Assumption

One of the grand bargains that made up our country was this: The assumption of the National Debt by the Federal (or central) Government. This was a contentious issue, as the "United States" had borrowed money from several European countries during our Revolutionary War with England and the various states had borrowed from wealthy landowners in those states. Additionally, The Continental Army had not been paid what was due them, and many of the independently-wealthy officers of the army had spent their entire fortunes on equipment and supplies to outfit the troops under them.

The Articles of Confederation
so limited our government
that they were thrown out
and replaced by our current Constitution.

The taxing authority of our Continental Congress was minimal. It was hamstrung by the need for two things: A quorum, which was beginning to become hard to establish, and consensus. representation was haphazard, with each state's delegations consisting of whatever the state wanted to send. Some states, like Virginia, had retired their entire share of the national debt. Others had not paid one penny toward it.  Every time paper money was issued by either the national government or the state governments, it was very quickly devalued.

In 1787, when the Philadelphia Convention was assembled to rewrite our Constitution, the Articles of Confederation causing the nascent United States to be—essentially—ungovernable, one of the proposals had to do with the debt and a means to finance it. Article 6 of our Constitution states:

All Debts contracted and Engagements entered into, before the Adoption of this Constitution, shall be as valid against the United States under this Constitution, as under the Confederation.

The US national debt in 1790 was $54 million, which would be comparable to a US national debt of $4.1 trillion in 2009 by relative share of GDP. Our actual US national debt in 2009 was about $11.4 trillion, but we were not a brand new, emerging country then.

Alexander Hamilton, our first
Secretary of the Treasury

Once our Constitution was ratified and, upon the initial meeting of the First Congress, secretary of the Treasury, Alexander Hamilton proposed a set of interlocking laws to be passed by Congress, the first of which was the assumption of the debts of the states, when they were acting as a national government would act during our Revolutionary War. So, soldiers' pay was to be handled by the new central government. Loans to individuals to raise armies and outfit them as well as loans to individuals who "bought in" to our Revolution and helped with finances.

Hamilton proposed a complete set of policies for handling the debt. All debts were to be paid at face value. The central government would assume all of the debts owed by the states, and it would be financed with new US government bonds paying about 4% interest. The government would not pay back the principal on the bonds, merely the interest, which would be paid by a new tariff and a stiff excise tax on liquor. Since unpaid foreign debt, generally brought with it ships of war from those countries owed, this reduced the risk that foreign governments would go after the new US government for reparations and increased our national security. Since individual states no longer owed this money, no foreign nation could "lop off" a slow-to-pay state and just take it over to retire its debts.  Additionally, Hamilton surmised, this would create credit-worthiness in the United States and, as we began handling this debt, and we would eventually be able to borrow more, both domestically and abroad. Lastly, with federal tax collectors established, these agents would be responsive to and loyal to the central government and not the governments of the states, reducing the temptation of the states to secede from the United States, binding us together more firmly.

Hamilton urged Congress to pass a tax on imports. He also urged an excise tax on liquor.

James Madison blocked Hamilton's
proposal for the federal government

Hamilton's proposals drew sharp criticism from Secretary of State Thomas Jefferson and House leader James Madison. They were suspicious of the kind of concentration to a central government that Madison's proposals represented. They also feared that speculators would make money from the securities at the expense of those who had actually fought in the Revolutionary War.

Finding Hamilton looking very sick, Jefferson invited him and Madison to dinner at his New York address (New York being the capitol, then) and they agreed to have the permanent seat of the US Capitol located in the South in exchange for Madison's debt assumption plan, on June 20, 1790.

As a result of this, several things happened. A National Bank was established. States were enjoined to balance their budgets. And only the federal government could run a deficit.

This principle worked. The fair faith and credit of the United States of America is worth a lot. we have a great credit rating, despite what Republicans did last year with the debt ceiling, and we always service our debt.

Now, Republicans want to trash this precedent—just as they trashed the precedent of extending the debt ceiling last year. I'm not sure why they thought this was a good idea. Nobody has ever been able to explain this to me. It has been a long-standing tradition that the party out of power complains about what the party in power is doing but, in the end votes to uphold the credit of the United States of America.

So I have to ask, is it a good idea for the federal government to, simply, not assume the debts of the states? If it didn't, we would face the same problems we had before Alexander Hamilton sat down to dinner with Jefferson and Madison. And, I would argue that Article 6 certainly points in the direction of debt assumption. And, by debt assumption I mean, specifically, that the states ought to return to the federal coffers what they cost the federal treasury.

The red states in this map take a larger share of federal
funds than they give back to the federal government.
These states tend to vote Republican.

