The Debt Ceiling FixA History Lesson From Our Founding

Fathers
By Johnny Byrd, CPA
Most Americans no doubt view our current National Debt crisis, at least in terms of
dollar magnitude, as historically unprecedented. Yet, consider the words King
Solomon penned over three thousand years ago: There is nothing new under the
sun. I believe those words still ring true today, even for our debt problem, and if
Solomon was right then the past may hold the key to solving the repeat problems of
the present crisis.
A little study of the American Revolutionary War era reveals not only amazing
parallels to our situation today, but useful advice about what to do to get the
American financial house in order.
Then, as now, America was at war. Unlike the British who could pay for the war
effort with hard cash, the American army could rely only on limited state funds and
on paper money to settle debt. The Confederation Congress issued 200 million
dollars of paper money from 1775 to 1779. The dollar dropped in value to between
2 and 3 cents in this short time period. Today, we have what the colonies did not-the benefit of the US dollar having world reserve currency status, but we have
abused that status and, just like our forebears, are suffering from dollar devaluation
and mounting inflation.
Then, as now, America went deeply into foreign debt to finance its war activities.
By 1790 the National Debt was at $54 million. That may only be $1.25 billion in
todays dollars, but consider that the central government at the time had no power
to tax, so limited cash flow, and likewise no massive budget from which other
expenses could be cut to more easily reduce the debt.
Then, as now, a powerful conservative faction emerged in America that felt success
could only be achieved through free enterprise and a sound financial basis. In
colonial times that sound financial basis included considerable state and local
taxation. The new conservatives detested paper money and inefficient government.
The leader from among these new conservatives was Robert Morris, a Philadelphia
merchant and later prominent politician. Morris was appointed Superintendent of
Finance by the Confederation Congress, which adopted his policies including cutting
costs, reducing the budget and personnel, and eliminating numerous government
functions, with little opposition. America was on its way to restoring the credit of
the central government, but a little something happened along the way.
Morris most important policy initiative was to set the Confederation Congress free
from the arbitrary impulses of the states by allowing it to impose taxes sufficient to
cover federal expenses, including the repayment of the countrys war debts and

related interest. This key initiative required unanimous ratification by all thirteen
states by amendment to the Articles of Confederation. Rhode Island was the lone
dissenting state, and Morris plan failed.
It was only a few years later that the framers of the new Constitution would convene
at the behest of Alexander Hamilton, the impotent congress finally resigned to the
fact that a powerful, central (federal) government had to be adequately empowered
to levy taxes. Such would enable the government to raise adequate revenues to do
things like, establish Justice provide for the common defenseand secure the
Blessings of Liberty You know the rest of the story.
The solution then, as now, required both reduction in government costs and new
taxes--in a couple of words, efficient government. The democrats are coming to the
table today offering some cost reductions, albeit with sacred cows like Medicare,
Social Security, and even Obamacare off the table for reform consideration.
Republican leaders are balking, having a sacred cow of their own, saying they have
a titanium spine when it comes to increasing taxes. Rubbish! I say they have no
spine at all.
Reform requires sacrifice from both parties.
We could start with eliminating deductions for second homes and corporate jets,
and then reform the current tax deductibility of million dollar home mortgages,
things unlikely to stifle job creation in America. Social Security and Medicare
likewise need an overhaul. When these programs were set up, people didnt live as
long as they do now, nor were they physically able to work as many years as most
people are today.
Then, as now, there was no such thing as sacred cowseverything must be subject
to scrutiny and reform.
Sadly, the current brood of politicians have forgotten much about taxation and
history. Just as then the British Parliament in the wake of the Boston Massacre
refused to enter into a policy debate over the American colonies, thus setting off a
certain war, now both sides of the American political aisle, faced with the economic
ruin of an entire nation, evidently are holding fast to long held principles, too rigid to
accommodate the large scale reform required to continue to preserve the Blessings
of Liberty. If they dont act decisively now, there will be none left for our posterity.
It is time for our political leaders to take note of history, make deep sacrifices, and
get a deal done that not only addresses the debt ceiling, but pays off our national
debt entirely.