SPECIALRFRRF

The Growth of Government SpendingIn the Twentieth Century

Since the beginning of the twentieth century, Americans . One indicator of this growinggovernments in the United States have be-

involvement is the increasing fraction of th ecome increasingly involved in the lives of

overall economy that is comprised of govern -

Figure 1Total Government Current Expenditures by Type as a Percentage of Gross Domestic Produc t1900 - 2000

40%

Sinc e193 7

TAXFOUNDATIO N

March 2000No. 93

By Brandon K. JulioAdjunct Schola rTax Foundatio n

20%

30 %

10%,

0 Illlplllllllllllllllllmuul_cs0

1_c60

19- o

Irc 0

1y90

mi!I tmlll1400

1~1O 9

19

19_20

30

N0

n

Other

PhysicalResource s

NetInteres tPaid

nEducatio n& Training

IncomeSecurit y

nNationa lDefens e

Source : Tax Foundation

2

ment expenditures . )Figure 1 illustrates the growth of govern-

ment expenditures as a percentage of GDPsince the beginning of the century . 2 (SeeTable 1 for details .) In 1900 total governmentexpenditures equaled 5 .5 percent of GDP . By1992 this figure had increased more thansixfold to 33.1 percent . This year total govern-

ment expenditures will have dipped to 28 .9percent of GDP .

The composition of government expendi-tures has also changed dramatically over time .At the turn of the century most governmentspending was used to pay for education an dtraining, national defense, and interest pay-ments . Today much governmental activit y

Table ITotal Government Current Expenditures by Type as a Percentage of Gross Domestic Produc t1900 - 2000

Year Total

Ne tNational Income Education InterestDefense Support & Training

PaidPhysical

Resources Other

Memo :GD P

($Billions) Year Total

NetNational Income Education Interest Physica lDefense Support & Training

Paid

Resources Other

Memo :GDP

($Billions)

1900 5 .5% 0 .5% 0 .2% 0 .7% 0 .5% 0 .4% 3 .2% $18 .8 1950 20 .4% 6 .7% 3 .0% 2 .4% 1 .8% 1 .5% 5 .1% $294 .61901 5 .2 0 .5 0 .1 0 .7 0 .5 0 .3 3 .0 20 .8 1951 20 .8 9 .1 2 .3 2 .1 1 .5 1 .3 4.5 339 .71902 5 .3 0 .5 0 .1 0 .8 0 .5 0 .3 3 .0 21 .7 1952 22 .5 10 .9 2 .2 2 .0 1 .6 1 .3 4.5 358. 61903 5 .5 0 .5 0 .1 0 .8 0 .6 0 .4 3 .1 23 .1 1953 22 .8 10.9 2 .4 2 .2 2 .0 1 .3 4.1 379 .71904 5 .8 0 .5 0 .2 0 .9 0 .6 0 .4 3 .3 23 .1 1954 22 .4 9 .8 3 .0 2 .4 2 .0 1 .3 4 .o 381 . 3

1905 5 .6% 0 .5% 0 .1% 0 .9% 0 .6% 0.4% 3 .1% $25 .3 1955 21 .4% 8.9% 2 .9% 2 .4% 1 .9% 1 .2% 4.0% $415 . 11906 5 .1 0 .4 0 .1 0 .8 0 .6 0 .3 2 .8 28 .9 1956 21 .4 8 .9 3 .1 2 .5 1 .6 1 .3 4.0 438 .01907 5 .2 0 .4 0 .1 0 .8 0 .6 0 .3 2 .8 30 .6 1957 22 .5 9 .4 3 .5 2 .6 1 .8 1 .3 3 .9 461 .01908 6 .1 0 .5 0 .2 1 .0 0 .7 0 .4 3 .3 27 .9 1958 24 .1 9 .4 4.4 2 .9 1 .9 1 .3 4.1 467 . 31909 5 .3 0 .4 0 .1 0 .9 0 .7 0 .3 2 .9 33 .6 1959 23 .0 8 .3 4.2 2 .9 2 .3 1 .4 4.0 507 . 2

1910 5 .2% 0 .4% 0 .1% 0 .9% 0 .7% 0 .3% 2 .8% $35 .5 1960 23 .1% 8 .1% 4.4% 3 .1% 1 .9% 1 .4% 4.1% $526 .61911 5 .3 0 .4 0 .1 0.9 0 .7 0 .3 2 .9 36 .0 1961 24 .0 8 .1 4 .9 3 .3 2 .0 1 .3 4 .4 544 .81912 5 .0 0 .4 0 .1 0 .8 0 .6 0 .3 2 .7 39 .7 1962 24 .1 8 .2 4 .8 3 .4 2 .1 1 .3 4.3 585 .21913 5 .4 0 .4 0 .1 0 .9 0 .7 0 .4 2 .8 39 .9 1963 24 .1 8 .1 4 .8 3 .5 2 .0 1 .4 4.4 617 .41914 6 .2 0 .4 0 .2 1 .1 0 .8 0 .7 3 .1 38 .9 1964 23 .7 7 .6 4 .7 3 .7 2 .0 1 .4 4.4 663 . 0

1915 6 .6% 0 .4% 0 .2% 1 .2% 0 .9% 0 .8% 3 .2% $40 .3 1965 23 .4% 7 .3% 4 .8% 3 .7% 1 .9% 1 .3% 4.4% $719. 11916 7 .E 0 .5 0 .2 1 .2 0 .9 1 .0 3 .3 48 .6 1966 24.2 7 .8 4 .9 3 .9 1 .9 1 .3 4.4 787 . 81917 14 .3 4.3 0 .3 1 .9 1 .4 1 .6 4 .8 60 .8 1967 26 .1 8 .6 5 .6 4.3 2 .0 1 .3 4 .4 833 .61918 20 .6 10 .2 0 .3 2 .0 1 .5 1 .7 4 .9 76 .9 1968 26 .8 8 .7 59 4.3 2 .1 1 .4 4.3 910 . 61919 15 .9 6 .5 0 .3 1 .8 1 .3 1 .6 4.4 84 .6 1969 26 .9 8 .2 6 .1 4 .5 2 .2 1 .4 4.4 982 . 21920 8 .8% 1 .5% 0 .2% 1 .4% 1 .0% 1 .3% 3 .4% $92 .1 1970 28 .3% 7 .6% 7 .1% 5 .0% 2 .3% 1 .5% 4 .9% $1,035 . 61921 10 .1 1 .2 0 .3 1 .7 1 .3 1 .7 4 .0 70 .1 1971 28 .7 7 .1 7 .7 5 .2 2 .3 1 .4 5 .1 1,125 . 41922 8 .8 0 .8 0 .2 1 .5 1 .1 1. .5 3 .6 74 .6 1972 28 .6 6 .7 7 .9 5 .2 2 .3 1 .3 5 .2 1,237 . 31923 7 .8 0 .6 0 .2 1 .4 1 .0 1 .3 3 .2 85 .7 1973 28 .0 6 .1 8 .2 5 .0 2 .1 1 .4 5 .1 1,382 . 61924 8 .0 0 .6 0 .2 1 .5 1 .1 1 .2 3 .4 85 .3 1974 29 .2 6 .0 9 .1 5 .2 2 .2 1 .4 5 .4 1,496 . 9

