Fact-checking Trump’s false US history lesson on debt, tariffs and building highways with ‘CASH’

Posted at 7:43 AM, Jun 25, 2019
and last updated 2019-06-25 10:27:10-04

Arguing in favor of his tariffs, President Donald Trump claimed on Twitter Sunday that the US had “no debt” and “a big system of tariffs” when it built “everything from Highways to the Military with CASH.”

“When our Country had no debt and built everything from Highways to the Military with CASH, we had a big system of Tariffs. Now we allow other countries to steal our wealth, treasure, and jobs – But no more! The USA is doing great, with unlimited upside into the future!”

His history lesson is largely incorrect.

Facts First: The US has almost never had “no debt.” It was not even close to debt-free when it created the Interstate Highway System, and the national debt spiked when the military was built up during major wars. Trump was correct that the Interstate was not financed with debt, but he did not mention where the money came from: dedicated taxes.

Let’s go through Trump’s tweet step by step.

“No debt”: The US has been debt-free just once, in the mid-1830s, when then-president Andrew Jackson had it paid off. “There has been almost no period in US history when the federal government has been completely free of debt,” said Douglas Irwin, a Dartmouth College economics professor and a prominent expert on US economic and trade history.

Trump did not say what highways he was talking about, but the US was nowhere near debt-free when the federal government approved the construction of the Interstate Highway System in 1956. The ratio of debt to Gross Domestic Product hit an all-time record, more than 100%, just after the end of World War II in 1945. Though the debt-to-GDP ratio fell in the 1950s as the economy boomed, the total debt load was about $273 billion in 1956, about $2.5 trillion in today’s dollars.

“A big system of tariffs”: “Big” is subjective, and the US had numerous tariffs in place as it was building its highways. But during the era when the Interstate system was founded, tariffs were being reduced, not increased: the US and its international partners in the General Agreement on Tariffs and Trade, the precursor to the World Trade Organization, agreed to shrink or eliminate thousands of tariffs during their negotiations in the late 1940s and early-to-mid-1950s. By the 1950s, Irwin said, “tariffs were relatively low” in historical terms, in the 10% range overall, “and at that time raised a trivial amount of revenue for the government.”

It was unclear what time period Trump was referring to when he spoke of building up the military. But it is especially untrue that the US had “no debt” during periods of military expansion: debt increased rapidly during the military buildups prompted by the Civil War, World War I and World War II. And at the time the national military was officially founded in 1789, the country was burdened with major debts from the American Revolution.

“With cash”: Trump was unclear on what he meant by “cash,” but he seemed to employ the word to mean money that was not raised through borrowing. Here, he was correct. Under the “pay-as-you-go” Highway Trust Fund system Congress created to govern the construction of the Interstate, highway projects were not allowed to contribute to federal deficits. The government was also not allowed to issue new bonds to pay for the projects. Rather, Congress mandated that the federal share of Interstate costs would be funded through a dedicated revenue stream.

What Trump did not mention was the nature of the revenue stream. The money came from an increase in taxes on products used by people who drove on highways, like gasoline and truck tires.

So it may have been “cash,” but it was cash generated from tax hikes.

“He’s dumbing down something that’s extremely complex. And what he doesn’t want to talk about is, of course, taxes,” said Tom Lewis, author of the 1997 book Divided Highways: Building the Interstate Highways, Transforming American Life.