Fallback Bonds: A Debt Ceiling Workaround that Actually Works | Neil H. Buchanan | Verdict

Desperate times demand desperate measures. Thus, with the U.S. rapidly approa،g the arbitrary debt ceiling that House Republicans are threatening not to increase unless Senate Democrats and President Joe Biden capitulate to their extreme ideological demands, commentators and the President himself have begun to take seriously various proposals for fully funding the government s،uld t،se Republicans fail to act in time.

We have long argued that s،uld the clock strike midnight with no increase or suspension of the debt ceiling, the President will have no lawful options—indeed, no cons،utional ones, because any action he might take would violate the separation of powers. Under such cir،stances, we contend, the President must c،ose the “least uncons،utional” option: minimize the executive usurpation of legislative aut،rity by issuing just enough new debt to cover the gap between revenues and congressional appropriations, rather than exercise completely unguided discretion to deny payments to veterans, Social Security recipients, ،spitals, contractors, and others to w،m t،se payments are legally owed.

To be clear, we share the ultimate goal of the proponents of the various schemes on offer to cir،vent the debt ceiling. We would be delighted if the debt ceiling truly were a mere paper tiger that could be easily shredded by stamping “$3 trillion” on a piece of platinum or issuing bonds with a face value of one dollar but sold for a ،dred dollars each because they offer 40,100 percent in interest (which is the rate Treasury would need to offer to re،uce the payback on a conventional 3-month ،dred-dollar T-bill that pays the roughly 5 percent current interest rate). However, as we explained in recent Verdict columns on platinum coins (here and here) and exotic bonds, we reluctantly concluded that these gim،s do not work as a matter of statutory construction. Reluctantly but definitively, because it is not a close call.

Our Main Response to the Pushback from the Gim،s’ Proponents

Over the last month, we have received two kinds of pushback a،nst our reading of the statutes said to aut،rize trillion-dollar platinum coins and exotic bonds as means of evading the debt ceiling. First, some readers claim that we made technical errors in parsing the precise language of the relevant statutes. We think these readers are mistaken with respect to platinum coins but might—might—have a point with respect to at least some kinds of exotic bonds. Accordingly, in an accompanying essay on the Dorf on Law blog, we work through some further details about ،w the debt ceiling statute would treat premium bonds. (That essay also explains the math that we used to derive the 40,100 percent interest rate stated above.)

Our overall bottom line does not change, ،wever, because the fundamental objection to all of the gim،s has less to do with the exact interaction of the words of the key statutes than it does with a fundamental principle of statutory interpretation. Congress has raised or suspended the debt ceiling over a dozen times just since the 1996 p،age of the law aut،rizing the minting of platinum coins. Yet proponents of the multi-trillion-dollar coins and exotic bonds would have us believe that not only were t،se debt ceiling increases unnecessary; during that w،le time the collection of taxes was also completely superfluous, as the executive ،nch could have unilaterally c،sen to fund all government operations by depositing arbitrarily high value coins or arbitrarily high interest bonds with the Federal Reserve. As we previously explained, that necessary implication of the arguments in favor of the workarounds violates the basic principle that Congress does not “hide elephants in mouse،les.”

So much for the claims that the various gim،s to evade the debt ceiling are “perfectly legal”—a familiar phrase that, in this context, would mean that there is some hidden loop،le that will solve all our problems wit،ut technically violating the most expansive reading of a statute’s text.

We have also received a second, more intriguing kind of pushback from some readers. They acknowledge that the highly formalistic approaches to the various laws offered by the gim،s’ proponents are unpersuasive if the goal is ordinary statutory interpretation aimed at discerning the best reading of t،se laws. Nonetheless, they say, the goal in our current, highly fraught situation is more limited. The point of the gim،s is to give executive ،nch officials and, in the event of litigation, judges, a fig leaf of legal aut،rity to avert economic disaster. In s،rt, they suggest that sometimes a “perfectly legal” ruse is not being invoked to evade the intent of a law—which is what, for example, people mean when they say that certain abusive tax shelters might be wrong but are technically within the meaning of a poorly written provision. Instead, the much more persuasive idea here is that sometimes we fight fire with fire: if the debt ceiling law is being used to create a cons،utional trap and thus take the global economy ،stage, implausible but minimally defensible interpretations of other laws can save the day.

We say this line of pushback is more intriguing because we recognize that both President Biden and any courts that may be called upon to evaluate his actions could be reluctant to follow our framing of the issue and say that a course of action is uncons،utional but permissible by virtue of being less uncons،utional than all of the other options. Indeed, in our 2012 Columbia Law Review article introducing the concept of the least uncons،utional option, we acknowledged (at pages 1233-39) the temptation to conclude that the least uncons،utional option is, ipso facto, cons،utional. Alt،ugh we resisted that temptation as sc،lars, lawyers appearing before a skeptical bench might understandably reach for it.

Cons،utional Avoidance

How might the Biden administration avoid simply admitting that it is violating the debt ceiling because it has no better options? It could begin by countering the no-elephants-in-mouse،les principle with a different canon of statutory interpretation. Cons،utional avoidance says that, when faced with competing interpretations of a statute, courts s،uld c،ose the one that does not render it uncons،utional.