1925 7 .6% 0 .5% 0 .2% 1 .4% 1 .1% 1 .1% 3 .2% $93 .7 1975 31 .6% 6 .0% 10 .4% 5 .5% 2 .4% 1 .5% 5 .8% $1,630 . 61926 7 .5 0 .4 0 .2 1 .4 1 .1 1 .1 3 .2 97 .7 1976 30 .6 5 .6 10 .2 5 .5 2 .3 1 .6 5 .4 1,819 . 01927 7 .9 0 .4 0 .3 1 .5 1 .1 1 .1 3 .4 95 .5 1977 29 .9 5 .4 9 .9 5 .3 2 .3 1 .6 5 .3 2,026 . 91928 7 .9 0 .4 0 .3 1 .5 1 .1 1 .1 3 .5 97 .7 1978 28 .7 5 .2 9 .4 5 .1 2 .4 1 .5 5 .0 2,291 . 41929 7 .7 0 .4 0 .4 1 .4 1 .0 1 .0 3 .5 103 .8 1979 28 .4 5 .1 9 .5 5 .1 2 .3 15 4 .9 2,557 . 5

1930 9 .2% 0 .5% 0 .5% 1 .6% 1 .2% 1 .2% 4 .2% $91 .1 1980 30 .2% 5 .4% 10 .4% 5 .1% 2 .4% 1 .7% 5 .2% $2,784. 21931 13 .0 0 .7 0 .7 2 .3 1 .6 1 .6 6 .0 76 .4 1981 30 .6 5 .6 10 .5 5 .0 2 .5 2 .1 4 .9 3,115 . 91932 15 .4 0 .8 1 .1 2 .6 2 .1 1 .9 6 .8 58 .6 1982 32 .5 6 .1 11 .2 5 .1 2 .7 2 .4 5 .1 3,242 . 11933 16 .5 0 .8 1 .6 2 .6 2 .6 2 .2 6 .7 56 .2 1983 32 .4 6 .1 11 .1 5 .0 2 .8 2 .5 4.9 3,514 . 51934 16 .4 0 .8 1 .7 2 .4 2 .8 2 .1 6 .6 65 .9 1984 31 .1 6 .1 1(1 .3 4 .8 2 .5 2 .7 4.7 3,902 . 4

1935 15 .5% 0 .8% 1 .4% 2 .1% 2 .6% 1.7% 6 .7% $73 .1 1985 31 .4% 6 .2% 10 .2% 4 .9% 2 .4% 2 .9% 4.8% $4,180 . 71936 15 .4 (1 .9 1.5 2 .1 2 .6 1 .6 6 .7 83 .6 1986 31 .6 6 .2 1(1 .2 4 .9 2 .6 2 .9 4.8 4,422 . 21937 13 .3 0 .8 1 .5 1 .9 2 .3 1 .4 5 .4 91 .8 1987 31 .4 6 .2 10 .1 5 .0 2 .5 2 .9 4 .8 4,692 . 31938 15 .6 1 .0 2 .0 2 .3 2 .7 1 .6 6 .0 85 .9 1988 30 .7 5 .9 10 .0 4 .9 2 .2 2 .9 4 .8 5,049 . 61939 15 .7 1 .2 2 .2 2 .2 2 .8 1 .5 5 .7 91 .9 1989 30 .5 5 .6 10 .1 4 .9 2 .2 3 .0 4 .8 5,438. 7

1940 14.9% 4.5% 1 .6% 1 .6% 2 .1% 1 .1% 4 .1% $101 .2 1990 31 .4% 5 .5% 10 .6% 5 .0'% 2 .1% 3 .0% 5 .1% $5,743 . 81941 15 .5 8 .2 1 .1 1 .1 1 .5 0 .8 2 .9 126 .7 1991 32 .1 5 .5 11 .6 5 .1 2 .2 3 .3 4 .4 5,916 . 71942 23 .9 16 .3 1 .0 1 .0 1 .7 0 .9 3 .0 161 .6 1992 33 .1 5 .2 12 .3 5 .0 2 .3 3 .2 5 .1 6,244. 41943 30 .5 23 .4 0 .8 0 .9 1 .7 0 .9 2 .7 198 .3 1993 32 .7 4 .8 12 .6 5 .0 2 .3 3 .0 5 .0 6,558 . 11944 34 .2 26 .0 1 .0 1.0 1 .8 1 .2 3 .2 219 .7 1994 31 .9 4 .4 12 .5 5 .0 2 .2 3 .0 4 .9 6,947 . 01945 35 .5% 24.1% 1 .7% 1 .4% 1 .8% 1 .9% 4 .7% $223 .2 1995 31 .8% 4 .1% 12 .6% 5 .0% 2 .1% 3 .1% 4 .8% $7,269 . 61946 24 .6 13 .9 1 .6 1 .5 1 .4 1 .7 4 .5 222 .6 1996 31 .3 4 .0 12 .6 4 .9 2 .1 3 .0 4 .8 7,661 . 61947 20 .2 8 .0 1 .8 2 .1 1 .4 1 .8 5 .2 244 .6 1997 30 .5 3 .8 12 .4 4 .9 2 .0 2 .8 4 .7 8,110 . 91948 19 .6 5 .4 2 .4 2 .6 1 .6 1 .8 5 .8 269 .7 1998 29 .8 3 .6 12 .2 4 .8 2 .3 2 .5 4 .4 8,511 . 01949 21 .9 5 .8 3 .4 2 .9 2 .0 1 .9 6 .1 267 .8 1999 29 .3 3 .5 12 .0 4 .8 2 .3 2 .2 4 .4 8,964. 0Source : Tax Foundation 2000 28 .9% 3 .4% 12 .1% 4 .8% 2 .3% 1 .9% 4 .5% $9,351 .0

3

involves transferring income from one group

ment spending, 57 .8 percent, took place at theto another . This year transfer programs are

state and local levels . Today the federal govern-expected to account for 41 .6 percent of goy-

ment spends more than twice as much as all o fthe state and local governments combined .

One indicator of government's growing

Federal ExpendituresFederal expenditures as a percentage o finvolvement in the lives ofAmericans is

GDP have increased almost ninefold since the

the increasing fraction of the overall

turn of the century . They have risen from 2 . 3percent of GDP in 1900 to approximately 20 . 2

economy that is comprised of govern-

percent today (see Figure 2 and Table 2) .While federal expenditures are expected t oment expenditures.

grow in absolute terms over the next couple ofyears, both the Administration's Office of

ernment expenditures, a figure that was just

Management and Budget and the Congres-3 .0 percent in 1900 .

sional Budget Office project that they wil lThe relative size of the various levels of

grow more slowly than the economy as agovernment has also changed dramatically

whole .since 1900 . At that time, the bulk of govern-

Many of the changes in the size an d

Figure 2Federal Government Current Expenditures by Type as a Percentage of Gross Domestic Produc t1900 - 2000

II

~~I lI~~1 III II

I

! lIi i

H~'~,n!!~R, ~Fe w

.

111.111

II111-1- .... .

Imlolhumll h;!!!Ill.',io,o

. . .

19S

2000

30 %

25%

I

0

OSource : Tax Foundation

nOthe r

Physica lResources

Ne tInterestPai d

nEducatio n& Trainin g

nIncome

5%

Security

nNationalDefense

20 %

10 %

15%

structure of federal spending can be trace dto major historical events of the last century .Wars, the initiation of new federal programs ,and economic booms and busts have led t ochanges in federal expenditures over time .Table 3 lists some of the significant historica levents that affected the federal budget thi scentury.

