Today’s Economist: Bruce Bartlett: The Politics of the 14th Amendment and the Debt Limit

Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul. He is the author of “The Benefit and the Burden: Tax Reform – Why We Need It and What It Will Take.”

In 2011, Republicans in Congress drove the nation to the very brink of defaulting on the national debt. During that debate, a number of conservatives argued that default was no big deal — that the debt was so terrible that default was a reasonable option to be considered. Although few Republicans agreed with this position, probably all agreed with Senator Mitch McConnell of Kentucky, the Senate minority leader, that the debt limit was a hostage worth ransoming to force President Obama to surrender to their demands.

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The most recent debt-limit extension was enacted in January and expires on May 19. On March 12, Senator McConnell signaled that he again planned to hold it hostage to Republican demands that programs to aid the poor and elderly be slashed.

In a March 13 interview with the radio host Sean Hannity, the House speaker, John A. Boehner of Ohio, said repeal of the Affordable Care Act might be the ransom that will have to be paid for raising the debt limit. “Do you want to risk the full faith and credit of the United States government over Obamacare?” he said. “That’s a very tough argument to make.”

In 2011, a number of respected legal scholars asserted that a little-known provision of the 14th Amendment to the Constitution essentially invalidated the debt limit. That provision states:

Sec. 4. The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

Other scholars contended that this constitutional provision was archaic, that it related to factors specific to the post-Civil War period and had no present-day relevance. On the contrary, I believe a careful review of the circumstances surrounding enactment of the 14th Amendment shows a great deal of similarity to those today.

Such a review was recently done by Franklin Noll, a historian who is a consultant to the Treasury Department’s Bureau of Engraving and Printing, and posted on the Web site of the Social Science Research Network.

Mr. Noll points out that there was strong support for repudiating the Civil War debt among Democrats, who were closely aligned with the Confederate South. They were angered that Congress had explicitly repudiated all the Confederate debt, and had refused to compensate slave owners for freeing their valuable slaves, and Southerners had no desire to help pay the Union’s debts.

One problem for Republicans was that the 13th Amendment abolished the clause in the Constitution that counted slaves as three-fifths of a man for the purpose of apportioning seats in the House of Representatives. The ironic result was to increase the South’s representation in the House. The 11 states of the Confederacy saw their representatives rise to 73 in 1870 from 61 in 1860. They would also have 22 of the Senate’s 74 seats.

It was feared that readmission of the Southern states, together with Democrats from the north, would provide enough votes to prevent passage of legislation to fund the debt. Hence Republicans believed it was essential to have constitutional protection for the national debt.

The forces of repudiation found strong support in the departing President Andrew Johnson, a Democrat from Tennessee whom Abraham Lincoln put on the Republican ticket in 1864 in a spirit of unity to save the Union. In his last State of the Union address, on Dec. 9, 1868, Johnson contended that the cost of the debt was so high that repudiation was justified. He declared:

This vast debt, if permitted to become permanent and increasing, must eventually be gathered into the hands of a few, and enable them to exert a dangerous and controlling power in the affairs of the government. The borrowers would become servants to the lenders, the lenders the masters of the people. We now pride ourselves upon having given freedom to 4,000,000 of the colored race; it will then be our shame that 40,000,000 of people, by their own toleration of usurpation and profligacy, have suffered themselves to become enslaved, and merely exchanged slave owners for new taskmasters in the shape of bondholders and tax gatherers.

Johnson proposed that the Treasury cease paying interest on a large portion of the debt and instead use that money to retire the debt. “The lessons of the past admonish the lender that it is not well to be over-anxious in exacting from the borrower rigid compliance with the letter of the bond,” he said.

Supporters of repudiation, however, had two big political problems to overcome. First, much of the Civil War debt was owned by average people. Historically, financial institutions had bought almost all the Treasury’s bonds, but the amount of bonds needed to be sold during the war required creation of a mass market for Treasury securities.

Second, the debt was closely identified in the public mind with the war itself. As Mr. Noll explains: “The wartime debt became inextricably entwined with the patriotism and moral purpose of the Civil War. To attack the public debt was therefore an attack on the wartime sacrifices and the righteousness of the war to preserve the Union and abolish slavery.”

For this reason, people were willing to bear a much heavier burden of taxation than existed before the war, making the promises of tax relief from debt repudiation fall on deaf ears.

The purpose of the debt provision of the 14th Amendment was to say that national debt was beyond the realm of politics. In the words Jack Balkin, a Yale law professor: “It was stated in broad terms in order to prevent future majorities in Congress from repudiating the federal debt to gain political advantage, to seek political revenge or to try to disavow previous financial obligations because of changed policy priorities.”

Republican threats to hold the debt limit hostage to their agenda today present precisely the sort of political situation contemplated by the authors of the 14th Amendment.

Article source: http://economix.blogs.nytimes.com/2013/03/19/the-politics-of-the-14th-amendment-and-the-debt-limit/?partner=rss&emc=rss