U.S. Government Spending As a Percentage of GDP [Superseded]

Superseded by April, 2004 entry.

I have found that one of the most useful ways of looking at the government's role in society is by examining how much the government spends as a relation to the economy, measured most often by the Gross Domestic Product (GDP).  For the United States, we calculate this on either or both the national and state/local levels using Table 1.1 and Tables 3.1 through 3.3 in the National Income and Product Accounts (NIPA) published by the Bureau of Economic Analysis (BEA).  Here is the historical information, which I will use as a basis for some subsequent posts.  Federal subsidies for state/local programs (e.g. block grants for welfare programs) are counted as spending at the federal level.

Click on the following thumbnail for a clearer view.

Here is the underlying Excel file.

I will try to update this file as the data is released.

Note:  Currently, my calculations run off of current receipts and current expenditures.  I'm thinking about changing this so that my calculations run off of the total receipts and total expenditures figure, which includes government investment.  This would allow us to compare like-to-like among countries.

Updated:  11/30/03

Comments

[Jeanne Schmelzer]

I think it would be interesting to see how our spending and GDP compare to other countries' info.

[Daniel Schmelzer]

Not surprisingly, the rate varies. Of the developed countries, Korea spends by far the least (can't remember the figure, but it's something like 10% or 15%). The second least is the U.S. at 30%, followed by Japan at 32%, and the U.K. at 38%. The U.K. has the lowest rate of any European Union country.

I will definitely do a post on this in the future, once I can collect my thoughts on the subject. Watch this space.

[Pudd'nhead]

This chart is fascinating. It shows that for every full year of Bush I's four years in office (89-02), federal spending as a percentage of GDP increased year-over-year, every year of Clinton's eight (93-00) it decreased, and each of the three years of Bush II's tenure (01-03) it has increased again -- and the magnitude of these moves are significant in an historical perspective.

Thank you so much for this chart. As an old Rudman/Tsongas deficit hawk, I hope charts like this can somehow find their way into serious discourse as we weight our options in the next presidential election. It brings one aspect of our upcoming choice into sharp perspective. Looking at this, I'm not sure this country can afford four more years of Bush II, any more than we could afford four more of Bush I.

[Daniel Schmelzer]

I don't believe the chart says what you think it says. Any president's first budget is for the following fiscal year, not the current fiscal year. So the current trend that began in 2001 was largely under Clinton's policies (at least his spending policies), not Bush 43's policies. Likewise, the budget for fiscal year 1993 was Bush 41's, not Clinton's.

Further, since this chart maps government spending and collections against GDP, you have to take into account the economic conditions under which the politicans are operating. Both Bush 41 and Bush 43 fought through recessions not of their making. The latest recession began at the end of 2000 and continued through the first 3 quarters of 2001.

[nick]

yea, well what about the SEVEN YEARS that spending decreased under clinton? I swear to god, republicans are big fat liars. Big government + low taxes = corporate control of america... Yay facism!!

[Daniel Schmelzer]

Hate to burst your bubble, but facism is strong government control over industry, not strong industry control over government.

Also, spending didn't decrease in any of those 7 years under Clinton. Rather, spending as a percentage of the economy decreased. This is much more than a fine point. As I referenced above, it is important to note that Clinton only faced a recession perhaps his last quarter in office. As such, it was much easier for him to decrease spending as a percentage of the economy, even leaving aside the probability that he would have been forced to take countercyclical measures against the recession had he faced one.

[Douglas]

Damn republicans are blind. I'm a Libertarian, but that graph blatantly shows huge spending increases under Republicans relative to the economy.. far moreso then under Democrats.

[hairy]

So are you trying to say Clinton had nothing to do with balancing the budget for the first time in 30 years? You don't recall all the spending cuts of his first term along with tax increases? In Clinton's first term, the deficit was a huge issue and they addressed it, yes with a little help from a boom economy. You clearly have an agenda, as do most Republicans, in trying to minimize Clinton's accomplishments.

[Adam]

I must say there is very much logic to what Daniel says. I think it would be interesting to also overlay graphs of of the actual GDP and Tax Incomes over the proportion. While I am very much a fan of fiscal responsibility and give much credit to Clinton for not spending beyond his means, the economy was soaring then and so moderate government spending increases would show up as decreases on the graph above. Bush43, on the other hand, could have actually decreased spending some (which, of course, we all know he didn't) and it would still show up as an increase. ...just pointing out the obvious there.

Living in France this year, however, I find this all very interesting from an international perspective. Being Libertarian-leaning, myself, I very much prefer the US tax burden to that in Europe (though, it's a nice system for students such as myself). I found a site that gives a nice table of historical Tax/GDP figures. It's especially interesting in that it seems to project the opposite a bit -- for the US, it shows an increase in the proportion from 90-95 and an even larger increase from 95-00, but a very sharp fall from 00-03. The site attributes this to tax credits -- perhaps this is not reflected in the graph above? I'm not sure exactly what US Spending/Taxation means -- tax credits might be a loophole wherein the government taxes it, but doesn't spend it? Just a thought! In any case, I'm glad I'm not in Denmark or Sweden whose governments spend half their GDP!

http://www.finfacts.com/biz10/taxpercentagegdp.htm

[Mike]

I think these last few comments are all amusing because either way you slice it both of these parties over the last 80 years have lead to significant increases in the size of government spending as compared to GDP (8% to 34% more than a 300% increase)

It's pretty irrelevant whether one party marginally adds a few percentage points or takes them away- there is an attitude among all in Washington that governments in the US (state and federal) are allowed to consume more than ONE-THIRD of American productivity. Here's one prediction I'll bet my life on- if size of government spending grows as it has been over the last 80 years the US will certainly expect stagnant or even negative growth rates. - Partisans- let's not fight because we both know by the last budget passed by Congress we all love pork-barrelled fat. Hopefully soon Congress will have a massive heart attack from all the fat it has been digesting since the New Deal!

