch cable news or scroll through your Twitter feed without seeing scores of pundits imploring politicians on Capitol Hill to act immediately to avert the impending crisis.

We repeat this drama every year or two, with the president and administration officials proclaiming that the debt ceiling must be hiked or suspended unconditionally and the opposition party in Congress demanding concessions in exchange for their votes to increase the government’s borrowing authority.

The prevailing position of each party reverses depending on who’s in the White House and who controls Congress. Partisans try hard to memory-hole these contradictory performances from leading figures in their party, but they’re pretty easy to pull up.

What’s obvious is that the people we elect don’t take the debt ceiling seriously. If they did, then they wouldn’t be swapping positions so readily. But it makes perfect sense that they don’t take it seriously. They don’t take the debt seriously.

With rare exception, Democrats and Republicans in Washington aren’t concerned about the long-term ramifications of endless borrowing: inflation, high interest rates, economic stagnation. They’re looking no further than the next election; they operate in the here and now. What’s clear to all of them is that, at the end of any battle over the debt ceiling, a modest deal will be worked out to approve more borrowing, because both parties are addicted to spending. They need that chedda!

In the meantime, they’re putting on a show for their respective bases, with each side performing its role in this year’s production. Regardless of which part they’ve been assigned this season, Democratic and Republican leaders will make the same insincere assertion to voters: We’re the responsible ones.

It’s a theater of the absurd, and it’s bolstered by countless talking heads on television and social media spreading spurious claims about the debt ceiling. Let’s take a look at the most common myths surrounding this perennial spectacle.

Myth #1: If Congress repeals the debt ceiling, then the Treasury can simply borrow whatever amount the government needs

One of the most common things I’ll read or hear whenever the debt ceiling is in the news is that Congress should just repeal the debt ceiling; when the House and Senate vote to approve a budget, they’re implicitly voting to approve any necessary borrowing.

Those who make this argument seem to reimagine the debt ceiling as some extraneous or superfluous barrier put in place relatively recently to throttle the federal spending process. In truth, the debt ceiling has properly existed in some form since 1917 and was adopted to give the Treasury more, not less, flexibility.

The reason Congress needs to approve federal borrowing is that the Constitution grants this power specifically to Congress in Article I, Section 8: “The Congress shall have Power . . . to borrow Money on the credit of the United States.” This is a separate power from appropriations and requires a separate authorization; approval can’t be implied from the adoption of a budget resolution or enactment of a spending bill.

If the debt ceiling were eliminated, then the constitutional alternative would be for Congress to expressly authorize specific debt obligations, which is how things worked until the early twentieth century. One way to think about this is to imagine always being at the debt ceiling and needing a small hike every time a new project is approved.

Put differently, short of a constitutional amendment, there’s no way to eliminate the concept of a debt ceiling, regardless of whether it’s formally recognized as a “debt ceiling.” The need for congressional approval of borrowing is an inherent feature of our system.

To abridge Congress’s authority here—to allow the executive branch to borrow without limit indefinitely, or even for many years—would be to disregard the separation of powers and defy the Constitution. You can’t legally get around this constraint even if Congress decides it’s okay. Congress can no more delegate all borrowing authority to the Treasury than it can delegate all spending authority to the Office of Management and Budget.

Myth #2: Raising the debt ceiling is merely about paying for spending that has already happened

How many times have we heard that raising the debt ceiling is merely about paying for spending that has already happened? If you take just a few minutes to think about it, you can see that this claim is plainly untrue. Yet we hear this one constantly, even from people who should know better.

For example, in a recent Substack post, political historian Heather Cox Richardson confidently asserted, “The debt ceiling is not about future spending; future spending is debated when Congress takes up the budget.”

Well, she got it half right. Future spending is debated when Congress takes up the budget, but the debt ceiling is also about future spending. More precisely, it’s about how to finance spending outlays that have not yet happened.

Some of the people who falsely contend that the debt ceiling is unrelated to future spending are employing a sleight of hand by not accounting for all three stages of the spending process: budget authority, obligations, and outlays. They treat spending as having been completed in its entirety after the first two stages.

