(1790), proposal by Secretary of the Treasury
Alexander Hamilton during George Washington's first term that the federal government assume war debts incurred by the separate states during the American Revolution. Hamilton argued that since the states' debts had resulted from their efforts to help the nation as a whole, they should be paid back by the federal government. The assumption of the debts would also reduce state taxes, thus making it easier for the federal government to exercise its newly acquired power of taxation. Opposition, led by Representative
James Madison, came from states that had already begun to pay off their debts. A compromise between Hamilton and Madison, backed by Secretary of State
Thomas Jefferson allowed the bill to pass when Madison gave his support to the measure in return for Hamilton's support establishing the new national capital on the Potomac. Congress appropriated $21.5 million, obtained largely through federal taxes and loans from other countries, and paid off most of the debt by the early 1800s.