And the funny thing is, the states that return the least to Washington tend to vote Republican. In fact, Mississippi ($2.47 for every $1) and Alabama ($2.03 for every $1) receive more than twice from the federal government than they send back. I'm quite familiar with living in a region that sends way more into federal and state coffers than they receive. I lived in New York City for 20 years.

So, if what Republicans want to do is have everyone row their own boat, live within their means and all that, they may find themselves on the "outs" when it comes to inbound federal funds, were our government to actually run things like that. I recently ran into a Libertarian-type (who obviously did not think his statement through) who told me that he thought the smallest possible unit of government ought to manage things. While that sounds great on paper, it's absolutely upside-down.

Governor Romney thinks that the states
should handle emergency response,
not FEMA.

As an example, Governor Romney stated that the states ought to handle emergency disaster relief. Perhaps, during his short one-term tenure as Governor of Massachusetts, there was no federal relief for anything in his state. Or, since he was known as Governor Rom-fee, he'd raise fees to provide disaster relief. But the states ought not to be responsible for disasters like that. Generally a hurricane or an earthquake doesn't concern itself with niceties like state borders and frequently crosses state lines, leaving a path of destruction on both sides of a state border.

Living in The State of Steady Habits—a nickname for Connecticut resulting from the strict morals of its inhabitants, who in the colony's earliest days were governed by rigid Blue Laws regulating public morality—I have seen the state perfectly happy to beggar its neighbor. After the Northeast blackout of 2003, a cable was laid under the Long Island Sound to carry electricity to Long Island. Connecticut prevented its use, saying it was built in violation of codes governing undersea cables. Of course, Connecticut didn't write those codes until after the cable was laid.

Additionally, states are notorious for not keeping their "rainy day" funds replenished. Why? Because, in the words of GW Bush, "It's the People's money!" Politicians, especially Republicans, are loath to tax to raise funds for a "rainy day." In fact, one year ago we had a mayoral candidate in my town who ran on the basis of reducing taxes on property by spending the "rainy day" fund the town had amassed. He was winning the election until we had a late October snow storm that gave townspeople a very clear indication of why a "rainy day" fund is important.

The apron of a state road being repaired
with state funds, not town funding.

Another town fact in opposition to my Libertarian friend is that the town is very happy to have lots of state roads running through it. The town is not responsible for their upkeep, for traffic signals, lane markings, sewers or curbs. Since one has to completely replace a road every 30 years, the town revels in the fact that there are a lot of roads for which they have zero fiscal responsibility. And the townspeople are happy to not need to pay for them. Placing the burden of these streets on the town would be a fiscal disaster.

Republicans want to have the federal government get out of the business of funding stuff. And it doesn't make sense. If you don't collect money from the entire country, you give up the large tax base that is nationwide—and helping to support those states who need the money more. I suppose Republicans can call that "Socialist," but they, themselves are the beneficiaries of this practice, just as Representative Paul Ryan was a direct beneficiary of federal largesse during the "stimulus," which he argued against (despite producing letters to the President asking for stimulus spending in his district).

I can see Republican-led Arkansas becoming a complete backwater without the amount of money it gets from federal sources. Just about everything in that state would suffer, from schools to roads and bridges to the overall economy in that state. This kind of "meta-socialism" works very well in the United States, as it has worked since the very beginning of our country, with Hamilton's assumption bill. And, by and large, it's the red states that are receiving most of it.

If Republicans want smaller and smaller units of government managing things, there will be no coordination between states (or towns and cities) and the vast majority of taxes you pay would be local taxes. Your tax burden wouldn't change—it would simply go to more local sources.

What's wrong with that, you ask. State representatives do not work full time for the state. In my state, they have "day jobs" and they're very interested in getting the state's business done so that they can get back to work. On the local level, town councilpersons are made up of volunteers. They tend to never develop the special expertise necessary to plan road building, repairs infrastructure improvements, bridge crossings, schools, public works and so on. Instead, they usually hire people to do that for them. These kinds of administrative tasks, while certainly no problem in their own businesses, are not the kinds of things small town councils should be tasked with. In my town, we have a professional Town Manager and full-time staff with actual expertise that handles these things. But if our town were made to manage all roads going through it, the budget would need to triple. There'd be a taxpayer insurrection.

I think the real reason why Republicans want smaller units of government to handle things is because corporate lobbyists find smaller units of government a pushover. And many states have few laws regarding lobbying. Within a matter of months, big corporations would, under this system, run everything.

I see Republicans wanting to dismantle the social safety net. And now they want to dismantle the connection between the federal government and the states. Of course, they didn't argue for this back when they held majorities in both houses and the Presidency.