THE NEXT DEBT CEILING AND BALANCED BUDGET AMENDMENT DEBATES: DOING THEM RIGHT. MAKING IT REAL – Part 3 (The Limits of Partisan Brinksmanship)

By Anthony W. Hawks

“… we can no longer let partisan brinksmanship get in our way ….”

– President Obama’s Weekly Address http://www.whitehouse.gov/the-press-office/2011/08/13/weekly-address-putting-american-people-first (August 13, 2011)

The greatest strength of Tea Partiers during the debt ceiling debate was its unity in the brinksmanship needed to close the final deal. This brinkmanship, however, will soon become a liability if it is only leverage that the Tea Party can exert. Since it is the public that feels endangered by the threat of default or a government shutdown, resorting to brinksmanship on these occasions will inevitably alienate voters and undermine the Tea Party message of smaller government and fiscal responsibility.

This does not mean that such brinkmanship is the same thing as “extortion” or “hostage-taking” or any of the other hyperbolic epithets hurdled at the Tea Party when it became apparent that they meant what they were saying. As Professor Eugene Volokh has pointed out on the Volokh Conspiracy legal blog, a genuine extortion or hostage-taking victim simply wants to be left alone. The analogy loses all validity and persuasiveness when it is the so-called victim that is making demands, or as Professor Volokh put it: President Obama and his supporters “wanted the conservative legislators to cast their votes to authorize a debt limit increase. They wanted taxpayers to be on the hook for repaying an increased national debt. They wanted people’s cooperation, and were then complaining about the conditions that the people imposed for such cooperation.”

The proper analogy is not to “extortion” or “hostage-taking,” but to the “holdout” problem in land condemnation cases. Whenever private land is needed for a truly public project, the government must have the power of eminent domain to prevent holdouts from exploiting this need to extract unjust compensation. President Obama needed the cooperation of Tea Party legislators to raise the debt ceiling, but obviously felt that they were demanding too much in return, particular their refusal to accept a tax increase.

Viewed from the “holdout” perspective, what House Republicans did in the debt ceiling vote was no different from what legislators of both parties have always done in a close vote: they hold out for something greater than what they would have gotten by agreeing earlier in the process. Remember the “Cornhusker Kickback” during the ObamaCare debate, when Senator Ben Nelson demanded a Medicaid carve-out for Nebraska? Or when Senator Bernie Sanders took credit for $10 billion in new community health center funding? Or when the President had to promise Senator Mary Landrieu an extra $300 million in Medicaid funding for Louisiana to win her ObamaCare vote?

The only substantive difference between these hold-out senators and the Tea Party legislators – and it is a crucial difference indeed – is that the Tea Partiers were principled enough to resist the type of “sweetheart deals” that got ObamaCare passed. The vitriol against the Tea Party only came out when President Obama and his supporters on Capitol Hill and in the media realized that (1) no “sweetheart deals” were available and (2) there was no equivalent power of eminent domain to force a compliant vote to raise the debt ceiling.

Lacking the power to force a deal, President Obama had to meet the “no tax increase” demand because he could not be certain how close to the default brink the Tea Party legislators were willing to go. This was reminiscent of President Reagan’s success on Inauguration Day 1981 in making Iran believe that he was unstable and angry and ready to attack if the American hostages were not released. President Reagan also recognized the limits of this strategy, however, and never repeated it.

Similarly, the public at large will not endure brinksmanship every time the debt ceiling must be raised or the new fiscal year starts without the passage of appropriations bills. The public knows that the harm from an actual default or a prolonged government shutdown will fall on them rather than the political class in Washington. Still we did learn a valuable lesson from the success of the Tea Party in facing down President Obama and the Democratic leadership in Congress.

What made brinksmanship over the debt ceiling an effective strategy this last time was fear of the unknown. Since default by the Treasury is an unprecedented event, no one can accurately predict the effect of an actual default on the economy and our financial markets. (Note: A technical default occurred in 1979 when the Treasury made a few late payments, blaming technological glitches, but the noteholders were soon paid in full.) If Tea Partiers want to make the national debt limit a real “ceiling,” they must do more than show their own lack of fear over a potential default. They must eliminate, or at least greatly diminish, the public’s fear of the unknown if the debt ceiling is not raised.

