Democratic members have raised a novel argument under the Fourteenth Amendment that the refusal to raise the debt ceiling is unconstitutional. For full disclosure, I was asked about this argument weeks ago by members who believe that forcing the country to default would be not just catastrophic but unconstitutional. I will be discussing this topic today on CNN and tonight on Countdown.
The relevant language of the Fourteenth Amendment states:
The argument goes that Section 4 of the Fourteenth Amendment declares:
“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.”
The argument goes that, by not lifting the debt limit, Congress is “questioning” “the validity of the public debt of the United States.” Under this logic, advocates are encouraging President Obama to simply pay the debts in accordance with the Constitution. That would be an extreme step that would add a constitutional crisis to an economic crisis.
The “authorized by law” clause could present an interesting debate since the debt ceiling is part of a federal statute — though conversely so is the obligation to pay things like social security.
The language is certainly written in absolute terms but it is not likely that a court would rule that it makes a failure to lift the debt ceiling unconstitutional. Congress can argue that it fully intends to pay its debts, but that there is a political dispute over how and when. They can argue that they were not challenging the “validity” of the debt but the priority in the payment. The United States will still be fully liable for the debt and the interest.
Of course, as with the Libyan War, the Administration could trigger the constitutional fight on the belief that no one will be able to get standing to challenge its payment of the debt.
Jonathan Turley
@KD: Who? YOU ARE. Aren’t you the one that said all taxes are theft? What can one possibly infer from that? Do you advocate theft?
“Greatly reduced profit, no profit, does it really matter?”
Apparently it does matter, since people are still taking business risks at 33%, and in the past people were taking business risks at 65%, and 75%, and 90% top marginal rates. Apparently people are sane, and recognize the difference between something and nothing. The only “obvious” thing is that people continue to start and engage in businesses no matter WHAT the top marginal rate is; that is the lesson from history.
Even if you set the top marginal rate at 100% (which I do not advocate) then sensible people will still start businesses. Hypothetically, say the tax rates are exactly as they are now, but we add one more bracket: people earning over $100M in a year pay a 100% tax on everything above the $100M. No individual in the nation can earn more than $100M in a year, nobody. Do you think that would deter some John Doe from starting a restaurant or opening a car dealership? Of course not, his business risk is exactly what it is now, and he would kill to ever earn $100M from his little venture, he’s lucky if he earns $200K. If the fact that he cannot earn infinite money from his venture deters him from even starting, then that is a good thing, because he is an idiot likely to lose his money. The top rate affects nobody that doesn’t qualify, and most people would be ecstatic to qualify.
Your arguments are silly, transparent, and entirely emotional. You have no logic whatsoever behind them, and apparently no understanding of human psychology, either.
kderosa:
that is the problem, they think we are. I would like to see lower taxes and less regulation.
For gods sake you have to have a military and police force and pay for roads. Although you could make a lot of roads for profit ventures. And the fire departments could be funded from insurance company premiums which they ought to be anyway.
There are a whole contingent of possibilities to reduce government regulation and taxation without promoting anarchy. That is what Tony C is doing. He is arguing against anarchy [which is not my position and probably not yours]. And he is doing it to try and show that positions such as ours, low taxes and reduced regulations, are bad. Because who the hell wants anarchy. Buddha is Laughing used to do that [by the way where is that green “devil”] all the time. I used to tell him till I was green that I was not an anarchist and that some government is necessary for a proper society. The argument is how much.
Funny how they do that isnt it?
Mike Spindell;
I guess I am not better than that. Doesnt the good book and about every other book say you reap what you sow.
Bread cast upon the waters comes back strawberry short cake.
What comes around, goes around.
and a bunch of other trite cliches. Which Mespo could probably quote to greater effect than I.
Greatly reduced profit, no profit, does it really matter? Obviously once you set taxes high enough, people won’t bother taking business risks anymore.
Who’s advocating for a tax-free, regulation-free society? It’s a strawman.
I’ll give you three examples of successful lower-tax and lower-regulation countries — U.S., Singapore, and Hong Kong.
But there is a profit motive. I have NEVER said I believed in taxing income 100%, and I do NOT believe in taxing income 100%, so there is a profit motive toward increasing income.
