10 Milestones in U.S. National Debt History

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Getting Democrats and Republicans to agree on just about any issue is an exercise in frustration, which is one of the reasons the U.S. government has been stuck in gridlock the past couple of years. Yet one issue both parties agree upon is this: the national debt poses a grave threat to the future health of the United States. Of course, both parties vehemently disagree on how to balance the budget and pay down the debt. Democrats favor such solutions as tax increases on higher income individuals and cuts to military spending; Republicans are pushing for cuts to domestic spending and tax reform to spur the economy. Meanwhile, the national debt, which stands at almost $16 trillion as of this writing, continues to grow. How did the U.S. get into this situation? Here’s a look back at 10 milestones in the growth of the U.S. national debt.

 

10. United States Incurs First Official Debt as Nation (1789)

The first U.S. debt was a result of the American Revolution.

Statue of Alexander Hamilton at U.S. Treasury Building; Karen Nutini

A group of colonial leaders helped secure loans from France and the Netherlands to help finance the American Revolution; by 1783, the new nation owed some $43 million. But the United States incurred its first official debt under President George Washington and the U.S. Congress, beginning 1790 with $71 million in public debt. Sounds like quite a bit for the era, and it was, roughly the equivalent of $900 billion in today’s dollars. Yet the first secretary of the treasury, Alexander Hamilton, was not concerned. “A national debt, if it is not excessive,” Hamilton said, “will be to us a national blessing.”

 

9. Federal Deficit Stands at Zero For Only Time (1835)

The CBO projects that federal debt interest payments could exceed one-third of the U.S. annual budget by the end of this century.

CBO projections on future U.S. debt interest payments; CBO

In almost 225 years of annual budgets, the United States has held public debt every year except one. A growing economy and peacetime conditions led to budget surpluses that erased all U.S. debt, albeit briefly, in January 1835. By the following year, the U.S. was once again in the hole.

 

8. Debt Passes $1 Billion For First Time (1863)

The U.S. national debt topped $1 billion for the first time in 1863.

The Battle of Gettysburg

Fighting a war is expensive, and the Civil War was extremely costly both in terms of human life and expenses. The U.S. federal deficit, which stood at around $65 million on the eve of war in 1860, ballooned to more than $1 billion in 1863, and to more than $2 billion by the end of the war. In 1861, the U.S. levied the first personal income tax to help offset the war costs, with incomes over $800 subject to a 3 percent tax. Here’s a link to a U.S. Treasury listing of yearly debt totals in U.S. history.

 

7. National Debt Reaches All-Time High in Percentage of GDP (1945)

The United States national debt as a percentage of GDP reached an all-time high during World War II.

War bonds sold to finance the U.S. effort in WWII added to the debt.

While the current $16 trillion national debt is a record in terms of total amount, it’s not a record in terms of percentage of the Gross Domestic Product, a key ratio used by economists. The expenses of World War II, coming on the heels of the Great Depression, left the national debt at almost 113 percent of the GDP in 1945. Here’s a Congressional Budget Office table on national debt as a percentage of GDP, from 1790 through 2000.

 

6. National Debt Reaches Post-World War II Low (1974)

President Nixon presided over a period of relatively low national debt.

In the late 1960s and early 1970s, the United States was on a spending spree on two fronts: the war in Vietnam, and in new social programs (Medicare, etc.) from Lyndon B. Johnson’s Great Society. Yet the public debt as a percent of the GDP remained in the 25 to 30 percent range during that era, reaching a post-World War II low of 24.6 percent in 1974.

 

5. Federal Debt Tops $1 Trillion For the First Time (1982)

The U.S. Budget deficit topped $1 trillion for the first time in 1982.

President Reagan signs his tax reform bill in 1981.

With the U.S. in the midst of a recession, the national debt cracked the $1 trillion mark for the first time in 1982. Under President Ronald Reagan, the national debt almost tripled, as the U.S. engaged in a military buildup that helped lead to the demise of the Soviet Union.

 

4. National Debt Clock Makes Debut (1989)

The U.S. National Debt Clock was first introduced in 1989.

The U.S. National Debt Clock in 2007; William Hines

Hoping to highlight his concern over the growing national debt, in 1989 businessman Seymour Durst erected a clock on 42nd Street near Times Square in New York City. The debt stood at less than $3 trillion at the time. Durst passed away in 1995, but the family-owned Durst Organization still operates the debt clock, which was replaced by a new model and moved to a building on Sixth Avenue in 2004. Durst’s son, Douglas, says the clock is a non-partisan effort to educate the public. Here’s an interesting online version of a national debt clock that includes many alarming figures, such as the total debt per U.S. citizen, which currently stands at almost $51,000.

 

3. National Debt Explodes From 2000 to 2012

Costly wars in Iraq and Afghanistan helped the U.S. national debt increase almost 300 percent between 2000 and 2012.

U.S. soldiers stand guard at an oil field in Iraq in 2003; U.S. Navy photo

As the 21st century dawned, the United States public debt stood at around $5.7 trillion. As of this writing, that figure has almost tripled in 12 years. Costly wars in Iraq and Afghanistan, the Great Recession, lower revenues, federal stimulus packages and a growing federal government have all conspired to raise the debt.

 

2. Congressional Budget Office Issues Alarming Projections For Future Debt (2010)

A 2010 CBO study estimated U.S. national debt could top 180 percent of GDP by 2035.

Credit: CBO

The non-partisan CBO, which analyzes budget issues for the U.S. Congress, issued a report in July 2010, projecting the federal deficit through the year 2035. The CBO noted that an aging population and rising health care costs would almost certainly lead to a rising debt. Using federal laws and policies in place in 2010, the CBO projected a national debt that would equal 80 percent of GNP by the year 2035. However, using an alternative fiscal scenario, assuming the extension of tax cuts and rising Medicare costs, among other factors, the CBO’s projected debt total rose to 180 percent of GNP by 2035. By the way, at the time of the report, the national debt stood at $13.2 trillion. Only two years later, those projections already seem overly optimistic.

 

1. National Debt Eclipses Annual GDP (2012)

The U.S. national debt is closing on $16 trillion.

U.S. Capitol; Alex/Flickr

Through the second quarter of 2012, the United States’ GDP stood at $15.60 trillion; as noted earlier, the national debt as of this writing is $15.95 trillion. It’s only the third year since 1789 that the U.S. debt has eclipsed 100 percent of GDP, following 1945 and 1946. That sounds alarming on the surface, but some economists say that even at this level, the current debt is not unmanageable, despite the $225 billion annual interest payment. And the U.S. certainly isn’t the only country facing this issue — the CIA World Factbook estimated that for 2011, the U.S. ranked 35th highest in the world in terms of national debt as a percentage of GDP. And low debt totals are certainly no guarantee of prosperity, as witnessed in such countries as Libya (4.2 percent debt to GDP ratio), Iran (12 percent) and Nigeria (17.90 percent). Perhaps the non-partisan CBO sums it up best, noting that some combination of tax increases or spending cuts should be enacted now, before more drastic measures are needed later. As the CBO noted in its 2010 report, “earlier action would permit the changes in policy to be smaller and more gradual, and it would give people more time to adjust to the changes — although it would also require more sacrifices by current generations to benefit future ones.”

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The author is a longtime professional journalist who has interviewed everyone from presidential contenders to hall of fame athletes to rock 'n' roll legends while covering politics, sports, and other topics for both local and national publications and websites. His latest passions are history, geography and travel. He's traveled extensively around the United States seeking out the hidden wonders of the country.