The Turn of the Century Through World War I

Throughout the early part of the centurythe federal government played the role that ithad during much of the nation's history. Federalexpenditures represented a very small fractionof GDP, gradually falling from 2 .3 percent in1900 to 1 .5 percent in 1915 . The largest cat-egory of federal expenditure during this perio d

Table 2Federal Government Current Expenditures by Type As a Percentage of Gross Domestic Produc t1900 - 2000

PhysicalResources Other

Memo :GDP

($Billions) Year Total

NetNational Income Education Interest Physica lDefense Support & Training

Paid

Resources Other

Memo :GDP

($Billions)

1 .6% $18 .8 1950 15 .1% 6 .4% 2 .1% (1 .2% 1 .6% 1 .0% 3 .8% $294 .61 .4 20 .8 1951 16.0 9 .0 1 .6 0 .2 1 .3 0 .7 3 .2 339. 7

0 .1 1 .4 21 .7 1952 17 .6 10 .9 1 .7 0 .1 1 .2 0 .7 3 .0 358 .60 .1 1 .4 23 .1 1953 17 .9 10 .9 1 .9 0 .1 1 .2 1 .3 2 .5 379 . 70 .1 1 .5 23 .1 1954 17 .2 9 .8 2 .4 0 .1 1 .2 1 .3 2 .4 381 . 30 .1% 1 .3% $25 .3 1955 16 .1% 8 .9% 2 .4% 0 .1% 1 .1% 1 .2% 2 .4% $415 . 10 .1 1 .2 28 .9 1956 16 .0 8 .9 2 .6 0 .1 1 .2 1 .0 2 .3 438 .00 .1 1 .2 30 .6 1957 17 .0 9 .4 3 .0 0 .1 1 .2 1 .1 2 .2 461 . 00 .1 1 .4 27 .9 1958 18 .2 9 .4 3 .8 0 .1 1 .1 1 .4 2 .3 467 . 30 .1 1 .2 33 .6 1959 17 .4 8 .3 3 .6 0 .1 1 .2 1 .9 2 .1 507 . 2

0 .1% 1 .2% $35 .5 1960 17 .0% 8 .1% 3 .8% 0 .2% 1 .3% 1 .4% 2 .2% $526 . 60 .1 1 .

1 36 .0 1961 17 .6 8 .1 4 .3 0 .2 1 .1 1 .5 2 .4 544. 80 .1 1 .1 39 .7 1962 17 .8 8 .2 . 4 .2 0 .2 1 .2 1 .7 2 .4 585 . 20 .1 1 .0 39 .9 1963 17 .8 8 .1 4.2 0 .2 1 .2 1 .6 2 .5 617 . 40 .1 1 .0 38 .9 1964 17 .4 7 .6 4 .1 0 .2 1 .2 1 .8 2 .5 663 . 0

0 .1% 0 .9% $40 .3 1965 17 .0% 7 .3% 4.2% 0 .3% 1 .2% 1 .6% 2 .5% $719 . 10 .2 1 .3 48 .6 1966 17 .9 7 .8 4 .3 0 .6 1 .2 1 .6 2 .5 787 . 80 .4 3 .3 60 .8 1967 19 .3 8 .6 4.9 0 .7 1 .2 1 .6 2 .4 833 . 60 .4 3 .3 76 .9 1968 19 .7 8 .7 5 .2 0 .7 1 .2 1 .7 2 .2 910 . 60 .4 2 .9 84 .6 1969 19 .4 8 .2 5 .3 0 .6 1 .3 1 .7 2 .3 982 . 20 .3% 2 .2% $92 .1 1970 20 .2% 7 .6% 6 .2% 0 .7% 1 .4% 1 .8% 2 .6% $1,035 . 60 .3 2 .3 70 .1 1971 20 .3 7 .1 6 .8 0 .7 1 .2 1 .8 2 .7 1,125 . 40 .3 1 .8 74 .6 1972 20 .5 6 .7 7 .1 0 .8 1 .2 1 .9 2 .9 1,237 . 30 .2 1 .5 85 .7 1973 19 .9 6 .1 7 .1 0 .7 1 .3 1 .6 3 .2 1,382 . 60 .2 1 .5 85 .3 1974 20 .8 6 .0 8 .0 0 .7 1 .4 1 .6 3 .2 1,496 . 9

0.2% 1 .4% $93 .7 1975 22 .8% 6 .0% 9 .4% 0 .8% 1 .4% 1 .8% 3 .4% $1,630 . 60 .2 1 .4 97 .7 1976 22 .0 5 .6 9 .3 0 .8 1 .5 1 .8 3 .1 1,819 . 00.2 1 .5 95 .5 1977 21 .5 5 .4 9 .0 0 .8 1 .4 1 .8 3 .0 2,026 . 90 .2 1 .6 97 .7 1978 20 .9 5 .2 8 .6 0 .9 1 .5 1 .8 2 .8 2,291 . 40 .2 1 .6 103 .8 1979 20 .7 5 .1 8 .7 0 .9 1 .6 1 .8 2 .6 2,557 . 5

0 .2% 1 .9% $91 .1 1980 22 .4% 5 .4% 9 .6% 0 .9% 1 .9% 1 .9% 2 .6% $2,784 . 20.4 3 .5 76 .4 1981 22 .7 5 .6 9 .8 0 .8 2 .3 1 .9 2 .3 3,115 . 90 .5 3 .1 58 .6 1982 24 .1 6 .1 10 .5 0 .6 2 .6 1 .9 2 .4 3,242 . 11 .0 3 .1 56.2 1983 24 .1 6 .1 10 .4 0 .6 2 .6 2 .1 2 .2 3,514. 51 .7 4 .1 65 .9 1984 23 .1 6 .1 9 .6 0 .5 2 .9 1 .9 2 .1 3,902 . 4

1 .6% 4.1% $73 .1 1985 23 .3% 6 .2% 9 .5% 0 .5% 3 .0% 1 .9% 2 .1% $4,180 . 72.0 4.9 83 .6 1986 23 .2 6 .2 9 .5 0 .5 3 .0 2 .0 2 .1 4,422 . 21 .5 3 .4 91 .8 1987 22 .7 6 .2 9 .4 0 .5 2 .9 1 .8 1 .9 4,692 . 32 .0 3 .9 85 .9 1988 22 .1 5 .9 9 .3 0 .5 2 .9 1 .6 1 .9 5,049 . 62 .2_ 3 .8 91 .9 1989 21 .9 5 .6 9 .3 0 .5 3 .1 1 .5 1 .9 5,438 . 7

1 .3% 2 .2% $101 .2 1990 22 .4% 5 .5% 9 .7% 0 .5% 3 .1% 1 .5% 2 .1% $5,743 . 80.9 1 .6 126.7 1991 22 .7 5 .5 10 .5 0 .5 3 .3 1 .5 1 .4 5,916 . 71 .3 1 .9 161 .6 1992 23 .7 5 .2 11 .2 0 .5 3 .1 1 .6 2 .1 6,244 . 4

1 .5 1 .8 198 .3 1993 23 .3 4 .8 11 .3 0 .5 2 .9 1 .6 2 .1 6,558 . 11 .6 2 .3 219 .7 1994 22 .5 4 .4 11 .1 0 .5 2 .9 1 .5 2 .0 6,947 . 0

1 .5% 3 .6% $223 .2 1995 22 .5% 4 .1% 11 .3% 0 .5% 3 .1% 1 .5% 1 .9% $7,269 . 60 .9 3 .3 222 .6 1996 22 .1 4 .0 11 .3 0 .5 3 .0 1 .4 1 .9 7,661 . 60 .7 3 .8 244 .6 1997 21 .5 3 .8 11 .1 0 .5 2 .9 1 .4 1 .8 8,110 . 90 .8 4 .3 269 .7 1998 20 .8 3 .6 10 .7 0 .5 2 .6 1 .6 1 .8 8,511 . 01 .2 4 .4 267 .8 1999 20 .4 3 .5 10 .6 0 .5 2 .3 1 .7 1 .8 8,964 . 0

