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Government shutdown, debt limit deal close: But what if it falls through?

By Stephanie Condon / CBS News 11:45 PM October 15, 2013

If Congress fails to raise the debt limit on time, some argue the president has some options -- all of them constitutionally questionable

Two weeks after the government shut down and just days away from letting the nation risk default, Senate leaders on Monday sounded increasingly optimistic about the prospects of a deal to reopen the government and raise the debt limit.

The White House on Monday postponed a meeting with congressional leaders, giving the Senate more time to make progress on a deal that sources tell CBS News would fund the government through Jan. 15 and raise the nation’s borrowing authority through mid-February. Senate Republicans plan to meet privately Tuesday morning to discuss the plan.

It’s unclear, however, whether the Republican-led House will agree to the deal currently in the works. If they don’t, Congress will be left without a plan just days before the nation is expected to exhaust its borrowing authority. If Congress fails to raise the debt limit by Oct. 17, according to a Goldman-Sachs report, there could be a “rapid downturn in economic activity.” The firm estimates that after just a month of breaching the debt limit, there would be a 4.2 percent drop in annualized GDP. Unemployment would rise, and Social Security checks would potentially stop going out on Nov. 1.

With so much at stake, some have argued that President Obama should ignore the debt limit, taking matters into his own hands. There are various legal justifications for the president to act unilaterally — some point to the expansive powers that U.S. presidents have historically assumed during times of crisis. Others point to the 14th Amendment of the Constitution, which states, “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.”

Others — including the Obama administration itself — have argued the president does not have the authority to act unilaterally and that doing so would have negative consequences.

In an Oct. 8 press briefing, Mr. Obama told reporters, “I do worry that Republicans, but also some Democrats, may think that we’ve got a bunch of other rabbits in our hat. There comes a point in which, if the Treasury cannot hold auctions to sell Treasury bills, we do not have enough money coming in to pay all our bills on time. It’s very straightforward. And I know there’s been some discussion, for example, about my powers under the 14th Amendment to go ahead and ignore the debt ceiling law. Setting aside the legal analysis, what matters is, is that if you start having a situation in which there’s legal controversy about the U.S. Treasury’s authority to issue debt, the damage will have been done even if that were constitutional, because people wouldn’t be sure.”

14th Amendment option

Yet if Congress failed to raise the debt limit by Oct. 17, acting unilaterally may be the least bad option the president has, some argue.

“In an ideal world, looking at it from the perspective of the Constitution and the type of government that the Constitution establishes, we would all be better off if Congress did its job and the president was able to do his job,” Elizabeth Wydra, a constitutional expert and chief counsel of the Constitutional Accountability Center, told CBSNews.com. “The president could be put in a very difficult position where he simply can’t follow all of Congress’ directions at once, and given the constitutional guidance from the 14th Amendment, his least unconstitutional option would be to ignore the debt ceiling.”

The 14th Amendment was passed in the aftermath of the Civil War to ensure the payments of Union debt over any objections from Southern congressmen.

“It’s simply a historical fact that the framers of the 14th Amendment chose language that would protect the national debt broadly,” Wydra argued. “They didn’t want to focus on just Confederate debt or Union debt — they were thinking about the general interests of the country and the importance they placed on protecting the nation’s credit and withdrawing it from the power of Congress to deny it.”

If the administration chose to reverse course and embrace the 14th Amendment argument, it could simply ignore the debt limit. Wydra argued, however, that this one-time action wouldn’t do away with the statutory requirement for Congress to set a debt limit.

“I don’t think that the framers of the 14th Amendment envisioned a lengthy period where the public debt would be questioned,” she said.

Executive powers option

Similarly, if the president embraced broad emergency powers to continue paying off debt, it would only be a temporary solution, argued Brookings fellow Saul Jackman, an expert on executive institutions and inter-branch relations.

“Presidential powers, especially during emergencies… are very vaguely defined and allow for a lot of manifestations of power as the times demand of them,” he told CBSNews.com. “This is not going to be a permanent power. These powers tend to rescind away once the crisis is over.”

Jackman said Mr. Obama could use emergency powers to, for instance, raise the debt limit with an executive order. Presidents have throughout history stretched their executive authority during times of crisis, he pointed out: During World War II, Franklin Roosevelt set price controls and prevented labor strikes to manipulate the economy. In the wake of Hurricane Katrina, President George W. Bush declared a national emergency and issued special federal aid to New Orleans.

The biggest unanswered question in this case, Jackman argued, is whether the president would have to wait for a true economic calamity to start repaying the nation’s debts. Even so, Jackman said he wouldn’t expect the president to face much pushback if he acted unilaterally.

“Once we’re out of a crisis, no one’s going to want to pull us back into a crisis because of a technicality,” he said.

Opposition

While it’s unclear if Congress would actually try to fight the president’s decision, there’s no question that some members are adamantly opposed to any unilateral action on Mr. Obama’s part.

In 2011, the last time Congress came close to failing to raise the debt limit on time, Sens. Lindsey Graham, R-S.C., and John Cornyn, R-Texas, launched a pre-emptive strike against any attempts from the White House to act unilaterally. The two senators introduced a resolution making clear that Mr. Obama does not have the authority to pull off a “debt limit dodge,” as they called it.

There is no resolution this time around, since the administration has assured Congress it’s not interested in acting on its own. Still, if Congress failed to raise the debt limit on time, any response from the president is likely to generate controversy.

Former Alaska Gov. Sarah Palin, who joined Sens. Ted Cruz, R-Texas, and Mike Lee, R-Utah, at a rally in Washington on Sunday to demonstrate against the closure of the World War II Memorial during the shutdown, has argued the president is on the brink of “impeachable offenses.”

“Defaulting on our national debt is an impeachable offense, and any attempt by President Obama to unilaterally raise the debt limit without Congress is also an impeachable offense,” she wrote on Facebook.

Congress could take the issue to court, accusing the president of usurping their power, but it’s unclear the Supreme Court — which tries to avoid matters that can be resolved politically — would take up the case. Even if the president’s constitutional authority to act alone held up in court, Mr. Obama and others argue it wouldn’t matter — the damage would already be done.

“It would be tied up in litigation for a long time,” the president said in his Oct. 8 press conference. “That’s going to make people nervous. So a lot of the strategies that people have talked about — well, the president can roll out a big coin, or he can resort to some other constitutional measure — what people ignore is that, ultimately, what matters is: what do the people who are buying Treasury bills think?”

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