But getting the dollars to repay the debt was not easy. There
were no entitlements to cut or government funds to redirect.
Hamilton knew that the wrong kind of taxes would weaken the
already-fragile economy. He focused taxation on imports and
nonessential goods, like whiskey. Hamilton also needed Congress
to approve the federal government’s assumption of the states’
debts, which at first seemed unlikely. Some states, like
Virginia, had already paid much of their debt, and others saw
their debt as having become a financial game for New York
speculators. As a result, many states feared federal assumption
would mean that their taxes would go to pay northern speculators
or to retire the debt of big borrowers, like Massachusetts.
Virginia and several other southern states that owed little or
had repaid what they owed voted against Hamilton’s first
assumption bill and defeated it. They were expected to be
adamant — an outcome that could well have brought about the
young country’s demise. Thomas Jefferson and Madiso