2000 20 .2% 3 .4% 10 .6% 0 .5% 2 .1% 1 .7% 1 .8% $9,351 . 0

Year

Ne tNational Income Education Interes t

Total Defense Support & Training Pai d

1900 2 .3% 0 .5 %1901 2 .0 0 . 41902 1 .9 0 . 41903 2 .0 0 . 41904 2 .1 0 .4

1905 1 .9% 0 .4 %1906 1 .7 0 . 31907 1 .7 0 .31908 2 .0 0 .41909 1 .7 0 .3

1910 1 .6% 0 .3%1911 1 .6 0 .31912 1 .5 0 . 31913 1 .5 0 .31914 1 .6 0 . 2

1915 1 .5% 0 .2%1916 2 .3 0 .31917 10 .1 5 . 01918 17 .0 11 . 71919 12 .3 7 . 5

1920 5 .2% 1 .6%1921 5 .0 1 . 11922 3 .6 0 .61923 3 .0 0 . 51924 2 .9 0 . 5

1925 2 .6% 0 .4%1926 2 .5 0 . 31927 2 .6 0 . 31928 2 .6 0 . 31929 2 .6 0 . 3

1930 3 .0% 0 .4%1931 5 .4 0 . 71932 5 .1 0 . 61933 6 .2 0 . 61934 8 .5 0 . 7

1935 7 .8% 0 .7 %1936 9 .4 0 . 91937 7 .1 0 . 71938 8 .7 1 . 01939 9 .2 1 . 3

1940 8 .6% 3 .8%1941 10 .2 6 . 81942 19 .3 15 . 01943 26 .7 22 . 11944 30 .7 25 . 1

1945 31 .8% 24 .1 %1946 20 .4 13 . 51947 15 .7 8 . 11948 14 .8 5 . 81949 16 .7 6 .2

0 . 10 . 20 . 71 . 0

0 .6%

0 .1%

0 .7%

0 .7

0 .1

0 .9

0 .6

0 .1

0 . 7

0 .8

0 .1

1 .0

0 .9

0 .1

1 . 0

0 .6%

0 .1%

0 .6%

0 .4

0 . 4

0 .5

0 . 6

0 .4

•

0 . 7

0 .5

*

1 . 1

0 .8%

0 .1%

1 .8 %

0 .8

0 .1

1 . 6

1 .0

0 .2

1 . 8

1 .6

0 .3

1 . 9

2 .5

0 .3

2 . 0

0 .3%0 . 51 . 31 . 51 .4

1 .1 %1 . 20 . 90 . 70 . 7

0 .1 %• 0 . 1• 0 . 1• 0 . 1• 0 . 1

0 . 10 . 2

Source : Tax Foundation

0 .6%0 . 50 . 50 . 50 .4

5

consisted of outlays for national defense . Asignificant fraction of resources was also de-voted to the construction and operation o fphysical resources such as highways and canals .

In 1917 the United States entered WorldWar I and over the next two years federa lexpenditures soared to 17 .0 percent of GDP .Figure 2 shows that almost all of this increase

Throughout the early part of the centurythe federal government played the rolethat it had during much of the nation'shistory. Federal expenditures representeda very small fraction of GDP, graduallyfalling from 2.3 percent in 1900 to 1 .5percent in 1915.

was the result of increased spending on na-tional defense .

Between the World Wars

After the war federal spending fell sharplyas a percentage of GDP but never returned toits pre-war levels . Throughout the 1 920sfederal expenditures averaged 3 .2 percent ofGDP. This compares to just 1 .7 percent duringthe period from 1910 to 1916 . Figure 2 showsthat much of the growth in federal expendi-tures was the result of debt financing durin gthe war which resulted in significant increasesin federal interest payments during the 1920s .

In 1930 total federal expenditures wereequal to 3 .0 percent of GDP. By 1939 thisfigure had grown to 9.2 percent.

Following the crash of the stock market inthe fall of 1929, the Great Depression began .Over the next four years GDP fell by nearlyhalf. In the short run this large and suddendrop in income caused federal expenditures ,which had remained relatively constant, to ris erapidly as a percentage of GDP. Over thelonger term, the federal share of GDP climbedbecause of the New Deal programs that Con-gress and the Roosevelt administration enacte dduring the 1930s .

Figure 2 illustrates the impact that thes eprograms had on federal expenditures . In 1930

total federal expenditures were equal to 3 . 0percent of GDP . By 1939 this figure had grownto 9 .2 percent . The spending category thatgrew fastest was physical resources, climbin gfrom 0.2 percent of GDP in 1930 to 2 .2 per-cent in 1939 .

Federal income support, Social Security ,and welfare spending also grew markedl yduring this period . In 1930 it comprised les sthan a tenth of one percent of GDP, but by1939 it had climbed to 0 .9 percent . Mean -while, federal spending for national defens egrew from 0 .4 percent of GDP in 1930 to 1 . 3percent in 1939 .

World War II

Events abroad would soon change th efederal fiscal situation in America . Preparationfor possible war in Europe and/or Asia cause ddefense expenditures to more than triple fro m1939 to 1940 . Then, on December 7, 1941, theJapanese attacked Pearl Harbor. The Unite dStates declared war on Japan the next day, andthe Japanese government followed suit bydeclaring war on the United States. Three dayslater Germany and Italy declared war on theUnited States, and in response the UnitedStates declared war on those countries . TheUnited States was now fully engulfed in WorldWar II .

Entry into the war caused federal expendi-tures to soar to 31 .8 percent of GDP in 1945 .Most of this growth is attributable to massive

Table 3Budgetary History of the United States1900 - 2000

Year

Event

1898-1899

Spanish-American War

1913

16th Amendment adopted, giving Congress

power to levy income taxes

1917-1918

U .S . military involvement in World War I

1929

Stock market collapse; beginning of theGreat Depressio n

1932

Congress creates the Reconstruction FinanceCorporation to stimulate economy

1933

New Deal legislation launched1935

Social Security Act signed into law1941-1945

U .S . military involvement in World War I I1943

Income tax withholding introduced1944

G .I . Bill of Rights passe d1950-1953

Korean Wa r1958

National Aeronautics and Spac eAdministration (NASA) established

1965

Medicare bill becomes la w1964-1973

U .S . military involvement in the Vietnam

War

1991

Persian Gulf Wa r1992

Formal end of the Cold War

Source : Rabin, Jack . "The Budgetary Time Line : History isDestiny," Public Budgeting and Finance, 4th ed .

6

expenditures on national defense which grewfrom 1 .3 percent of GDP in 1939 to 25 . 1percent in 1944 . Federal interest payments

Entry into World War H caused federal ex-penditures to soar to 31 .8 percent of GDPin 1945. In addition to massive expendi-tures on national defense which gre wfrom 1.3 percent of GDP in 1939 to 25. 1percent in 1944, federal interest pay-ments resulting from the issuance of deb tto finance the war also grew markedly.

resulting from the issuance of debt to financethe war also grew markedly during this period .

The Post-War Period

After the war, demobilization allowed tota lfederal expenditures to drop to 14 .8 percent ofGDP in 1948 . However, the Korean War an dthe beginning of the Cold War caused defens espending to increase rapidly, and in 195 3federal spending totaled 17 .9 percent of GDP .

During the remaining years of the 1950 sand through the mid-1960s an interesting tren dbegan to emerge—one which would largelycharacterize federal budget policy through theend of the century—the share of the federal

In 1970, defense expenditures stood a t7.6 percent of GD1' but by the end of th edecade they had fallen to 5 .1 percent.Meanwhile, federal expenditures on in -come security, Social Security, and wel -fare grew from 62 percent of GDP to 8 . 7percent of GDP.

budget allotted to national defense graduall ydeclined while that comprised of incomesupport, Social Security, and welfare bal-looned. In 1953 defense spending accountedfor 10 .9 percent of GDP . By 1965 this figurehad dropped to 7 .3 percent . Conversely, in

1953 total federal income support, Socia lSecurity, and welfare equaled 1 .9 percent ofGDP. By 1965 this figure had grown to 4. 2percent . All other categories of federal spend-ing remained relatively constant in relation t oGDP during this period .

