Scholarship@WashULaw

Document Type

Article

Language

English (en)

Publication Date

2024

Publication Title

Washington University Law Review

Abstract

Every couple of years, it seems, the debt limit shows up to wreak havoc in American law and public finance. By capping the face value of government securities that can be “outstanding at one time,” the statutory limit regularly threatens the Treasury’s ability to raise the revenue needed to fund required government spending. Brinksmanship over the limit has shut down the government, cost the country billions of dollars, and mired financial markets in uncertainty. And yet, despite its obvious and longstanding importance, the limit remains poorly understood. Commentators attribute its beginnings to 1917 and 1941, before which it is assumed that Congress itself designed each debt instrument and did so only during rare emergencies. For some, the presumed recency of the limit makes it easy to dismiss. It is regarded as a quixotic provision that can and should yield to more significant spending mandates, or a provision that is itself unlawful—at odds with the Fourteenth Amendment’s cryptic command that public debts “shall not be questioned.” For others, the limit is regarded as either a cataclysmic threat to the financial system, or a necessary hindrance to runaway government spending, or both. We are warned, by politicians and commentators alike, that a binding debt limit will lead to default, and the cratering of the American economy—and also that having no limit would be an “irresponsible” concession to our profligate spending instincts.

But each piece of this conventional wisdom is wrong. Debt limits— authorities for the Executive Branch to borrow that come with limits attached—have existed since 1790, and flow naturally from the Constitution’s reservation of the borrowing power to Congress. I provide a corrective account of those early limits and draw on public laws and Treasury borrowing records to provide an overview of the Executive Branch’s borrowing authority between 1790 and 1910. That historical excavation has important doctrinal and policy implications for how we think about public finance today and helps clear the myth and confusion surrounding the debt limit. Under current doctrine, the limit is lawful. It is a form of statutory direction and commitment that was common at the ratification of both the Constitution and the Fourteenth Amendment. The limit is binding. When the limit conflicts with spending provisions, longstanding practice suggests that it is spending—and not the limit—that must yield. And, finally, the implications of the modern limit remain woefully misunderstood. There is no good reason to think that default follows from a binding limit: tax revenue is more than sufficient to cover debt service. But there is excellent reason to think that the modern limit has become so divorced from its original appropriations purpose—which was to make spending cheaper, not harder—that the case for reform is ripe.

Keywords

Debt Limit, Treasury, Tax Revenue, Government Spending, Debt Service

Publication Citation

Conor Clarke, The Debt Limit, 101 Wash. U. L. Rev. 1417 (2023)

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