10.2. The Growth of Government

Government in the United States is conducted on three levels: local, state, and federal. Until the 1930s the combined spending of the state and local units was greater than federal government spending. Since World War II, however, federal spending has exceeded state and local government spending by an increasing amount. Today, spending by the federal government is about twice that of the states and localities. In 1929, total spending by government represented about 8 cents out of every dollar of the GDP; it is now about 18 cents.

Part of the reason for this increase is that we expect so much more from our government than we once did. Once it was thought "that government is best which governs least." Now we expect government to regulate business, help the needy, improve educa­tion, and promote economic development to a far greater extent than before. For a better understand­ing of the situation, look at the budgets of federal, state, and local governments.

Government Budgets. Like a personal budget, government budgets are financial plans that summarize anticipated (expected) income and expenses. When anticipated income equals anticipated expens­es, the budget is said to be balanced. When income is greater than expenses, the difference is said to be a surplus. When budget expenses are greater than income, the difference is described as a deficit. In the 1994 federal budget estimate, receipts total $1,251.3 billion. Projected outlays are $1,515.3 bil­lion. If the estimate proves accurate, the nation will be left with a deficit of $264 billion. Table 10-2 con­tains further details of the 1994 budget estimate.

10.3. How does the Federal Government Spend Its Money?

Studying Table 10-2 will give you a picture of the cost of federal government programs and where the money comes from to pay for them. Here are some highlights from the estimated federal budget for 1994.

Direct Benefit Payments to Individuals. The

federal government spends more than half of its budget to transfer money directly to individuals. Social Security, Medicare, income security, health, and veterans benefits account for nearly all these payments. Many of the benefits are targeted at retired people. Income security includes retirement benefits for government workers, but most of these payments provide assistance to people with low incomes and to unemployed workers.

The $117.8 billion spent in the health category con­sists mostly of health care for low-income families under the Medicaid program. It also includes health benefits for federal employees and funds for health research and training.

National Defense. The second-largest category of outlays in the federal budget is national defense. Outlays related to U.S. defense and security amount to about 18 cents of each budget dollar.

Net Interest. The estimated budget deficit adds $264 billion to the federal government's debt. This brings the total national debt to more than $4 tril­lion. The $212.1 billion listed for net interest will pay just the interest on that debt. Net interest is the third-largest category of outlays in the federal budget.

Grants to States and Localities. Many categories in Table 10-2 contain grants to states and localities. These grants totaled $226 billion in 1994. In addi­tion to funding health and income security, grants supported community and regional development, transportation, and education. In these later cate­gories, federal funds are given to state and local gov­ernments to develop specific programs.