The Vietnam War Era

During the latter half of the 1960s federa lexpenditures as a percentage of GDP climbe dsharply, reaching 19 .7 percent in 1968 . Thi soccurred because at the same time that th efederal government was expanding its entitle-ment programs through the creation of Medi-care, Medicaid, and a host of smaller programs ,it was increasing defense spending to fight th ewar in Vietnam . By 1968 national defenseexpenditures had climbed to 8 .7 percent ofGDP. Meanwhile, federal spending on incomesupport, Social Security, and welfare hadclimbed to 5 .2 percent . All of the other catego-ries of federal spending remained relativelyconstant during this period except for federa lspending on education and training . Thi scategory grew from 0 .2 percent of GDP in1960 to 0 .6 percent in 1969 .

During the 1970s federal outlays went on abit of a roller coaster ride . From 1970 to 1975 ,total federal spending climbed from 20 . 2percent of GDP to 22 .8 percent, then fell to20.7 percent in 1979. Figure 2 shows tha tdefense expenditures as a percentage of GD Pfell sharply throughout this period, but federa lspending on income support, Social Security ,and welfare took up the slack . In 1970, de-fense expenditures stood at 7 .6 percent ofGDP, but by the end of the decade they ha dfallen to 5 .1 percent . Meanwhile, federalexpenditures on income security, Social Secu-rity, and welfare grew from 6 .2 percent o fGDP to 8 .7 percent of GDP .

The Last Twenty-Five Years

During the mid-1970s the federal govern-ment began to run a series of large deficits .The accumulation of debt caused federa linterest payments to increase from 1 .4 percentof GDP in 1970 to 1 .6 percent in 1979. Federalspending on education and training also gre wslightly during this period, from 0 .7 percent ofGDP in 1970 to 0 .9 percent in 1979 . Spendingfor all other categories of remained relativel yconstant as a percentage of GDP .

Throughout the 1970s there was a greatdeal of debate concerning the level of defensespending . "Hawks" argued that levels of de-fense spending had fallen to dangerously lo wlevels while "doves" argued that such level swere appropriate during peacetime .

7

The hawks' case was bolstered in Decem-ber of 1979 when the Soviet Union invade dAfghanistan. This prompted President Carte rto request increased spending for defense i nhis fiscal year 1980 budget . Congress agree dand for the first time in more than a decadedefense spending as a percentage of GD Pincreased over the previous year during 1980 .

During the 1980 Presidential campaign,

Federal spending followed a familia rpattern during the 1990s . After a small uptic kin 1991 to help finance the Persian Gulf War ,defense spending fell sharply as a percentag eof GDP. This drop has helped overall federalspending to decline from 22 .4 percent of GD Pin 1990 to approximately 20 .2 percent today .Meanwhile, spending on income security ,Social Security, and welfare has grown from

After a small uptick in 1991 to help finance the Per-sian Gulf War, defense spending fell sharply as a per-centage of GDP. This drop has helped overall federa lspending to decline from 22.4 percent of GDP in1990 to approximately 20.2 percent today. Mean-while, spending on income security, Social Security ,and welfare has grown from 9.7 percent of GDP in1990 to an estimated 10.6percent.

Ronald Reagan ran on a platform of increasingdefense spending while holding the line on al lother types of spending . When he took office ,defense expenditures did indeed increasethroughout the early 1980s, eventually climb-ing to 6 .2 percent of GDP in 1985 . They thenleveled off and eventually declined with thefall of the Berlin wall and the end of the Col dWar in 1989 .

Federal spending on income security ,Social Security, and welfare grew to 10 . 5percent of GDP in 1982 but then fell to 9 . 3

percent by the end of the decade . Meanwhile ,continued deficits and growing federal deb tcaused federal interest payments to climb from1 .9 percent of GDP in 1980 to 3 .1 percent in1989. Federal spending on education andtraining fell from 0 .9 percent of GDP in 198 0to 0.5 percent by the end of the decade . Othercategories of federal spending remained rela-tively constant as a percentage of GDP duringthis period .

9 .7 percent of GDP in 1990 to an estimate d10.6 percent . The budget surplus and lowinterest rates have allowed net interest pay-ments to fall from 3 .1 percent of GDP in 199 0to 2 .1 percent today . Other categories o ffederal spending have remained relativel yconstant as a percentage of GDP during th elast decade .

Defense expenditures as a percentage o fGDP are expected to continue falling throughthe end of the decade. Meanwhile, federaltransfer programs are expected to continu egrowing . All other categories of federal spend-ing are expected to remain relatively stable a sa percentage of GDP .

Figure 3 illustrates state and local govern-ment expenditure by function and as a per-centage of GDP since 1900 . These expendi-tures have been classified slightly differentlyfrom federal expenditures to reflect differen tgovernmental responsibilities . While state andlocal government spending has not grown a srapidly as federal expenditure, it has neverthe-less risen substantially since the beginning o fthe century and has shown some interestin gtrends over time .

From 1900 to 1920

During the first twenty years of the cen-tury, state and local government spendin g

The budget surplus and low interest rate shave allowed net interest payments to fall State and Local Government

from 3.1 percent of GDP in 1990 to 2. 1percent today.

8

remained rela tively flat, averaging 3 .8 percentof GDP. Spending on education and trainin gconstituted the largest category of spendin gduring this period, averaging 1 .4 percent ofGDP. These expenditures include state andlocal government expenditure on primary ,secondary, and higher education . The nextlargest spending priority was physical re -sources . Spending on this category, whichincludes transportation, energy, and naturalresources, averaged 0 .7 percent of GDP . Thethird largest category of spending was expen-diture on civilian safety—police, fire, an dcorrections—which averaged 0 .6 percent ofGDP. During this period net interest payment sby state and local governments averaged 0 .2

percent of GDP. Meanwhile, expenditure onhealth and human services, which includesincome support as well as health and hospitals ,averaged 0 .2 percent of GDP .

The Twentie s

The 1920s saw a marked rise in the levelof state and local government spending, and i taveraged 5 .0 percent of GDP . Spending in-creased across the board: expenditures fo reducation and training averaged 2 .1 percent ofGDP, compared to 1 .6 percent between 191 0and 1919 . Spending on physical resourcesgrew to 1 .0 percent of GDP, up from an aver-age of 0 .8 percent during the prior 10-yearperiod, and civilian safety ticked up to 0 . 7

Figure 3State and Local Government Current Expenditures by Type as a Percentage of Gross Domestic Produc t1900 - 200 0

10 %

8 %

6%

4%

2%

I

n

Educatio n& Training

Health &Huma nServices

nCivilia nSafet y

PhysicalResource s

NetInteres tPaid

UOther

200O

ii.

/%.

1_9,90

7

Source : Tax Foundation

9

percent of GDP from 0 .6 percent during th eprior decade . Likewise, state and local govern-ment expenditure on health and human ser-vices and net interest averaged 0 .3 percent ofGDP during this period . Both were 0.2 per-cent during the prior decade .