As for “consistently works,” PROVE IT. Show me this mythical happy country with no taxes and no business or banking regulations where the free market is keeping employees and customers safe, drugs safe, food safe, buildings safe and survivable in case of a fire, full of inexpensive toll roads and bridges that don’t collapse in five years. I show you Sweden, which is working and has been working just fine for a thousand years or so. I will stand by Sweden, as imperfect as you think it is, and you show me your modern world, tax free, regulation free, free market state that “consistently works.”
Because you’ve greatly reduced the profit motive. If there’s no profit motive why try to turn a profit? Who care if market shared is gained — there’s no profit. Best thing to do is to keep the share you have and rent seek as much as possible, depending on what your competitors are doing. They don’t have a profit motive anymore either, so you wouldn’t expect them to be doing much.
It is a fragile system, TonyC. It’s also the only one that consistently works. So why do you want to turn it into something it isn’t. capitalism without capital and the profit incentive is not capitalism.
@KD: “some might be unneeded business expenses.”
Why? When did you stop believing that cutting expenses would save money and increase profits? Or are you now going to argue that saving one milliion dollars is only worth it if you get to keep the whole million? Understand, of course, that means that saving one million and getting to keep just half of it is no longer worth anybody’s time, right?
Your arguments are ridiculous on the face of them. Businesses right now are trying to cut costs and be efficient, and that is at a 35% tax rate, because in a great deal of cost cutting efforts the issue isn’t profits at all, because the companies are not even profitable. They are cutting costs to try to get to break even, or to lower their price versus their competition.
I thought you subscribed to those free market principles. Are they really so fragile that they get destroyed by a few percentage points of taxation? Because we should not be betting our lives and our future, literally speaking, on any economic system that is THAT fragile, or any theory of the business mind that sensitive to such minor fluctuations in profit.
Roco,
“It’s” intemperance is wearing you down. I thought you were better than that?
go tell it to Buddha is Laughing and spare me your denials.
There is no way you have a PhD in anything. And if you do? It probably says University of Phoenix on it.
tONY c:
you are a lying person. You dont know shit and you most definitely are a collectivist but too stupid to understand or unwilling to admit it because then your little game wouldnt work.
And quite frankly Rand has not said much that hasnt already been said before by others. She may have put it together a little differently but it has all been said before by people who actually want what is best for the human race, that little pesky thing called freedom. Which as a collectivist you must reject.
@TonyC, disagreeing with someone’s opinion does not constitute a lie. Do you understand that or do you just like coming off as a lunatic?
Your system, does not necessarily encourage reinvestment. Your system encourages increased spending on business expenses. Some of those expenses might be reinvestment, some might be unneeded business expenses. But the fact remains, that if you are substantially reducingthe profit motive by taxing away most profits, you will lose the incentive to maximize profits which will lead to greater inefficiency. This is the part of your system that you can’t seem to wrap your head around. It’s an alluring system for would-be benevolent dictators in theory, but in practice it doesn’t work and leads to economic stagnation. That’s why you can’t point to any successful systems in which your high tax system hasn’t led to economic stagnation and an eventual repeal of the high tax rates.
@KD: “Also, your system encourages businesses to increase business expenses rather than cut business expenses. ”
That is a lie. “My” system would encourage reinvestment, it would discourage waste. Efficiency is encourage by profit; savings on costs lead to higher profits, and whether that additional profit is taxed at 15% or 50% is immaterial; more money in the pocket is more money in the pocket.
You are lying because you cannot refute the logic. Given your propensity to lie, I won’t believe your characterization of some study, or even read it. If you think it refutes the LOGIC, prove you understand it by summarizing the refutation. Otherwise save your breath, you are wrong, I am right, I have provided plenty of detailed argumentation, all you provide is baseless assertions, lies, and crap that would waste my time to read. Rogerson isn’t here for me to debate him. You obviously cannot debate me on your own without help, so you lose.
@KD: “Under your system he’s going to lose the lion’s share of his capital unless he continues to run the company. That’s a misallocation of resources — the VC’s talents at selecting sucessful start-ups has been squandered.”
