Why all the warnings about failure to raise the U.S. debt ceiling when some argue that Biden could just ignore it?

Question

In this article at CNN, Robert Hockett, a law professor at Cornell University says that the debt ceiling was rooted in the 1917 Liberty Bond Act which was rendered obsolete in 1974.

Part quote from the article, from under the question "Why presidents actually have the power to ignore Congress’ artificial debt ceiling"

HOCKETT: Yes. It’s not only artificial, but I think it’s also legally invalid. The only reason we haven’t heard that definitively from the courts yet is that both parties have benefited, I think, from the grandstanding opportunity that it affords them.

The bottom line here is the 1917 Liberty Bond Act, in which the debt ceiling is rooted, was rendered obsolete in 1974.

It seems that Hockett is referring to the Congressional Budget and Impoundment Control Act of 1974

But if above is correct, it is surprising that even this explainer page published by the White House does not mention it. Rather the explainer page says

Once the debt limit is hit, the Federal government cannot increase the amount of outstanding debt; therefore, it can only draw from any cash on hand and spend its incoming revenues.

and

When the U.S. Treasury exhausts its cash and extraordinary measures, the Federal government loses any means to pay its bills and fund its operations beyond its incoming revenues, which only cover part of what is required (about 80 percent in 2019).

and

Because the United States has never defaulted on its obligations, the scope of the negative repercussions of not satisfying all Federal obligations due to the debt limit are unknown; it is expected to be widespread and catastrophic for the U.S. (and global) economy.

U.S. government officials recently made similar statements.

What is the reason for all the warnings about the failure to raise the debt ceiling if it was invalidated in 1974? I mean, would the invalidation need to be legally validated somehow and is there a risk that that might not happen, or are there other reasons?

Answer 1

Most people understand that the President can't "just ignore it".

We would be legally uncharted territory if the President ignored the debt ceiling. (Informal) precedent is against interpreting the 1974 act as meaning that the 1917 act is obsolete, as past Presidents have always waited for Congress to raise the ceiling.

One legal expert doesn't create law - He may be right, but his opinion is not universal. As he says we "haven't heard from the courts" yet.

Answer 2

To clarify what Prof. Hockett is talking about, we're looking at this subchapter of Title 2, specifically sections 682-684. Summarizing, these sections essentially say that the President cannot unilaterally refuse to spend money as provided in the budget.

There are two procedures laid out for different ways of "not spending all the money in the budget." But the long and short of it is, the President is not authorized to "just default" - both 683 and 684 require the President to send notifications to Congress in a specified format, explaining precisely what money is going to be withheld, and then for Congress to eventually approve the impoundment. If Congress doesn't approve it, then the money has to be spent as specified in the budget. Since this law was passed in 1974, much more recently than the debt ceiling, it can be read as implicitly repealing the debt ceiling (because it imposes a conflicting duty on the President).

However, there are two problems with this argument:

1. It has never been explicitly tested in court. Trust in institutions in general, and the Supreme Court in particular, is (or recently was) at an all-time low. If markets believe that US Treasury bonds are contingent on a ruling of the Supreme Court, they may lose trust in the bonds and value them less, regardless of whether an actual default ends up happening.
2. When Congress raises the debt ceiling (most recently in 2021), that could be interpreted as re-establishing the ceiling (if you believe it was repealed as Hockett argues). On the other hand, the subsequent FY 2023 budget was enacted more recently than that, and could be interpreted as re-repealing the ceiling (because it creates obligations in excess of the ceiling and therefore contradicts it). This has not been tested in court either.

Answer 3

This is one of those things where the executive branch does not want a battle with the legislative branch, with the ultimate answer inevitably coming from the Supreme Court. Nobody sane wants the courts to have the last say, as the courts would not be alone in having the last say. The financial markets would have the last say, and their judgement most likely would not be good.

The US has already had its bond rating downgraded over a previous debt ceiling fight. I suspect US bonds would be downgraded to junk status if it came down to a court fight regarding whether the debt ceiling has or doesn't have legal standing.