by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Rather than shirking responsibility, the White House and Congress adopted policies to defuse the debt bomb and avert future debt crises. They set taxes at a level higher than before the war and spent less than tax revenue in order to create surpluses used for debt reduction.
For the two decades after the fiscal crisis in 1814—with the exception of two years of a downturn prompted by a banking crisis—the federal government paid down its debt. Debt reduction freed savings for private investment, and the U.S. economy boomed.
The taboo against routine borrowing forced the voters and federal officials to weigh the benefits of public investments against the cost of taxation. In 1825, when Congress was to slow raise taxes in order to allow higher spending, neither President John Quincy Adams nor his opponents suggested making spending easier by incurring more debt to disguise its cost. Adams’ political opponent and successor, President Andrew Jackson, also postponed tax reduction until debt was paid off.
By the end of 1834, the federal government had retired its entire debt. Americans who had lived through the War of 1812 understood that use of debt to fund routine spending threatened their nation’s future. For a century and a half after the War of 1812, the federal government only borrowed during wars and economic downturns. The absence of routine borrowing and high tax rates to reduce wartime borrowing lightened the burden on the enterprise of the American people.