IF he has so little faith in the company he invested in that he cannot sell his stock when it is tax-wise appropriate, and IF he is so stupid that he cannot figure out how to reinvest his increased net worth in another company before tax season arrives, then there STILL is no “misallocation of resources.” That is your idiotic term of choice. His talents have not been “squandered,” at a 50% tax rate he still earned half the money, and that can be tens of millions more than he would have earned had he just played golf instead of helping to fund a startup. Also note, his basis in this company is the amount he invested, that is not taxable at all, all that would be taxable, IF he had a truly incompetent corporate tax attorney, is the increase OVER his investment.
What makes it a “misallocation?” Paying taxes is paying the rent on the infrastructure that even allows a VC to exist; the infrastructure of courts that enforce contracts, banks that are regulated and cannot steal money, roads and rails and planes and even garbage collection and sewer services that allow a VC to sit at a desk and talk on a phone and make deals for millions.
Taxes are not inherently a misallocation of funds; taxes are the rent on the infrastructure the VC uses and exploits more than anybody else, because he needs those roads to ship his millions of dollars worth of goods and get his employees to work and keep them safe from criminals. His taxes are his proportional share of the costs of the environment. Calling taxes a “misallocation of funds” is like calling the electricity bill a misallocation of funds, or the rent, or the pay he has to give his employees. It is a complete mischaracterization of what is happening. He GETS something for his taxes. If he doesn’t believe that, he certainly has the resources to move to a place that has none; like the badlands of northern Pakistan, where I wish him the best of luck in what will undoubtedly be his much shortened life.
@TonyC
There are a few problems with your third way scheme as I’ve been rtying to point out to you:
Let’s say I’m a venture capitalist. One of my investments hit. The company goes public. The VC has made a profit that more than covers all his other losses. Being a good VC, I have no interest in running this company. I want to pull my money out and invest it elsewhere. To do this I sell my stock. This is a recognized, realized capital gain subject to capital gains tax. Under our current system, the VC takes a 15% hit it taxes. And can reinvest the remaining 85%. Under your system he’s going to lose the lion’s share of his capital unless he continues to run the company. That’s a misallocation of resources — the VC’s talents at selecting sucessful start-ups has been squandered.
Also, your system encourages businesses to increase business expenses rather than cut business expenses. Some business expenses are productive, others are not. It is difficult to cut expenses. And the reason why companies do it is to increase profits–profits that will be taxed away under your system. You basically want to run every business as a non-profit business and look what a fine job non-profits do keeping prices down.
So, I’ll ask you one last time, there is a difference of opinion as to whether your high tax system will create incentives or disincentizes. So, I’m asking you to point to an example of a high tax system that outperforms low tax systems like the US, Hong Kong, Singapore.
You might want to take a look at this article and graph to see why even-slightly higher taxes lead to economic stagnation.
And as for tiny Sweden:
During the 1970s Sweden was the fourth richest OECD country. During more recent decades, Sweden’s position has varied both down to 14th place and up again to 9th after economic reforms in the 1990s brought on by prior stagnation and an economic crisis.
As for the claim that high taxes create jobs, Richard Rogerson, 2008. “Structural Transformation and the Deterioration of European Labor Market Outcomes”, Journal of Political Economy found that:
1. Hours worked per adult in France, Germany, Italy Europe decline by almost 45% compared to the US since 1956
2. The decline occurs at a steady pace from 1956 until the mid 1990s, in contrast to the fact that the relative increase in unemployment occurs in the mid 1970s.
3. The decline in hours worked in Europe is almost entirely accounted for by the fact that Europe develops a much smaller service sector than the US.
4. Relative increases in taxes and technological catch-up can account for most of the differences between the European and American time allocations to the market and outside over this per.
Ohanian, Rao and Rogerson 2008 in “Work and taxes: allocation of time in OECD countries” found
1. A steep decline in average hours worked per adult and large variations across OECD member countries in the magnitude of this decline.
2. Changes in labor taxes accounted for a large share of the trend differences.
3. Countries with high tax rates devote less time to market work, but more time to home activities, such as cooking and cleaning.
4. This reallocation of time from market work to home work is much stronger for females than for males.
Richard Rogerson, 2007 in “Taxation and market work: is Scandinavia an outlier?” Economic Theory, found that how the government spends tax revenues when assessing the effects of tax rates on aggregate hours of market work.
