Saturday, July 30, 2011

Debt Ceilings, the Constitution, Taxation, Spending: Some Analysis

The debt ceiling talks continue in Congress, as the August 2 deadline approaches. Some commentators and politicians have urged President Obama to consider paying the nation's debt by invoking the Fourteenth Amendment as a source of power. Section Four of the Fourteenth Amendment states that: "The validity of the public debt of the United States, authorized by law, including debts incurred for payments of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned." This provision was intended to guarantee that the nation paid all of its debts related to the Civil War. But contemporary Supreme Court doctrine does not limit the Fourteenth Amendment to its original meaning.

Although the validity of a Fourteenth Amendment option remains unclear, a colorable argument exists to justify Obama paying the nation's debt despite the existing statutory limit. Obama, however, has said he does not wish to pursue this path. Even if he does so, it is unclear whether the federal courts would resolve the issue. In order to bring a suit in federal courts, plaintiffs must have standing. Supreme Court precedent, however, has denied standing to individual lawmakers seeking to challenge the constitutionality of executive action and federal statutes. Given this precedent, it is quite likely that the courts would not review the constitutional questions associated with this controversy. Absent judicial intervention, the matter would remain with Congress and the Executive to decide.

Once the debt ceiling drama has subsided, the nation needs to engage in a very meaningful (i.e., not theatrical and immature) discussion of its priorities. Support for deficit reduction is very high. Support for cutting entitlement spending and raising taxes are very low. These two positions are in conflict.

The largest budgetary items include Medicare, Medicaid, Defense and Social Security. Yet, Republicans have focused their most recent rhetoric on the costs of federal workers, while Democrats have blasted corporations that do not pay taxes. These items, however, only represent a fraction of federal expenditures and revenue. Unless the big ticket items receive attention, then spending will never fall significantly.

Furthermore, it is abundantly clear that the tax cuts that Congress passed during the Bush era -- and which Congress extended during Obama's presidency -- have also contributed to the deficit. Republicans generally do not want to repeal the tax cuts, and the public has historically disfavored anything that signals tax increases. Nevertheless, decreasing revenue has the same impact on the budget as increasing spending. They both go in the "negative" column. Indeed, as FactCheck has analyzed, the deficit is at an historically high level because tax revenue is historically low and spending is historically high. There is room for both parties to concede ground.

Finally, the role of the recession in enlarging the deficit needs further analysis. The recession has caused government revenue to plunge. Fewer people are working, and business activity has dropped sharply. Consequently, tax revenue has also declined. The decline in revenue has increased the deficit as well. Part of the deficit situation is therefore only a momentary issue. When the economy becomes healthy again, revenue will increase, which will alleviate the strain on the federal budget. Moving the economy beyond the recession must therefore become part of any discussion about curbing the level of the deficit.

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