The Thirtie s

The effect that the Great Depression ha don state and local government expenditureswas similar to the effect that it had at thefederal level . In the short run the large an dsudden drop in income resulted in state and

Table 4State and Local Government Current Expenditures by Type as a Percentage of Gross Domestic Produc t1900 - 2000

Year Total

Educatio nand

Healthand

Human CivilianSafety

Ne tInterest

PaidPhysical

Resources Other

Memo :GD P

($Billions) Year Total

Educationand

Healthan d

Human Civilia nSafety

NetInterest

PaidPhysical

Resources Other

Memo :GD P

($Billions)"training Services Training Services

1900 3 .2% 1 .1% 0 .2% 0.6% 0 .1% 0 .5% 0 .7% $18 .8 1950 5 .3% 2 .0% 1 .3% 0 .5% 0 .1% 0 .8% 0 .6% $294 .61901 3 .2 1 .1 0 .2 0 .6 0 .2 0 .6 0 .6 20 .8 1951 4 .8 1 .8 1 .0 0.5 0 .1 0 .8 0 .6 339 .71902 3 .4 1 .2 0 .2 0 .6 0 .2 0 .6 0 .7 21 .7 1952 4 .9 1 .9 1 .0 0.5 0 .1 0 .8 0 .6 358 .61903 3 .5 1 .2 0 .2 0 .6 0 .2 0 .6 0 .7 23 .1 1953 4 .9 2 .0 1 .0 0 .5 0 .1 0 .7 0 .5 379 .71904 3 .7 1 .3 0 .2 (1 .7 0 .2 0 .7 0 .7 23 .1 1954 5 .2 2 .2 1 .0 0 .6 0 .1 0 .7 0 .6 381 . 3

1905 3 .7% 1 .3% 0 .2% 0.7% 0 .2% 0 .7% 0 .7% $25 .3 1955 5 .3% 2 .3% 1 .0% 0 .6% 0 .1% 0 .7% 0 .6% 415 . 11906 3 .4 1 .3 0 .1 0 .6 0 .2 0 .6 0 .6 28 .9 1956 5 .4 2 .4 1 .0 0.6 0 .1 0 .7 0 .6 438 .01907 3 .5 1 .3 0 .1 0 .6 0 .2 0 .6 0 .6 30 .6 1957 5 .5 2 .5 1 .0 0 .6 0 .1 0 .7 0 .7 461 .01908 4 .0 1 .5 0 .2 0 .7 0 .2 0 .8 0 .7 27 .9 1958 5 .9 2 .8 1 .1 0 .6 0 .1 0 .5 (1 .7 467 . 31909 3 .6 1 .3 0 .1 0 .6 0 .2 0 .7 0 .6 33 .6 1959 5 .6 2 .7 1 .1 0 .6 0 .1 0 .4 0 .7 507 .2

1910 3 .5% 1 .3% 0 .1% 0.6% 0 .2% 0 .7% 0.6% $35 .5 1960 6.1% 3 .0% 1 .1% 0 .7% 0 .2% 0 .5% 0 .7% $526 .61911 3 .7 1 .4 0 .1 0 .6 0 .2 0 .7 0 .6 36 .0 1961 6.4 3 .2 1 .1 0 .7 0 .2 0 .5 0 .8 544 .81912 3 .5 1 .3 0 .1 0 .6 0 .2 0 .7 0 .6 39 .7 1962 6.3 3 .2 1 .0 0 .7 0 .2 0 .4 0 .7 585 .21913 3 .9 1 .5 0 .2 0.6 0 .2 0 .8 0 .7 39 .9 1963 6 .3 3 .3 1 .0 0 .7 0 .2 0 .3 0 .7 617 . 41914 4.6 1 .8 0 .2 0.7 0 .2 0 .9 0 .7 38 .9 1964 6 .3 3 .4 1 .0 0 .7 0 .2 0 .2 0 .8 663 . 0

1915 5 .1% 2 .1% 0 .2% 0 .8% 0 .3% 1 .0% 0 .8% $40 .3 1965 6 .4% 3 .5% 1 .0% 0.7% 0.1% 0 .3% 0 .8% $719 . 11916 4 .8 2 .0 0 .2 0 .7 0 .2 0 .9 0 .7 48 .6 1966 6 .3 3 .4 1 .0 0 .7 0 .1 0 .3 0 .8 787 .81917 4 .2 1 .8 0 .2 0 .6 0 .2 0 .8 0 .6 60 .8 1967 6 .8 3 .6 1 .1 0 .7 0 .1 0 .4 0 .8 833 .61918 3 .7 1 .5 0 .2 (1 .5 0 .2 0 .7 0 .5 76 .9 1968 7 .0 3 .7 1 .2 0 .8 0 .1 0 .4 0 .9 910 .61919 3 .6 1 .5 0 .2 0.5 0 .2 0 .7 0 .5 84 .6 1969 7 .5 3 .9 1 .3 0 .8 0 .1 0 .5 0 .9 982 . 2

1920 3 .6% 1 .5% 0 .2% 0 .5% 0 .2% 0 .7% 0 .5% $92 .1 1970 8.1% 4 .3% 1 .4% 0.8% 0 .1% 0 .4% 1 .0% $1,035 .61921 5 .1 2 .2 0 .2 0 .7 0 .3 1 .0 0 .7 70 .1 1971 8 .4 4 .4 1 .5 0 .9 0 .2 0 .5 1 .1 1,125 .41922 5 .1 2 .2 0 .2 0 .7 0 .3 1 .1 0 .7 74 .6 1972 8 .1 4A 1 .3 0 .9 0 .2 0 .4 0 .9 1,237 . 31923 4 .8 2 .0 0 .2 0 .7 0 .3 1 .0 (L6 85 .7 1973 8 .1 4 .4 1 .6 0 .9 0 .1 0 .5 0 .6 1,382 .61924 5 .1 2 .2 0 .2 0.7 0 .3 1 .1 0 .7 853 1974 8 .4 4 .5 1 .6 0 .9 0 .6 0 .8 1,496 . 9

1925 5 .0% 2 .1% 0 .2% 0 .7% 0 .3% 1 .1% 0 .6% $93 .7 1975 8 .8% 4.6% 1 .5% 1 .0% 0 .1% 0 .6% 1 .0% $1,630 .61926 5 .0 2 .1 0 .2 0 .7 0 .3 1 .1 (1 .6 97 .7 1976 8 .6 4.7 1 .4 1 .0 0 .2 0 .5 0 .9 1,819 .01927 5 .3 2 .2 0 .3 (1 .7 0 .3 1 .1 (1 .7 95 .5 1977 8 .4 4.5 1 .4 0 .9 0 .1 0 .5 0 .9 2,026 .91928 5 .3 2 .2 0 .3 0.7 0 .3 1 .1 0 .7 97 .7 1978 7 .8 4 .2 1 .3 0 .9 0 .5 0 .8 2,291 . 41929 5 .1 2 .1 0 .4 0.7 0 .3 1 .0 0 .6 103 .8 1979 7 .7 4 .2 1 .3 0 .9 0 .5 1 .0 2,557 . 5

1930 6 .3% 2 .5% 0 .5% 0 .9% 0 .4% 1 .2% 0 .8% 91 .1 1980 7 .8% 4.3% 1 .3% 0 .9% * (1 .5% 1 .1% $2,784 .21931 7 .6 3 .0 0 .7 1 .0 (1 .5 1 .5 0 .9 76 .4 1981 7 .9 4 .2 1 .2 1 .0 ** (1 .6 1 .1 3,115 .91932 10 .2 3 .9 1 .2 1 .4 0 .7 1 .9 1 .2 58 .6 1982 8 .4 4 .5 1 .2 1 .0 * 0 .7 1 .2 3,242 . 11933 10 .3 3 .6 1 .6 1 .4 0 .7 1 .9 1 .2 56 .2 1983 8 .3 4 .4 1 .1 1 .0 0 .7 1 .2 3,514 . 51934 7 .9 2 .7 1 .4 1 .1 0 .5 1 .3 0 .9 65 .9 1984 8 .0 4 .3 1 .1 1 .0 0 .6 1 .2 3,902 . 4

