Here’s why Professor McConnell is right:
1. The debt ceiling is a consolidation of borrowing authorization that Congress has always exercised.
When reviewing the debt ceiling’s constitutionality, it’s important to recognize that what is now called the “debt ceiling” or “debt limit” was actually created as an expansion of the Treasury Department’s ability to borrow, rather than a constraint on it. As the Congressional Research Service noted in a 2008 report, before World War I, Congress “authorized specific loans” and “allowed the Treasury to issue specific types of debt instruments.”
This practice in which Congress approved specific loans and debt instruments did not change in the five decades after the adoption of the 14th Amendment in 1868. As the CRS report noted, Congress approved specific borrowing to finance construction of the Panama Canal in the 20th century’s first decade. It wasn’t until the Second Liberty Bond Act of 1917 that, as the report describes, “Congress enacted aggregate constraints on certificates of indebtedness and on bonds that allowed the Treasury greater ability to respond to changing conditions and more flexibility in financial management.”
But what hasn’t changed is the constitutional requirement that the dollar amount of the nation’s borrowing can be approved only by Congress. As McConnell put it: “The ‘debt ceiling’ is simply the limit Congress has imposed on how much money the country may borrow. The executive branch cannot constitutionally borrow a dime in excess of this amount.”
2. Perry v. United States may require paying bondholders first, but it does not allow the issuing of new debt without congressional authorization.
So far, the new constitutionalists have found just one Supreme Court case that purportedly supports their case for borrowing without congressional authorization: Perry v. United States, 294 U.S. 330 (1935), a case challenging the Roosevelt administration’s repudiation of a “gold clause” in a U.S. bond. But the Court’s opinion in this case reaffirms that only Congress can approve the issuance of new debt. “In authorizing the Congress to borrow money, the Constitution empowers the Congress to fix the amount to be borrowed and the terms of payment,” the Court stated.
The Court also ruled that the U.S. government can’t shirk its obligations to bondholders from existing debt, a point that, if held as binding precedent, works to conservatives’ advantage. As Professor Baker noted, the ruling is somewhat ambiguous. The plurality opinion did not rule that the plaintiff was entitled to payment in gold, but merely upheld the obligation of the government to pay the bondholder in “legal tender currency,” which was the government was already offering.
Nevertheless, the case did hold that the 14th Amendment’s language concerning “the validity of the public debt” went beyond the Civil War debt that had been one of the amendment’s motivating factors. “Having this power to authorize the issue of definite obligations for the payment of money borrowed, the Congress has not been vested with authority to alter or destroy those obligations,” the court ruled.
Given the Court’s ruling in this case that while only Congress can approve new borrowing, the government is obligated to pay existing debt, it is plausible to argue that the Constitution requires the Treasury Department to set up debt-ceiling contingency plans along the lines proposed by Senator Toomey in his “Full Faith and Credit Act.” By ensuring that creditors are paid first, this law would both fulfill the government’s obligations under Perry and reassure the market that a breach of the debt ceiling does not mean a default. And as Toomey has noted, “with roughly 10 times more income than needed to honor our debt obligations,” there is little danger of default if the debt-ceiling hike is delayed.