Between a Rock and a Hard Place

On January 20, 2025, at the moment he takes the oath of office, President Trump will find himself between a rock and a hard place. The rock is the nature of his job, that he must carry out the laws of the land, including the spending of money on Congressionally approved programs. Article II, Section 3 of the Constitution establishes one of the President’s core responsibilities – “He shall take care that the laws be faithfully executed.”

The hard place is that on January 1, 2025, the 2023 suspension of the debt ceiling law expired. The ceiling is now 31.4 trillion dollars, while the debt is over 36 trillion. Trump 47 will be the first President to be constrained by the debt ceiling on day one. Starting January 1 and continuing from January 20, absent some action by Congress, every dollar spent will add a fraction of a dollar to the national debt, putting the President further and further out of compliance with the debt ceiling law.

Right now, there is a political opportunity, perhaps even an expectation, that now is our last, best opportunity to do something about government spending. The inherited debt ceiling creates an opportunity for Trump to fix the spending problem and bring America along with him in the effort.

Many argue that a president can simply invoke the 14th Amendment, though that constitutional provision states that “the validity of the national debt shall not be questioned.” In other words, as I have previously argued, absent a complete breakdown of society and the federal government, it is not constitutionally possible for the U.S. to default. Thus, no invocation is needed. However, the debt ceiling is a valid law that any president must carry out in his executive role, as are the appropriation bills approved by Congress.

And thus, Trump will inherit a dilemma and an opportunity. Assuming Congress does not take action before his inauguration, Trump will be forced to choose between conflicting laws.

What will President Trump do? We know he fancies himself a bold leader willing to exercise his power to the fullest. So let me suggest one possibility. A day or two after his inauguration, he should speak to the American people on this issue from the Oval Office. He should inform the American public that with or without a debt ceiling, our current debt trajectory is not sustainable and must be addressed (ideally, he should take responsibility for the excessive COVID deficit of 2020 – but that will never happen). In doing so, he should also assure us, and indeed the global community (around 30% of our debt is held by foreign governments and investors), that the U.S. will never default on its debt because it is Constitutionally impossible for us to do so – and that we will pay our bills, we will pay the interest on our debt, and our debt will be repaid or refinanced without fail. He should express the achievement of a balanced budget by the final year of his administration as a priority.

He should then announce that, over the coming days and weeks, he will impound (refuse to spend) vast amounts of spending already appropriated by Congress. Ideally, the impoundment should be large enough that for some time, revenues actually exceed spending – not just a balanced budget but a surplus day-to-day that moves towards compliance with the debt ceiling. That may be a bridge too far in the short term.

Impoundment has a long history, starting with Thomas Jefferson. However, President Nixon abused the process, and Congress enacted the Congressional Budget and Impoundment Control Act in 1974. Though it was not a frequent campaign promise, Trump stated his intent to use impoundment once re-elected and claimed the 1974 restrictions were unconstitutional. You may also remember a specific impoundment implemented by Trump to withhold security aid to Ukraine in July 2019. He did so without a specific request to Congress and ultimately released the aid in September. This act was core to his first impeachment, not because it violated the 1974 law but because it was timed with his request of Ukrainian President Zelensky that he investigate former Vice President Joe Biden, then a strong contender to face Trump in the 2020 election, and his son Hunter Biden.

Current law requires the president to submit any impoundment proposal to Congress, and they must approve such a request before implementation. However, given the conflicting law circumstances, Trump should implement the impoundments immediately and ignore any rejection by Congress. He will be challenged, of course, and the issue will likely be fast-tracked to the Supreme Court, but it will still require months to settle the issue. Given the conflict between appropriation laws and the debt ceiling, any president would have the right and responsibility to pursue what he considers the best path until Congress (or the Supreme Court) fixes the conflict. [As a side note, I would expect SCOTUS to leave the impoundment restrictions in place, there being no specific provision for them in the Constitution. However, the debt ceiling may not pass muster. When Congress approves spending plans requiring debt, they essentially authorize the debt.]

In this scenario, Trump will need to prioritize spending (fundamental military and other national defense expenditures, Social Security payments, and Medicare payments should all be at the top). Meanwhile, specific and significant impoundments will need to be identified. This is a perfect role for his Department of Government Efficiency, in conjunction with cabinet department secretaries and their senior staff. It is beyond the scope of this essay to be specific in what can or should be impounded. The process of DOGE identifying them and the administration proposing them to Congress as permanent changes should be fascinating, illuminating, and educational.

In explaining his plans to the American people, he should acknowledge that this path will be disruptive. Many federal employees across all departments will be furloughed, and some will eventually be terminated. Programs that are important to some people will be suspended, some of them permanently. A dramatic decrease in federal spending will likely kick off a long-overdue recession. Many companies will be negatively affected directly and indirectly. The unemployment rate will increase. The stock market might not just drop but enter bear market status.

He should acknowledge to the American people that this will be painful and request their support and understanding in carrying out this important strategy in his effort to make America great again. If he went down this path, he would blame “the Swamp” and claim this was a necessary step in draining it.

What else will happen? The American people and their representatives will see the extent of government waste, fraud, and abuse. They will begin to understand the full scope of unnecessary federal spending. If there was a recession and a resulting bear market for stocks occurred, this could move more investors to the safety of Treasury debt, reducing interest rates and thus further reducing federal spending. If this happened, the inflation rate would likely come down dramatically. The Federal Reserve, seeing the reduction in inflation, will reduce its overnight interest rate to banks, incentivizing them to lend money to businesses large and small. The bond markets should be encouraged by the reduction in inflation and the potential movement to a balanced budget, and interest rates could come down accordingly. Lower interest rates will benefit everyone, including corporations, small businesses, and those seeking to buy a new home.

If mere movement towards a balanced budget is made, and President Trump's desired tax rate decreases are implemented, the markets will likely be enthused; the recession, though extremely painful, may be brief; economic activity could come roaring back; tax revenues might actually increase; domestic and foreign companies could see America as financially healthy for the long-term and thus the best place to build and grow their business; investment in new companies and technology could surge; manufacturing plants might be expanded and built with new high paying jobs being created; America could not just be great again but better than ever.

The next four years will be a roller coaster of ups and downs. Whatever approach we take, let’s hope we use this opportunity to dramatically change course, not just away from the rock and the hard place but onto a sustainable path. If Trump starts us on this road, it could be his greatest legacy.

David Butler is a husband, father, grandfather, business executive, entrepreneur, and political observer.