Failing to raise the debt ceiling does not cause default, and how the President can turn it to his advantage

Byline: | Category: Economy, Taxes & Spending | Posted at: Wednesday, 13 April 2011

I’m seeing some alarmist rhetoric from both sides of the aisle that the failure to raise the debt ceiling will lead to all kinds of calamities, from default, to inflation, to earthquakes, and unwanted facial hair.

None of it is true.  All that would be required is that the Treasury couldn’t issue debt above its current limit.  Sure, the current budget “obligates” the President to spend a few hundred billion dollars above that amount by the end of this fiscal year.  But therein lies an opportunity for the President.

From 1803 to 1974, this would not have been a problem.  Through the magic of something called “impoundment,” Presidents spent less than the budget authorized virtually every year of the nation’s existence.  Like a lot of questionable laws at the height of the Watergate era, impoundment ended when Congress short-sightedly took powers from President Nixon.  Impoundment basically meant that the President didn’t have to execute all spending that was authorized in the budget.  Since 1974, and since the Supreme Court’s ruling in Train v. New York City upholding the anti-impoundment law, the full budget must be executed.  Anyone who has worked any length of time in the Federal government knows the foolishness that this can cause.  During the last weeks of September, before the close of the government’s fiscal year, all kinds of frivolous spending ensues because the money HAS to be spent. 

So here’s how the President wins by losing.  If the debt ceiling isn’t increased–something I advocate, but that’s beside the point–Obama immediately announces his impoundment plan.  It wouldn’t be hard.  He only has to trim spending from mid-May, when the ceiling is expected to be reached, to September to get through this budget year.  There are tens of billions of dollars of easy cuts he can make to GOP programs.  Those would be the first on the list.  Next up would be the Department of Defense.  As a lifelong Army officer, I’m here to tell you that I could drop a quarter trillion dollars out of the defense budget and make the military MORE effective as a result.  The waste is astounding and it begins at the top with the military’s heavily bloated senior leadership.  Contracts and commands would be the first to go.

So all the President has to do is to come up with his list of items he won’t buy and then send it to Congress as a rescission.  A rescission is a request to rescind certain items from the budget.  According to the 1974 law, Congress has 45 days to act on it or, without action, the spending must go into effect.  So that’s 45 days that a GOP House has to squirm under the klieg lights of fiscal discipline.  It won’t be comfortable for them.  Sure, Congress could respond with their own list of rescissions, but that then requires a Presidential signature, so negotiations would ensue. 

Meanwhile, the President still holds the upper hand.  That’s because, he is under the direction of two different laws in direct conflict with each other.  The anti-impoundment act would require him to spend every dime of the budget, while the debt ceiling would prohibit that very spending.  And as for raising revenue to make up the difference?  Constitutionally, that’s a measure that can only originate in the House.

But what about precedent?  What about it?  Train v. City of New York never considered the situation of the President exercising his impoundment authority in the face of two contradictory laws.  Furthermore, using the same rationale that former Justices Rehnquist and Powell advanced in Goldwater v. Carter–that is, that essentially political disagreements between the two branches of government were ineligible to be heard by the Court–I doubt that the Supreme Court would even take the case.  That would leave President Obama with the upper hand in his effort to control whatever it was that he wanted to cut from the budget until he and Congress were able to come to some sort of agreement.

And here’s the beauty of the plan from the President’s perspective.  Pitting the anti-impoundment law against the debt ceiling limitation puts the GOP House in the position of either raising taxes or accepting Obama’s cuts to GOP pet programs.  Heads he wins; tails they lose.

Would he do it?  I doubt it.  But bully for him if he does.

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3 Responses to “Failing to raise the debt ceiling does not cause default, and how the President can turn it to his advantage”

  1. Blue Collar Muse Says:

    Bob –

    Awesome post! And great analysis … I was not aware of Impoundment. Good to know … I’ll be FBing, tweeting and linking your post …

    And thanks for your service. I know you are away again. I cannot imagine how this impacts your family. But I am grateful for your service both in print and in uniform!


  2. Deeg Says:

    Actually, that sounds like a nice way to through the back door to give a Pres a line-item veto on spending. Obama wouldn’t use it to my liking here, but if a R Congress can slash the debt ceiling, future administrations would then have to keep cutting the bureaucracy down, down, down…

  3. Matt Filler Says:

    I was thinking along the same lines, but in fact the language of the bill, which I just looked at at deals with obligation of Budget Authority given to the various agencies, by hiring and entering into contracts, not with payment of bills due under those obligations by the Treasury department. There probably is a law about that, but this is not it.

    The President could use the process Bob Krumm has outlined if he chooses to order OMB to review and prioritize all future obligations that might not be fundable without a debt increase; OMB would then submit these oblications (or extentions or continuations of oblication) to the Congress as recissions or impoundments.