Tuesday, May 09, 2023

Resolve the debt ceiling by unilaterally raising taxes on rich people

The debt ceiling showdown is really frustrating. Take this what happens now after we hit the debt ceiling piece. It treats the Biden administration's only option is to stop paying for something. That's not true.

If we hit the debt ceiling, Congress is putting Biden in a situation where anything he does will break the law. Congress has already passed laws requiring the government to spend money on certain things, and it has passed a law requiring the taxes to be administered a certain way, and it has passed a law preventing the government from borrowing beyond a certain amount. Because, the amounts brought in by the tax rules that Congress set are not enough to cover the amount of spending that Congress is requiring, the government needs to borrow to make up the difference. But the debt limit prevents the government from borrowing more.

In other words, when the debt ceiling is hit no matter what the Biden administration does it will break the law, either the law that states what spending has to be done, or the law setting tax rates, or the law setting the debt ceiling. But just because he has to break one of those laws, there is no reason to assume that the law he will break is the one that dictates what the government spends. Why couldn't Biden just say, I'm issuing an executive order to impose a new wealth tax on billionaires effective May 31? Sure, people will howl that you can't impose a new tax by executive order. But you can't cut spending that has been passed by an act of Congress by executive order either. A unilateral wealth tax is no more illegal than a cut in spending despite a Congressionally approved spending bill. The entire discussion has been about hitting the debt ceiling has taken for granted that Biden would have to cut something even if it is illegal.

I think Biden should announce today that if we hit the debt ceiling his plan is to unilaterally impose a new tax on the super-wealthy. He can acknowledge that is illegal, but could also point out that it is no more illegal that the emergency cuts everyone has been discussing. He can just say, I am being forced to break the law somehow so I am choosing to break the law in the way that does the most good and avoids hurting vulnerable people.

Cleary, the best result would be to declare the debt ceiling to be unconstitutional under the 14th Amendment. That would at least arguably be legal (and I think it is correct on the merits). But for whatever, reason the Biden Administration seems to be ruling out that plan, same with the other easy-but-unorthodox ways out, like minting the coin, or issuing premium bonds. I have no idea why Biden is not interested in doing any of those things even though they all would be better (and more legal) than the alternatives.

But I am also flabbergasted why everyone is assuming there would have to be cuts if Biden honors the debt ceiling. Just promising to institute a wealth tax and noting it is no less illegal than cutting spending might get the Republicans to back down (after they finish howling). Or it might not. It is definitely worth a try.