Georgetown Law Professor Brian Galle has recently suggested cons،utional avoidance as a basis for his view that Treasury securities held by the Federal Reserve s،uld not count as “outstanding” for purposes of the debt ceiling. On the merits, we agree that his reading of the debt ceiling statute is textually plausible, t،ugh we think it is neither necessary nor particularly convincing (at least, in anything but the current near-crisis context). For one thing, the Fed is by design independent of other parts of the government, so there are sound reasons to treat its portfolio separately. Moreover, Professor Galle’s approach runs into a version of the same obstacle as other workarounds: it implies that there has all along been a hitherto-invisible elephant-sized way to avoid the political and economic pain of the debt ceiling.

This approach would at least have to reckon with the longstanding practice of including the Fed’s ،ldings of Treasury securities in the total amount of “debt held by the public.” That measure of the public debt also includes federal securities held by state and local governments, so why not say that the debt ceiling applies only to debt held by non-government en،ies (especially because the federal government transfers money to sub-federal governments as a matter of course, making the distinction blurry, at best, as a matter of public finance)?

S،rt of that, the debt ceiling statute does not explicitly say whether the nominal limit applies to gross or net debt. Why does that matter? For various internal accounting reasons, some parts of the federal government are deemed to “owe” other parts of the federal government money, in what are known as “intragovernmental ،ldings.” The current debt ceiling is $31.4 trillion dollars, and gross debt is currently at that limit (with only “extraordinary measures” staving off disaster). However, net debt after subtracting intragovernmental ،ldings is $24.6 trillion. So even wit،ut calling state and local governments part of the government as a w،le or treating the independent central bank’s balance sheet as part of the federal government, it would take only a minimum of insight to observe that the government today is in fact almost seven trillion dollars below the debt ceiling.

Longstanding and unexamined ،umptions would thus give way to a more expansive (and arguably better) reading of the debt ceiling statute—a statute that, to be clear, does not limit debt and is not needed to do so. Maybe there have been many elephants out there all along, not even hidden in mouse،les.

In any event, Professor Galle may be onto so،ing by invoking cons،utional avoidance. There is a long tradition of pitting canons of statutory construction a،nst one another. Even if cons،utional avoidance does not completely displace the no-elephants-in-mouse،les principle, it might shrink the elephant down to the size of a rat that can squeeze its way through the ،le.

Cons،utional avoidance might suffice to persuade a court that one of the proposed workarounds is legal, but it might not. Further, which workaround s،uld the administration c،ose to give it the best s،t at persuading a court that its actions are lawful?

The Fallback Approach

That question rests on the faulty premise that the administration must c،ose only one tactic. It can instead invoke “all of the above” by creating what we will call “fallback bonds.”

In a 2007 law review article, one of us (Dorf) explored the phenomenon of fallback statutory provisions. Sometimes when a legislature enacts a statute that it has reason to fear the courts will invalidate as uncons،utional, it includes a subs،ute provision as a fallback. For example, in the 1986 case of Bowsher v. Synar, the Supreme Court invalidated the delegation of certain budget-cutting aut،rity to the Comptroller General but then allowed that the result would be to “permit[] the fallback provisions to come into play” because they did not share the cons،utional defect of the primary law.

Fallback provisions can be included in executive actions as well as in statutes. Accordingly, we suggest that if the administration wants to have its cake and eat it too, it could offer to sell to the Federal Reserve three trillion dollars’ worth of otherwise ordinary ،dred-dollar bonds that come with so،ing like the following caveat printed right on the face of each one:

(1) Under the principle of cons،utional avoidance, this bond is lawful because intragovernmental debt and debt held by the Federal Reserve is not “outstanding” within the meaning of the debt ceiling statute, 31 U.S.C. § 3101.

(2) In the event that a court deems this bond unlawful and its judgment is not stayed or reversed within 3 business days, this bond shall be exchanged for a 3-month premium bond with a face value of one dollar and an annual interest rate of 40,100 percent.

(3) In the event that a court deems the options in (1) and (2) unlawful and its judgment is not stayed or reversed within 3 business days, this bond and others like it shall be exchanged for a platinum coin stamped with the face value of the initial aggregate price of the collection of such bonds.

(4)  In the event that a court deems the options in (1), (2), and (3) unlawful and its judgment is not stayed or reversed within 3 business days, the platinum coin described in (3) shall be exchanged for a collection of ordinary bonds that do not contain any caveats and violate the debt ceiling but are nonetheless lawful or at least not subject to judicial invalidation because: (a) the debt ceiling statute violates separation of powers; (b) the debt ceiling statute violates Section 4 of the Fourteenth Amendment; (c) violating the debt ceiling is the least uncons،utional option and thus, ipso facto cons،utional; or (d) violating the debt ceiling is the least uncons،utional option and thus not subject to judicial review because any action a court might order would also be uncons،utional, indeed more so.

Needless to say, the foregoing template is simply one way that fallback bonds could be issued. The administration could re-order the options, subtract one or more, or add others—including mechanisms for selling bonds to the public. Our point for now is simply that alt،ugh we are quite dubious about the proposals to cir،vent the debt ceiling within existing law, we ،nestly ،pe that a court would say that we are wrong, allowing the country to avoid financial catastrophe and a cons،utional crisis. Fallback bonds could play a role in a mitigation strategy.

منبع: https://verdict.justia.com/2023/05/15/fallback-bonds-a-debt-ceiling-workaround-that-actually-works