In reality, the debt ceiling has almost everything to do with future spending. It’s in the last stage of the spending process, when money has to go out from the Treasury to satisfy an obligation, that the debt ceiling comes into play. When the debt ceiling is hit, the Treasury can no longer borrow to pay for upcoming outlays (i.e., future spending). If the Treasury has enough cash, no problem. But if the Treasury is short on cash, then it needs either to raise cash or else to have some of those spending obligations go away.

In the short run, Congress can’t increase taxes enough to cover the shortfall (nor would this work in the long run—among other problems, annual deficits are way too big). That leaves two main possibilities: Congress can help raise cash for the Treasury by increasing the government’s borrowing authority, or Congress can cut expenditures for the Treasury by modifying or rescinding appropriations.

Now, there are some obligations that must be paid. I don’t mean must in the sense that any obligee will be able to force the federal government to pay; instead, I mean it in the sense that not paying would wreak havoc on the U.S. financial system. What we’re talking about here are primarily debt obligations, in other words, interest on the national debt.

Beyond that, there are obligations that tens of millions of Americans rely on such as Social Security and Medicare. Any sudden, unexpected disruption of this funding would be extremely harmful to many people. (These items are a massive and growing portion of the budget and should be addressed immediately but not abruptly.)

But even if you take interest on the debt and all so-called mandatory spending items off the table, that still leaves over one and a half trillion dollars of annual spending available for reconsideration. Remember that spending on an item isn’t complete until an outlay occurs.

Some people fall into the trap of thinking that the government can’t backtrack on a particular item of spending once it reaches the outlay stage. It should be apparent why this makes no sense.

First, people do this all the time in everyday life. We place an order online but cancel before the product arrives at our door. We request a service but cancel before it’s performed. Sometimes we cancel even after we’ve received something of value in accordance with a return policy or termination clause.

Second, and more important, these types of cancellations are highly contemplated in the context of the federal government. Our members of Congress are democratically elected. In theory, we have a system of representative government. A past Congress can’t bind the current Congress.

Representatives and senators are empowered to re-evaluate prior spending decisions at any stage in the process, even if they’re the ones who made those decisions. This notion is so ingrained in our approach to governance that federal contracts ordinarily contain a termination for convenience clause, allowing the government to unilaterally back out of an agreement for any reason or no reason without being held liable for damages.

Now, none of that is to say that changes to spending won’t be messy or complicated. For instance, it’s possible that a federally funded project has already begun. Stopping it part way may not be pretty. But the consequences of ever-higher borrowing are far uglier, and the point here is that members of Congress who decline to authorize more borrowing without fundamental reforms are simply recognizing what their critics refuse to acknowledge—that the debt ceiling is about future spending.

Finally, a lot of the disruption could be avoided by starting early. There’s no reason Congress and the president need to wait until the last second to address any debt ceiling situation. They know months, sometimes years, in advance that the Treasury is going to run out of money on an approximate date. President Biden recently described this state of affairs as a “manufactured crisis.” He’s right. It’s a crisis that presidents and members of Congress from both parties have manufactured time and again by refusing to budget responsibly.

Myth #3: Not raising the debt ceiling would cause a “default on America’s debt”

It wouldn’t be a debt ceiling standoff without round-the-clock fearmongering about a default on the debt. In just two weeks, between May 9 and 22, the Twitter accounts of the White House and POTUS tweeted no fewer than 40 times about the possibility of a default, with President Biden referring to it variously as a “default on America’s debt,” “default on its debt,” “default on our debt,” “default on the national debt,” and “default on America’s debts.”

Republicans in Congress have been alarmists, too, with House Speaker Kevin McCarthy alone tweeting 11 times in two weeks about a potential default.

The truth is there’s zero chance of defaulting on the debt absent intentional misconduct by the White House. The reason for this is simple math: There’s more than enough money available to the Treasury on any given day to make timely interest payments on the debt. To default on the debt would require deliberate wrongdoing on the part of the executive branch—misfeasance or malfeasance by the president or Treasury secretary that would constitute an impeachable offense.

You can see this by examining data and projections from the Congressional Budget Office. In 2023, net interest amounts to just over 10 percent of total outlays. It eats up just under 14 percent of total revenues. Given the government’s current finances, there’s no circumstance in which it would be unable to pay interest on the debt.

