Debt deals between president, Congress nearly as old as the nation

Founders knew when to give in

President Obama says it would be folly for the White House to negotiate with Congress over the government’s debt — but the nation’s founders thought differently.

Indeed, the entire reason Mr. Obama lives in Washington, on the banks of the Potomac, is because of the first great debt deal, struck in negotiations by no less than Alexander Hamilton, Thomas Jefferson and James Madison.

Hamilton, ever eager to build a strong and financially robust national government, wanted to assume the states’ Revolutionary War debt. Southerners, particularly Virginians who had done a good job of paying off their debt, said that was a bad deal because it would reward the laggard states.

But over dinner, Jefferson and Madison agreed that preserving the new government was paramount. They asked only for a face-saving measure, which was to build a capital in the South.

Hamilton wanted to assume the state debt, and people in Virginia weren’t real keen on that, especially their leadership. So they got together over dinner and made the swap,” said Robert E. Wright, an economic historian at Augustana College in South Dakota.

That dinner meeting stands in contrast to the current status of talks in Washington, where sitting down and negotiating has been in short supply on both sides of the aisle.

Mr. Obama has said that holding talks when the government is poised to hit its borrowing limit is akin to negotiating with terrorists and has adamantly ruled it out.

House Republicans have only recently embraced negotiations on a 2014 budget, after resisting for nearly six months.

Both sides also spar over whether it’s proper to demand the kind of face-saving add-ons that Jefferson and Hamilton sought in 1790, and that some Republicans are floating today in exchange for voting for debt increases or spending bills to reopen the government.

Republicans say even recent history proves it’s normal to demand something in return for a debt vote.

“You can’t say that it’s unprecedented to have negotiations and reforms tied to a debt increase,” Sen. Chuck Grassley, Iowa Republican, told Treasury Secretary Jack Lew on Thursday.

Mr. Lew agreed, but said the circumstances were different this time. He said Republicans are using the national debt as a threat to the economy in order to leverage changes.

“The debt increase has always been a hard vote,” he said, recounting its history.

For the first half of the republic, every issuance of bonds to cover national debts required a vote by Congress. In 1917, lawmakers instead set a ceiling and gave the Treasury Department the power to float bonds to that level.

“The debt limit was put in place to reduce the number of times Congress had to vote on debt,” Mr. Lew said, adding that the goal was to make it more routine and less painful. Indeed, in the 1970s and 1980s, Democrats tried to create a system in which the House wouldn’t even have to vote specifically on debt increases but would raise the level automatically when they voted for procedural motions.

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