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Senior Biden aides privately explored whether payments could continue even if U.S. breached debt ceiling

The Washington Post logo The Washington Post 10/1/2021 Jeff Stein, Tyler Pager

Senior White House officials privately explored as recently as this week whether the Biden administration could continue making payments even after the federal government breaches the nation’s debt ceiling, according to three people familiar with the matter.

The review concluded that the White House would be unable to avoid falling behind on obligations and catastrophic economic consequences even if the administration effectively tried to spend in defiance of the debt ceiling, according to one of the officials familiar with the deliberations.

The debt ceiling sets a legal limit on how much the Treasury Department can borrow, and the government will run out of flexibility to avoid breaching the debt ceiling on Oct. 18.

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As part of their internal review, White House officials have circulated internal memos with a range of untested theories should Congress fail to resolve the debt ceiling standoff, including the creation of a $1 trillion “coin” idea that has been popular among some liberals for years, the people said. But these options have been set aside as unworkable, the people said.

The previously undisclosed talks reflect the extent of planning within the administration over the debt ceiling as lawmakers in Congress remain at odds over the GOP’s refusal to provide votes to address the matter. Administration officials have increasingly pleaded with Congress to raise or suspend the debt ceiling as soon as possible, though Republicans have refused to help Democrats lift the borrowing cap.

Yellen tells Congress that U.S. will run out of debt ceiling flexibility on Oct. 18

A senior official familiar with the matter said it was the administration’s responsibility to review all possible options. Still, White House officials have reached the conclusion that unilateral action is not viable and the only way to avoid economic devastation is for Congress to act to maintain the full faith and credit of the U.S. government, according to the officials and Michael Gwin, a White House spokesman.

“There is only one viable option to deal with the debt limit: Congress needs to increase or suspend it, as it has done approximately 80 times, including three times during the last administration,” Gwin said in a statement.

The reemergence of the debt ceiling as a major flash point has become a source of frustration to numerous Democrats as they try to pass the party’s sweeping economic agenda. Congress spends more money than it takes in through revenue, and authorizes the government to make up the difference through new borrowing. The debt ceiling caps the amount of borrowing that can be authorized, and its suspension in 2019 lapsed in August. Since then, Treasury officials have essentially shuffled funds around to meet the nation’s payment obligations — but say they will run out of the ability to do so on or after Oct. 18.

The debt ceiling fight, explained

If the debt ceiling isn’t raised, something that has never happened before, Treasury’s ability to issue new debt to pay its bills will be severely constrained. That means it will likely lack the cash flow to make all of its payments, which include things like interest on the debt and social welfare benefits.

As the debate over how to proceed bogged down on Capitol Hill, the administration has examined a wider array of backup possibilities on the debt ceiling than has been publicly recognized.

One legal theory that was reviewed is based on the idea that Congress in the event of a debt ceiling breach will have passed essentially irreconcilable laws. That is because the debt ceiling sets the maximum amount the Treasury can borrow to pay its obligations. But Congress has also simultaneously approved legislation requiring the federal government to spend more than the amount authorized by the debt ceiling.

According to some legal experts, the administration might then say the laws are in conflict, forcing the administration to pick between them. In that case, the administration would maintain that continuing payments is the best of two options — either of which would put them in defiance of congressional statute. This theoretical possibility has been discussed by at least two high-ranking Biden aides in conversations in recent days, but ruled out because they believed it would be devastating for the country, said the people, who spoke on the condition of anonymity to discuss the sensitive internal deliberations.

The people involved in discussing this theory stress that they are not saying the White House would have the authority to unilaterally ignore the debt ceiling. They are also adamant that such a measure is not constitutional, and say it could still lead to enormous financial and economic damage. But, they say, should the administration reach the “X Date” — after which Treasury can no longer meet all its payment obligations — continuing to spend in defiance of the debt ceiling may be plausible if not necessary.

“They would have two choices — each of which is unconstitutional,” one of the people aware of the discussions said. “This is the theory of the ‘less constitutional choice’: If the president did this it would violate the constitution, but to not do it would violate the constitution even more seriously.”