1935 7 .7% 2 .7% 1 .3% 1 .0% 0 .5% 1 .2% 0 .9% $73 .1 1985 8 .1% 4 .3% 1 .1% 1 .1% ** 0 .6% 1 .2% $4,180 . 71936 6 .0 2 .2 1 .0 0 .8 03 0 .9 0 .7 83 .6 1986 8 .3 4 .4 1 .1 1 .1 0 .6 1 .2 4,422 . 21937 6 .2 2 .2 1 .2 0 .8 0 .3 1 .0 0 .7 91 .8 1987 8 .7 4 .5 1 .1 1 .1 0 .6 1 .4 4,692 . 31938 6 .9 2 .4 1 .4 0 .9 0 .3 1 .1 0 .8 85 .9 1988 8 .6 4 .4 1 .2 1 .1 0 .6 1 .3 5,049 . 61939 6 .4 2 .2 1 .4 0 .8 0 .3 1 .0 0 .7 91 .9 1989 8 .6 4 .4 1 .2 1 .1 0 .6 1 .3 5,438 . 7

1940 6 .3% 2 .1% 1 .5% 0 .8% 0 .3% 1 .0% 0 .7% $101 .2 1990 9 .0% 4 .5% 1 .3% 1 .2% 0 .7% 1 .4% $5,743 . 81941 5 .4 1 .8 1 .2 0 .7 (1 .2 0 .8 0 .6 126 .7 1991 9 .4 4 .6 1 .5 1 .2 0 .7 1 .4 5,916 . 71942 4 .6 1 .6 1 .0 0 .6 0 .2 0 .6 (1 .6 161 .6 1992 9 .4 4 .5 1 .5 1 .3 0 .1 0 .7 1 .4 6,244 . 41943 3 .8 1 .4 0 .8 0.5 0 .1 0 .5 0 .5 198 .3 1993 9 .5 4 .5 1 .6 1 .3 0 .1 0 .7 1 .4 6,558 . 11944 3 .6 1 .3 0 .8 0.5 0 .1 0.4 0.4 219 .7 1994 9 .4 4 .4 1 .6 1 .3 0 .1 0 .7 1 .4 6,947 . 0

1945 3 .7% 1 .3% 0 .9% 0 .5% 0 .1% 0 .5% 0 .5% $223 .2 1995 9 .3% 4 .4% 1 .5% 1 .3% 0 .6% 1 .4% $7,269 . 61946 4 .3 1 .5 1 .1 0 .5 (1 .1 0 .6 0 .5 222 .6 1996 9 .2 4 .4 1 .5 1 .4 * 0 .6 1 .3 7,661 . 61947 4.5 1 .6 1 .0 0 .5 0 .1 (1 .7 0 .6 244 .6 1997 9 .1 4 .4 1 .5 1 .3 0 .6 1 .3 8,110 91948 4 .8 1 .8 1 .1 0 .5 0 .1 0 .7 0 .6 269 .7 1998 9 .0 4 .3 1 .5 1 .4 (1 .6 1 .3 8,511 . 01949 5 .2 1 .9 1 .3 0 .5 0 .1 0.8 0.6 267 .8 1999 8 .8 4 .3 1 .5 1 .4 0 .6 1 .3 8,964. 0

Source : Tax Foundation 2000 8 .8% 4 .3% 1 .5% 1 .4% 0 .6% 1 .3% $9,351 .0

10

local governments, which remained relativelyconstant, to rapidly rise as a percentage ofGDP. In 1930 total state and local governmen texpenditures were equal to 6.3 percent ofGDP. By 1933 this figure had risen to 10 . 3percent . Over the longer term state and loca lgovernment expenditures as a percentage o fGDP fell, but remained at historically hig hlevels .

During the 1930s total state and localgovernment expenditure averaged 7.5 percen tof GDP. This compares to 5 .0 percent duringthe 1920s . The share of GDP allocated to all ofthe expenditure categories reached recordlevels during this decade .

The War Years

The rebounding economy helped to pus hdown the share of GDP dedicated to state an dlocal government expenditure during the early1940s . In 1940 state and local governmentexpenditures as a percentage of GDP fell to 6 . 3percent . The following year it fell further to5 .4 percent . America's entry into World War I Iaccelerated this trend . The commitment ofnational resources and manpower to nationaldefense caused the share of GDP dedicated t o

Since 1989 levels of state and local gov -ernment expenditure have once againrisen sharply, surpassing the watershedlevels of the mid 1970s. This is largely th eresult of increased spending on healthand human services which is expected toequal 1.5 percent of GDP in 2000.

all state and local expenditure categories t ofall, and by 1944, total state and local govern-ment expenditures had dropped to 3 .6 percen tof GDP .

State and local government expenditure oneducation and training, which had average d2.3 percent of GDP during the prior five-yearperiod (1935-1939), fell to just 1 .6 percentfrom 1940 to 1944 . Likewise, health an dhuman services spending averaged just 1 . 1percent of GDP during from 1940 to 1944 ,down from 1 .3 percent during the prior five -year period . Similarly, state and local govern-ment spending on physical resources andcivilian safety, which had averaged 1 .0 and 0 . 9percent of GDP during the latter half of the

1930s fell to 0 .7 and 0.6 percent during thefirst half of the 1940s. Net interest expendi-tures also declined, from 0 .4 percent of GD Pduring the last five years of the 1930s to 0 . 2percent from 1940 to 1944 .

From 1945 to 1975After the war, state and local governmen t

expenditures climbed steadily as a percentageof GDP for the next 30 years . In 1945 state an dlocal government spending was equal to 3 . 7percent of GDP . By 1955 this figure had risento 5 .3 percent . It further increased to 6 . 4percent in 1965 and by 1975 it had grown to8.8 percent .

Most of this growth was attributable t oincreased spending by state and local govern-ments on education and training. In 1945 thi stype of spending was equal to 1 .3 percent o fGDP. By 1955 this figure had risen to 2 . 3percent . It further increased to 3 .5 percent o fGDP in 1965 and by 1975 it had grown to 4 . 6percent .

Increased spending on health and humanservices also helped to push up state and localspending as a percentage of GDP during thi speriod. In 1945 this category of spending wasequal to 0 .9 percent of GDP . By 1955 thisfigure had grown to 1 .0 percent . It plateauedat this level until the late 1960s when it beganto grow once again . By 1975 it had climbed to1 .5 percent .

State and local expenditure on civiliansafety also increased during this period . In1945 state and local governments were spend-ing an amount equal to 0 .5 percent of GDP onpublic safety activities . By 1955 this figure ha dgrown to 0.6 percent . It further increased t o0.7 percent in 1965 and then rose to 1 .0 per-cent in 1975 .

The amount spent by state and local gov-ernments on net interest and physical re-sources stayed relatively constant as a percent -age of GDP, averaging 0 .1 and 0 .6 percentduring this period .

From 1975 to 200 0

State and local expenditures declinedslightly as a percentage of GDP during the late1970s and the 1980s. In 1975 state and localexpenditures were 8 .8 percent of GDP, and by1989 this figure had fallen slightly to 8 .6 per-cent . Spending levels for education and train-ing was responsible for much of this decline ,dropping from 4 .6 percent of GDP in 1975 to4.4 percent in 1989. Similarly, levels of stateand local government expenditure on healthand human services fell from 1 .5 to 1 .2 per-cent of GDP during this period. All of the other

1 1

categories remained relatively constant as apercentage of GDP during this period .

