The debt ceiling debate in Washington raises economic and constitutional questions that are not easily answered.
Currently, the maximum amount of money the country can borrow is $14.3 trillion. The United States is on track to default on its debt if this limit is not raised by Aug. 2.
The two parties have very different ideas on how to do this.
Both sides acknowledge spending cuts will need to accompany a hike in the debt limit, but the divide is over taxes.
“What (President Barack Obama) is saying is (that) we need a balanced approach, and if we are going to ask seniors and our military and others to sacrifice, we should be able to ask people who are getting a tax loophole to pay for corporate jets to sacrifice a little bit as well,” said Andrei Cherny, chairman of the Arizona Democratic Party. “I don’t think that’s too much to ask.”
Tom Morrissey, the Arizona Republican Party chairman, emphasized fiscal responsibility on government spending. “The government has to live like the country — you can’t spend what you don’t have it. We absolutely cannot raise taxes. The country brings in more than enough money. It’s not about bringing more money in, but the way (that money) goes out,” he said.
When asked about possible cuts to social programs, like Social Security, he referred to them as “scare tactics by the Democrats.”
“Now is the time where we have to stand and stand firm on principles that are good for our country,” Morrissey said.
As the politicians in Washington play chicken with the nation’s financial future, both experts and East Valley residents are searching for answers.
“The problem with debt today is not the current level but the fact that since about 1980, we have not taken advantage of opportunities to reduce it — and at present, we have no long run plan to reduce it,” Dennis Hofmann, director of the L. William Seidman Research Institute and a professor of economics at ASU’s W.P. Carey School of Business, said in an email.
Even though spending started to decrease as a share of gross domestic product at the end of the 1990s, it picked up in the 2000s and the debt has risen ever since.
Defaulting is not an option, but those who argue it wouldn’t hurt the country are doing so for pure political reasons, Hofmann said. He suggested a sensible deficit-reduction passage would have $2 in cuts and $1 in tax increases for every $3 of deficit reduction.
If the government defaults, it would be very hard for the United States to secure new loans.
“(The federal government) would get very high interest rates (on new debt) or would not get any at all,” said Berthold Herrendorf, also a professor of economics at the W.P. Carey School of Business.
The government would have to square any remaining debt by making significant budget cuts or raising taxes, which may pose a problem to the economy and its fragile recovery.
A U.S. default would affect payrolls in both the public and private sectors and could be much worse than the financial crisis that snowballed in 2008.
“Of course there would be no assurance of any government bailout this time so it is hard to envision where the bottom would be, but certainly worse than the spring of 2009,” Hofmann said.
Arizona stands a lot to lose from any budget cuts that may accompany a raise in the debt limit.
“If you want to balance the budget you get the chance to cut either military spending, Social Security, or Medicare and Medicaid,” Herrendorf said.
The Department of Defense has a large number of contracts with Arizona companies, so any significant cut to defense funding would have a significant impact on Arizona’s economy.
Cutting entitlement programs would hurt mainly the elderly and poor, and a sizeable portion Arizona’s population is older.
East Valley residents tended to personalize the results of a default on the country’s debt.
“I’m always concerned with how the economy is faring because it results in the amount of ticket sales and the number of endowments and grants we can get,” said Sam Kreidenweis, an ASU opera performance graduate student.
“If they have to cut somewhere, it will be from trying to support things like the arts,” he said.
When cutting spending or raising taxes, Kreidenweis asked, “What do you call ‘wasteful spending?’ ” he asked. “I think there will have to be some compromise where certain taxes are raised and certain benefits for social programs get cut.”
Greg Frost, president of Kearney Electric and an East Valley resident, sees no other way out of this situation than a higher debt limit. “I think they will have to raise it,” he said.
Frost cited the value of the dollar as one of his main concerns.
This debate also raised concerns that the debt ceiling is unconstitutional — which, if found to be true, would fundamentally alter the way Congress appropriates money.
Those that argue this point to Section 4 of the Fourteenth Amendment, which reads: “The validity of the public debt of the United States, authorized by law, … shall not be questioned.”
Because the nation’s debt “shall not be questioned,” advocates of this viewpoint believe the president, who was a constitutional law professor at University of Chicago Law School, would have a stronger hand in the debt ceiling negotiations if he used this strategy.
However, Paul Bender, a professor of constitutional law at ASU’s Sandra Day O’Connor College of Law, is not buying it.
“The Fourteenth Amendment is about the debt that was incurred during the Civil War. It can be read to be more general, but I don’t think the Court would do that,” he said.
Moreover, by using the Fourteenth Amendment as a way to declare the debt ceiling unconstitutional, more questions are raised than answered.
“Even if you think this applies, it says that the debt shall not be questioned. It doesn’t say that the president has the right to ignore Congress’ imposition of a limit on the debt,” he said.
But Bender did not completely deny the possibility of Obama bypassing Congress. His justification rests on a much simpler notion.
This idea says the president has taken an oath to execute the laws of the land, and that if this requires borrowing, then Congress cannot impose the debt limit on him.
“He could argue, and I think he’s got a pretty strong argument, that Congress cannot impose the debt limit on him as president because he is chief executive and he has taken an oath to effectuate, take care of the law and faithfully execute it. It’s his job,” Bender said.
Part of his role as chief executive is to borrow money, if necessary, to carry out the appropriations Congress has passed.
This power would not likely be seen as overreach, rather it is part of the theory of separation of powers — Congress passes certain laws mandating spending and the president must carry them out.
If, however, a law was passed to restrict spending, then the president must then adapt and not spend as much on a given program or government department.
The theory for this comes from a concurring opinion of the Supreme Court case Youngstown Sheet & Tube Co. v. Sawyer written by Justice Robert Jackson. In this case, President Harry Truman seized the steel mills during the Korean War because he thought the workers were about to strike.
“A concurring opinion by Justice Jackson set out a theory that most people seem to accept, which says there are certain things that the president’s executive has the power to do even when Congress tells him not to. The things that are at the core of the executive function, he has to be able to do,” Bender said.
The Court held that Truman had overstepped his bounds, but the argument can be made that borrowing money to follow the laws is part of the executive’s power and could therefore fall into this category.