Former GOP treasury secretaries tried defusing debt ceiling bomb in private talks with McConnell, Yellen

Some legal scholars have pointed to the Constitution’s 14th Amendment, which states that the “validity of the public debt of the United States … shall not be questioned.” The Obama administration also extensively reviewed this option during the debt ceiling standoff of 2013. But some legal experts say the 14th Amendment would not have to be cited for the administration to say it has to fulfill its spending obligations under congressional mandate.

“In my view, all the options under these circumstances are illegal if the administration is told to do something and also not do that very same thing,” said Michael Dorf, a constitutional law expert at Cornell University, who said he has not been in communication with lawmakers about the matter.

“The view is often misattributed to me that it would be no big deal for the president to issue debt [after a debt ceiling breach]. It would be a big deal. It would be quite terrible and very likely would spook the markets. But the question is what to do if the spending and borrowing laws are inconsistent. I’ve expressed the view that the least bad thing to do under those circumstances would be to issue debt.”

Laurence Tribe, a Harvard legal expert, told The Washington Post in September that while it would violate the Constitution to ignore the debt ceiling it would be an “even more serious” violation for Biden to obey it if that meant violating the 14th Amendment. Tribe on Twitter earlier this week stressed that the president’s “possible authority to spend above the debt ceiling” should not encourage anyone in Congress to take the risks of breaching the debt ceiling.

“For anyone to rely on a president’s possible authority to spend above the debt ceiling on his own to avoid default as an excuse not to raise the debt ceiling would be lunacy,” Tribe wrote. “Casting doubt on the legal status of US securities would spike interest rates and crash the stock market.”

Biden administration officials such as Treasury Secretary Janet L. Yellen insist that responsibility for averting the debt ceiling cliff lies with Congress. But even though Congress approved a funding measure to keep the government open, the debt ceiling standoff appears to have no imminent resolution.

Republicans have in recent days emphasized that Democrats use the budget reconciliation procedure to approve the debt ceiling hike without GOP votes. “There is no chance — no chance — the Republican conference will go out of our way to help Democrats conserve their time and energy,” Senate Minority Leader Mitch McConnell (R-Ky.) said earlier this week.

Congressional Democrats, however, have been adamant they will not pursue that route. “We’re not doing the debt ceiling through reconciliation. Period. End of discussion,” Warren Gunnels, a senior aide to Senate Budget Chairman Bernie Sanders (I-Vt.), said in an interview. Rep. Hakeem Jeffries (D-N.Y.) told Axios on Thursday there “hasn’t been discussion yet” over canceling House recess to address the debt ceiling.

Inside the Biden administration, officials have been focused on public and private outreach to warn of the dire consequences of defaulting on the debt. Yellen has become the public face of the effort, speaking regularly with members of Congress, business leaders and former government officials from both parties.

Yellen started writing public letters in July about the need to address the debt ceiling, and officials said the administration’s rhetoric has only increased in urgency since then. For the past month, the White House has held a daily coordination meeting on the debt limit with officials from Treasury, Commerce and the Office of Management and Budget. The White House has also worked to sync up messaging with House and Senate leaders, but officials said they have deferred to Congress on procedural steps.

Liberals such as Reps. Rashida Tlaib (D-Mich.) and Jerrold Nadler (D-N.Y.) have also proposed minting a “trillion-dollar coin” that would allow Treasury to continue to pay its bills. Yellen ruled out that approach in her testimony.

“I believe the only way to handle the debt ceiling is for Congress to raise it and show the world, the financial markets, and the public that we’re a country that will pay our bills when we incur them,” Yellen said.

Still, Yellen also said Thursday that Congress had put the administration in an impossible place, and that lawmakers should abolish the debt ceiling as a result.

“When Congress legislates expenditures and puts in place tax policy that determines taxes, those are the crucial decisions Congress is making,” Yellen told the House Financial Services Committee on Thursday. “If to finance those spending and tax decisions, it’s necessary to issue additional debt, I believe it’s very destructive to put the president and myself — the treasury secretary — in a situation where we might not be able to pay the bills that result from those past decisions.”

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