This goal can only be accomplished by establishing a payment priority plan before the debt ceiling has to be raised again. Indeed, the most remarkable aspect of the recent debt ceiling debate was the absence of commentary over this “elephant in the room”: Who get paid first if the Treasury has insufficient funds to cover all of its debts and other obligations?

It was not until very late in the process that we started seeing news reports like this July 27, 2011 New York Times article, “Treasury to Weigh Which Bills to Pay,” which informed us only that Treasury officials “would address the issue [of payment priorities] later this week unless it became clear that Congress would vote by Aug. 2 to let the government borrow more money.”

Since a debt ceiling deal was reached on August 2, we never found out what the Treasury’s payment priority plan actually was, but we did learn that the President was willing to engage in his own “partisan brinksmanship.” This brinksmanship occurred when Administration officials “said repeatedly that Treasury does not have the legal authority to pay bills based on political, moral, or economic considerations…,” meaning that Treasury supposedly had no choice but to make payments in chronological order as they came due. We do not know if President Obama really meant this, but it certainly allowed him to scare the American public by suggesting that Social Security benefits might not be paid because they did not always come due first.

While the President’s warning might have been true for many popular programs, it was patently false for Social Security because securities in the Social Security Trust Fund could always be redeemed to pay for monthly retirement and disability checks. President Obama was apparently unaware that the national debt limit applies to both debt held by the public and intra-governmental debt (such as the Trust Fund). Thus, the Administration could have cashed in Trust Fund securities by selling more debt to the public without breaching the debt ceiling since the intra-governmental debt would have been reduced by an amount equal to the increase in public debt. For more on this issue, see here, here, and here.

This still leaves the crucial question is whether, as a matter of law, the President does indeed have the authority to abandon the chronological “payment when due” rule and set payment priorities on his own discretion, at least in the absence of a payment priority statute. Remarkably, not only is there no definitive legal opinion resolving this issue, but there does not appear to be a published article or detailed analysis even discussing the issue! (If readers know of one, please bring it to my attention.)

Even if the President does have such legal discretion, there are no official guidelines or criteria by which this discretion would be exercised. Hence the fear of uncertainty that transformed a routine increase in the debt ceiling into brinksmanship over the first genuine Treasury default in our nation’s history.

If the Tea Party truly wants to use the debt ceiling statute (or a debt ceiling provision in any future Balanced Budget Amendment) for budget leverage in the future, then it has to take up this issue of a payment priority plan. The politics and law of such a plan will be the focus of the next and final post in this series.

Copyright © 2011 Anthony W. Hawks. All rights reserved.

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About Radnor Reports

Ken Feltman is past-president of the International Association of Political Consultants and the American League of Lobbyists. He is retired chairman of Radnor Inc., an international political consulting and government relations firm in Washington, D.C. Feltman founded the U.S. and European Conflict Indexes in 1988. The indexes have predicted the winner of every U.S. presidential election beginning in 1988, plus the outcome of several European elections. In May of 2010, the Conflict Index was used by university students in Egypt. The Index predicted the fall of the Mubarak government within the next year.
This entry was posted in Anthony W. Hawks, Balanced Budget amendment, Constitutional law, Federal budget, National debt, Thought-Provoking Analysis and tagged , . Bookmark the permalink.

2 Responses to THE NEXT DEBT CEILING AND BALANCED BUDGET AMENDMENT DEBATES: DOING THEM RIGHT. MAKING IT REAL – Part 3 (The Limits of Partisan Brinksmanship)

  1. Bob A. says:

    you seem to know what you are talking about.

  2. James Holburn says:

    I like your blog. I bookmarked two items to my own bookmark website list and will be checking and returning soon. I hope you get more readers due to our reposting atricles from Radnor.

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