Alexander Hamilton's plan for a federal debt repayment plan was controversial because of the way it pitted some states against other states and threatened the perceived sovereignty of the states relative to the federal government. After the Revolutionary War, the United States was left $54 million in debt, with another $25 million in debt held by the states. Hamilton's plan was to nationalize and pay the debt with Treasury bonds.
This plan outraged delegates from Maryland and Virginia, among others, who had already paid their debts. In a loose confederation, such as the United States was at that time, state governments argued that their citizens should not be taxed to relieve the obligations of other states. Hamilton argued that a swift repayment, made at the low interest rate he intended to issue the bonds for, would signal to overseas investors that America was a good investment risk and that it would borrow money in good faith.
Another reason for controversy was that, if the federal government bought up the debt from the war, the result would be a boon to unscrupulous speculators who had cheated veterans out of their bonds. In the end, James Madison and Thomas Jefferson brokered a compromise that entailed, among other concessions, the establishment of the District of Columbia on the Potomac, between Maryland and Virginia.