1. Different forms of government spending imply different elasticities of hours of work with regard to tax rates.
2. While tax rates are highest in Scandinavia, hours worked in Scandinavia are significantly higher than they are in Continental Europe with differences in the form of government spending can potentially account for this pattern.
3. There is a much higher rate of government employment and greater expenditures on child and elderly care in Scandinavia.
Correction: When I say “it has nothing to do with job creation,” I was unclear about the pronoun “IT”. What I was referring to is profit-taking by businessmen. That has nothing to do with job creation; at least not directly. If they intended to create a new job, they would just do it and count the wages paid as an expense of their business, deductible from gross income before computing net income. They would not pay tax and THEN hire somebody with the money.
@KD: More bullshit; and more avoidance of the logic. Nothing I have said makes it “appear” that only a society of billionaires can work with this system; if anything, the lifestyle and finances of virtually ALL billionaires and deca-millionaires, including VCs, proves the point: In the USA under current law, as long as one rolls any increase in net worth into new business as a business expense, one can legally avoid paying income taxes on it, either corporate or personal.
That is the minor point: business expansion is tax free, and it is tax free for everybody. If one experiences an increase in net worth, then sometime before December 31st, if they do not want to declare it as income and pay taxes on it, they can legally spend it on business expansion and thereby retain 100% of the value of the increase in the form of business equity. Business equity is a real value, and is not taxed.
This is not “my” system, this is the system in place right now in the USA and most modern countries with an income tax: Legitimate business expenses are deductible from gross income before computing a net income subject to taxes, for everybody.
So what has sailed over your head is the major point: If I am a businessman (as I am), and my business is successful and experiences an increase in net worth in the form of cash assets, then I am faced with a choice: I can declare that cash “profit” and pay income taxes on it, or before the end of the year, I can spend that cash (or any portion thereof) on something that will increase the value of my business. Advertising, perhaps. A new centrifuge. A clean room. If I spend it, I can deduct the amount spent as a business expense and pay no income taxes on it.
Now if it is my INTENT to use the money for expansion, I would be an idiot to lose 1/3 of my purchasing power to taxes and THEN expand. I should spend it ASAP. Since the vast majority of actual business owners understand this, the only money they declare as “income” is money they did NOT intend to spend on business. They are NOT taking their income and “creating jobs,” and increasing their INCOME TAX RATE does NOT discourage job creation. It has nothing to do with job creation. In fact, increasing their income tax rate encourages them to put the money back into their business, to avoid the higher tax. Equity is not as liquid as cash, but it is a real value, and often a tangible income-producing property, like a new centrifuge, or a tractor, or a building or factory or MRI machine.
That is the point you refuse to answer. When we are talking about income taxes that are under 70% or so (i.e. not an extreme):
Lower income taxes do NOT encourage job creation, they discourage it.
Higher income taxes do NOT discourage job creation, they encourage it.
@Roco: I am not a collectivist; so you are lying again. I do not prioritize all group goals over private goals. Some group goals, perhaps: I do think we need an army, and that is a priority. I do think we need police and courts, and that is a priority. I do think we need to enforce contracts.
Aren’t those “group goals”? If wanting a functioning society that keeps criminals in check is “collectivist,” I think 95% of Americans are “collectivist.” So you are the odd man out, time for you to leave.
@Roco: You are a liar, let’s start with that. So how is your free market ideology any different from a religion? None of Ayn Rand’s crap is proven, and most of it is disproven by human psychology; it demands that people have an appalling lack of concern for each other that is, literally, unnatural. It demands people adopt a level of responsibility and insight that is, frankly, supernatural. You have faith that it works without ever having seen it or it ever having existed. That is according to you.
Religion is belief without evidence. Rand’s entire bullshit philosophy is grounded in assumptions about human psychology that are regularly disproven by experiments in undergraduate labs as part of their routine education. It may sound good to you; the Bible sounds good to some friends of mine, Scientology sounds good to other friends, but it is all just religion. You are not property.
tonyc, its a shame that your system can’t be full of buffets and gates since that appearance only way it can work. And of course since they are but the top 2 in 300 million who’s to say if they would have gotten into business in the first place with no chance of cashing in under your system. Why not take a cushy wage job?