That doesn’t mean that interest isn’t a problem. It’s a growing threat to economic prosperity, made worse each year by successive administrations and Congresses that spend and borrow almost without restraint. Excessive borrowing also fuels inflation, which further exacerbates borrowing costs. If left unchecked, we’ll have a lot more to worry about in the decades ahead than defaulting on the debt; the entire socioeconomic system of the United States is at risk.

It seems appropriate here to briefly illustrate why raising taxes will never come close to resolving the debt problem: Analysts estimate that the 2017 tax cuts, which Republicans/Democrats praised/decried for being huge, amounted to around $2 trillion over 10 years. But the annual deficit is about 10 times larger, approaching $2 trillion over one year. That means that even if we were to treat the entirety of the tax cuts as a revenue reduction to the federal government, they still would account for only slightly more than 10 percent of the yearly deficit.

In short, a tax increase attempting to fill the gap would need to be magnitudes bigger than anything we’ve ever experienced, and that would prove counterproductive to raising tax revenue, because it would grind the economy to a halt.

Before we leave this section, I’d like to address one more point: Some people would call it a “default” should the Treasury be unable to pay any ongoing obligations.

Although the term “default” is most commonly used with respect to debts, i.e., being unable to repay a loan, I don’t object to the use of the looser definition above as long as those employing it are clear they don’t mean defaulting on the debt. Unfortunately, the president and others have been casually alternating between meanings (sometimes within the same tweet!) for maximum scare effect. And every time they talk about defaulting on the debt, they are misleading the public.

Myth #4: The president can “invoke the Fourteenth Amendment” to unilaterally raise the debt ceiling

This one might be my favorite myth about the debt ceiling. The claim that the president of the United States can “invoke the Fourteenth Amendment” to unilaterally raise the debt ceiling is so absurd that I hardly know where to start.

Yet it’s being parroted as an actual thing in every corner of the politiverse.

On Sunday, following the G7 summit in Hiroshima, Japan, President Biden helped perpetuate this myth, telling reporters, “I’m looking at the Fourteenth Amendment, as to whether or not we have the authority. I think we have the authority.”

They do not.

The first sentence of Section 4 of the Fourteenth Amendment reads in full: “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.”

In other words, the federal government can’t repudiate debt held by the public; it’s required by law to make good on its debt obligations, such as Treasury bonds, notes, and bills.

Someone somewhere decided that this provision means instead that the president can order the Treasury to borrow money without congressional approval to finance any obligations. This nonsensical interpretation then spread among politicos desperate to justify presidential encroachment on what is indisputably a legislative power.

There’s, of course, nothing in the text of the Fourteenth Amendment to warrant such an interpretation. In fact, the text cuts entirely the other way, reaffirming the Constitution’s exclusive grant of borrowing authority to Congress.

The clause “authorized by law,” which seemingly every person in favor of expansive presidential authority conveniently leaves out when reciting the text, is a reminder that borrowing money on the credit of the United States must be done lawfully. It’s an enumerated power of Congress, not a power given to the executive.

Ironically, the people calling for unilateral borrowing by the president are endorsing the creation of public debt not authorized by law. This newly issued debt would then not be secured by the Fourteenth Amendment, because it would not be “public debt of the United States, authorized by law.” That means the whole endeavor would not only contravene the separation of powers and violate the Constitution but also be self-defeating.

Worse yet for “invoke the Fourteenth Amendment” proponents, Section 5 of the Fourteenth Amendment triples down on the fact that raising the debt ceiling, even if necessary to comply with Section 4 of the amendment, is a power granted only to Congress, stating: “The Congress shall have power to enforce, by appropriate legislation, the provisions of this article.”

The Congress. Not the president.

But assuming the president could “invoke the Fourteenth Amendment” to raise the debt ceiling to repay outstanding debt, he’d still have no standing to do so here. That’s because the debt ceiling isn’t being raised to repay debt; it’s being raised to finance upcoming government expenditures generally. As discussed above in Myth #3, it’s not necessary to raise the debt ceiling to finance debt service, because the Treasury collects more than enough cash to continue making those payments without any debt ceiling hike.