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Historical Overview of Federal Spending: Major Categories

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This post continues my review of recent federal government financial history, based on this spreadsheet, that began with this background post and continued with this post on federal revenues. The discussion that follows here is on the major categories of federal expenditures, the ones that really matter, the ones that account for the most money. The federal government has been described as a social “insurance company that also has an army.” And Social Security, Medicare, Medicaid, National Defense and Veteran’s Benefits, and interest on the national debt accounted for 71.9% of federal spending in FY 2011 – and 65.4% of federal spending in FY 1979 at the start of this analysis.

In terms of what the federal government actually does, moreover, it is actually an army, a post office, and a bunch of bureaucrats sending money to others who actually do things. Most Medicare and Medicaid-funded services are provided by the private sector or public facilities run by state and local governments. Social Security and interest on the debt are simply cash taken in, and cash sent out. The smaller categories of spending, to be discussed later in a separate post, generally involve payments to state and local governments, which do the actual work. Since money in and money out is the nature of most federal finances, activities by others funded by “spending” is little different than activities by others induced by tax preferences. Those “tax expenditures,” not tabulated in the spreadsheet, cost the federal government an estimated $1.1 trillion in FY 2011, according to the Statistical Abstract of the United States for 2012 (Table 477). Total federal “spending” tabulated as such was an estimated $3.8 trillion that year.

ON THE KNICKERBOCKERS AT MADISON SQUARE GARDEN: LININNNNNG!

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Of course I am caught up in the current Linsanity which has overtaken the sports world. What do you expect? After all, I did write a column on the New York Knickerbockers (Knicks) last Christmas, where I predicted that the Knicks will soon become the NBA Champions. Go dig it up from my archives. I based this prediction on the arrival of both Tyson Chandler (the perfect fit to anchor the Knicks defense) and the play of a healthy Baron Davis at point guard (not Jeremy Lin’s emergence). We all knew that the two building blocks (Amare Stoudemire and Carmelo Anthony) were already in place.

We Will Fight No More Forever

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Thomas Cahill explains in Sailing the Wine Dark-Sea that in classical times there was a tension between the Greeks and their Roman overlords with the Greeks embittered by their lower status when compared to the Romans who were of an inferior culture.  On the other hand the Romans, though proud of their status as conquerors, tried to sooth the Greeks by adopting their culture wholesale.  It was sort of like the dichotomy that exists between Americans and the French and other Europeans.

Historical Overview of Federal Revenues

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Prior to the Great Recession, I had heard federal politics described as little more than an ongoing argument about taxes; who pays too much, who pays too little, how much should be collected, how much can be collected. The data shows, however, that while there may be a big government-small government going on, however, that is only on the spending side. The generations now in charge have voted to pay for small government, aside from the peaks of economic bubble when corporate income and capital gains taxes are pouring in. The question is “who will get the small government that has been paid for?”

In fact, right at now the federal tax burden, as a share of the economy, is lower than it has been at any point in my working life – even though spending is higher. Federal taxes are far lower as a share of GDP than in the lowest year under President Reagan, by a wide margin. I can confirm this in my own life – our own total federal, state and local burden is much lower as a share of our income than in the early 1990s, when we had far less income, no dependents, and little in charitable deductions. Even though with regard to income taxes, we don’t benefit from the sweet deals the executive class gets on capital gains or retired government workers get on New York’s state and local income taxes. At the start of the Great Recession, I had expected tax burdens to soar as the federal government, state and local governments attempted to fend off bankruptcy. While state and local taxes have increased, federal taxes have fallen. The federal data may be found in the spreadsheet linked from this post. A discussion of how we got here follows.

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