Since 1989 levels of state and local govern-ment expenditure have once again risensharply, surpassing the watershed levels of th emid-1970s . This is largely the result of in-

In 1900, the bulk of government spend-ing, 5 7.8 percent, took place at the stateand local levels. Today the federal govern-ment spends more than twice as much asall of the state and local governmentscombined.

creased spending on health and human ser-vices which is expected to equal 1 .5 percentof GDP in 2000. Spending levels for civiliansafety are also expected to be up . Spendinglevels for all other categories spending hav eremained flat and are expected to remain fla tin the near future .

Expenditures by Level ofGovernment

In addition to the size and composition o fgovernment expenditures, the relative size ofthe various levels of government has alsochanged dramatically since 1900 . During theearly part of the century most governmen tactivity occurred at the state and local levels .In 1916, for example, state and local govern-ments spent more than twice as much as th efederal government . World War I causedfederal expenditures to temporarily excee dstate and local spending in 1917 and 1918 .After the war, however, the federalgovernment's share fell to near pre-war levels ,and state and local government spendingcontinued to exceed federal expenditures untilthe mid-1930s when the New Deal program sgreatly expanded the size of the federal gov-ernment .

Defense expenditures caused federa lsending to rise during World War II . However ,unlike after World War I, federal spending di dnot fall to anywhere near pre-war levels . In -stead, it continued to grow, outstrippin ggrowth in state and local spending . In 2000 ,

Table 5Government Current Expenditures By Level of Government as a Percentage of Total Government Spending1900 - 2000

Year FederalState &

Local Year FederalState &Local Year Federal

State &Local Year Federal

State &Local

1900 42.2% 57 .8% 1925 34 .5% 65 .5% 1950 73 .9% 26 .1% 1975 72 .1% 27 .9%1901 38 .9 61 .1 1926 33 .0 67 .0 1951 77 .1 22 .9 1976 71 .9 28 . 11902 36 .5 63 .5 1927 32 .3 67 .7 1952 78 .4 21 .6 1977 72 .0 28 . 01903 36 .6 63 .4 1928 32 .9 67 .1 1953 78 .6 21 .4 1978 72 .7 27 . 31904 35 .8 64 .2 1929 33 .8 66 .3 1954 76 .6 23 .4 1979 72 .8 27 . 2

1905 33 .9% 66 .1% 1930 32 .1% 67 .9% 1955 75 .4% 24 .6% 1980 74 .0% 26 .0%1906 32 .6 67 .4 1931 41 .4 58 .6 1956 74 .8 25 .2 1981 74 .1 25 . 91907 32 .8 67 .2 1932 33 .3 66 .7 1957 75 .4 24.6 1982 74 .0 26 . 01908 33 .4 66 .6 1933 37 .6 62 .4 1958 75 .5 24 .5 1983 74 .4 25 . 61909 32 .7 67 .3 1934 51 .9 48 .1 1959 75 .5 24 .5 1984 74 .4 25 . 6

1910 31 .5% 68 .5% 1935 50 .4% 49 .6% 1960 73 .7% 26 .3% 1985 74 .3% 25 .7%1911 30 .3 69 .7 1936 61 .2 38 .8 1961 73 .5 26 .5 1986 73 .6 26 . 41912 29 .7 70 .3 1937 53 .3 46 .7 1962 73 .9 26 .1 1987 72 .3 27 . 71913 28 .0 72 .0 1938 56 .0 44 .0 1963 73 .9 26 .1 1988 72 .0 28 . 01914 25 .4 74 .6 1939 59 .0 41 .0 1964 73 .3 26 .7 1989 71 .8 28 . 2

1915 22 .9% 77 .1% 1940 57 .6% 42 .4% 1965 72 .6% 27 .4 1990 71 .3% 28 .7%1916 32 .6 67 .4 1941 65 .5 34 .5 1966 73 .8 26 .2 1991 70 .8 29 . 21917 70.5 29 .5 1942 80 .8 19 .2 1967 74 .0 26 .0 1992 71 .6 28 . 41918 82 .2 17 .8 1943 87 .4 12 .6 1968 73 .7 26 .3 1993 71 .1 28 . 91919 77 .2 22 .8 1944 89 .6 10 .4 1969 72 .2 27 .8 1994 70 .5 29 . 5

1920 59.0% 41 .0% 1945 89 .5% 10 .5% 1970 71 .4% 28 .6% 1995 70 .8% 29 .2 %1921 49.4 50 .6 1946 82 .7 17 .3 1971 70 .7 29 .3 1996 70 .7 29 . 31922 41 .2 58 .8 1947 77 .5 22 .5 1972 71 .7 28 .3 1997 70 .3 29 . 71923 38.1 61 .9 1948 75 .4 24 .6 1973 71 .2 28 .8 1998 69 .9 30 . 11924 35 .8 64 .2 1949 76 .1 23 .9 1974 71 .2 28 .8 1999 69 .8 30 . 2

2000 69 .6% 30 .4%

Source: Tax Foundation

12

4-12 pp.Annual subscription : $50Individual issues $1 0

The Tax Foundation, anonprofit, nonpartisanresearch and public educa-tion organization, ha smonitored tax and fisca lactivities at all levels ofgovernment since 1937.

©2000 Tax Foundatio n

Editor and CommunicationsDirector, Bill Ahern

Tax Foundatio n1250 H Street, NW, Suite 75 0Washington, DC 20005(202) 783-2760(202) 783-6868 faxwww.taxfbundation.orgtf@taxfoundation.ovg

federal spending is expected to account fo r69.6 percent of total government expenditure .

NotesIt is important to state that GE/GDP is by n o

means a comprehensive measure of government' sinvolvement in society . The government also playsa role by regulating the private sector through wag eand price controls, rationing, and other forms ofregulation .

2 All figures used in this report are based o ndefinitions consistent with the National Income andProduct Accounts (NIPAs) . These comprehensiveaccounts of economic activity are computed an dcompiled by the U .S . Department of Commerce' sBureau of Economic Analysis .

Federal CategoriesThe total and federal expenditure categorie s

were constructed as follows :♦ National Defense - includes all national

defense expenditures ;♦ Income Support, Social Security, and Wel-

fare : includes income support, Social Security, andwelfare expenditures ;

♦ Education and Training : includes all expen-ditures on education and labor training and ser-vices ;

♦ Physical Resources : includes Housing andCommunity services, recreational and cultura lservices, energy, agriculture, natural resource, andtransportation expenditures ;

♦ Net Interest Paid : includes all net interestexpenditures ; and

♦ Other : includes all central executive, legisla-tive, and judicial activities, international affairs ,space, civilian safety, health and hospitals, veteran sbenefits and services, postal service, economi cdevelopment, regulation, and services, commercialactivities, and other unallocable expenditures .

State and Local Categories

The state and local expenditure categorieswere constructed as follows :

♦ Education and Training: includes all expen-ditures on education and labor training and ser-vices ;

♦ Health and Human Services : includes al lexpenditures on health and hospitals, incomesupport, social security, and welfare, and veteran sbenefits and services ;

♦ Civilian Safety : includes all expenditures oncivilian safety ;

♦ Net Interest Paid: includes all net interes texpenditures ;

♦ Physical Resources : includes Housing andCommunity services, recreational and cultura lservices, energy, agriculture, natural resource, an dtransportation expenditures ; and

♦ Other : includes all central executive, legisla-tive, and judicial activities, economic development ,regulation, and services, and other unallocableexpenditures .

Sinc e193 7

TAX -nowFOUNDATIONSPECIAL REPORT(ISSN 1068-0306) is pub-lished at least 10 times yearlyby the Tax Foundation, anindependent 501(c)(3)organization chartered in th eDistrict of Columbia.