[mojomofo]

If you take a look at GDP over time (and if I'm looking at the correct data in your spreadsheet), there is an inflection point around 1975. After 1975, the rate of GDP growth is nearly constant. So, if for anytime after 1975 spending is held constant, expenditures as a percentage of GDP will decrease. However, spending also seems to track a similar path. I guess it's important to look at the raw data as well as the indexed data in order to see what's going on. Interesting work, thanks for compiling the data!

[Justin]

Big Fat Liars? You are just a moron who hates the right, but it is too lazy to take an economy class.

The Economy goes through cycles.

[Justin]

You want a socialist state? In 1998, Sweden spent 56.7% of their GDP. Most of Europe averages around 45%.

[Terry]

The CBO has a breakdown at this link: http://www.cbo.gov/showdoc.cfm?index=3521&sequence=0. Forget about their ridiculous projections, but take a look at the outlays from 62-01 and the "Trends" paragraph. In the 70's and early 80's you can see a slight confluence with party politics: entitlements and "non-discretionary" spending kicking in with the Great Society and picking up pace in the late 70's. Defense makes a small uptick during Reagan. Either way though, the non-discretionary spending is probably the only area worth arguing about and it's not much percentage wise.

Many argue that the fed doesn't control interest rates, it just acts before the economy steals the show. The budget is in many ways the same. It is dictated by the world stage, economic cycles and demographics. I would argue that historically the Republican platform has been the least ingenous of the parties regarding the economics of their agenda, while as an erstwhile liberal, former libertarian, but never conservative I now recognize and can hardly stomach the persistant democratic hysteria about balancing a budget (the historical side switching between the R and D teams on this issue is amusing). That said, both parties know what they're doing once they're in power and congress does a good job largely of getting the job done. You have to separate out platform from action.

Ask any pollster, what Americans want largely depends on the question being asked. If put to referendum, most Americans would vote for both lower taxes and higher spending. (In fact I think this actually happened somewhere leaving the legislature with the only option of borrowing). Many complain about the complexity of the taxcode but, and I may stand alone in this, I think it is genius. Congress has been able to nickle and dime every penny that they can without folks noticing: AMT, gas taxes, FCC taxes, fees, auctioning of bandwidth, etc. The real tax burden on the individual is, I think, higher than any of these charts depict, probably closer to European standards than we think, except Americans like things to be simultaneously black and white so we have this situation where the right hand closes an eye to what the left hand is doing. Anyone who's been in business knows it's not just how much you charge, it's how much do you charge for which items. Very few people get indignant about the FCC war tax, but most go through the roof if you raise the gas tax a penny. I'm about to digress into a diatribe about the cultural roots of the differing economic structures between US and Europe but I'll stop before I get started.

Anyway, government spending is not necessarily the enemy. We all remember Keynes in the 30's right? Gvnmt spending helped to create the post-war boom while judicious lowering of taxes during economic cycles has smoothed things out. Rigid economic dogma usually ends up being dashed on the rocks by the actual economy.

Oh finally, to answer the Clinton vs. Bush issue I looked at the actual percentage increase of federal spending during those timer periods. I'm still a little suspect about these numbers because the defense spending amount doesn't match up with the CBO, but anyway. First off, Clinton increased revenues. This had nothing to do with a boom economy, just flat out increased revenues. Coupled with the boom economy it helped (momentarily ;) to curtail the debt growth. He did not lower expenses.
Bush I - Mean Average increase 3.92%; Geometric Average increase 2.68%
Clinton - Mean Average increase 1.05%; Geometric Average increase 1.28%
Bush II - Mean Average increase 10.61%; Geometric Average increase 6.35%
So Clinton did keep raw expenses down. Bush II is trailing Reagan and Carter for spending increases although we'll have to take a look at the 04 and 05 numbers now. These measurements attribute the budget to the second year as per Schmeltzer's post.

[Matt]

Who wants more government services? Those for whom their return on government services is greater. By transfering my expenses to government something happens. My net goes up, but so do my taxes.

How much do my taxes go up? If I am a Walmart executive paying 35 cents of taxes on every dollar of government services, then each time I can transfer an expense to government I gain a dollar and lose 35 cents.

If I am a Wal Mart clerk, then for each dollar of goverment services trasferred from the WalMart expense sheet may gain me, maybe, 10 cents, but I am likely to pay 5 cents for it.

So WalMart executives and stockholders whould like the government to train workers on computers and cash machines. Hence, No Child left Behind becomes law.

This is why government spending goes up when progressive rates fall? The return on government services accelerate the higher one is on the food chain. Reasoning is simple. The higher one is on the food chain the more one can leverage government services provided to those beneath.

Haven't you all read the 2003 essay by william niskanen
http://www.cato.org/pubs/policy_report/v26n2/cpr-26n2-2.pdf.

As a percent of GDP, government grows .5% for each 1% reduction in taxes.

[Wood]

http://www.cedarcomm.com/~stevelm1/usdebt.png

It's not the tax rate but how it's used. (The result is what matters.)

[Kevin]

There is a factor in the decrease of government spending during the Clinton years that people are not taking into account. The 1994 Republican take over of Congress for the first time in 40 years.

Congress plays a big part in how much the government spends. Since the Democrats took over Congress this year they have increased government spending by $454 billion over the next ten years. That's what Democrats do, they spend.

When the Republicans took over in 1995 they started cutting government spending. They passed the welfare reform act which Clinton vetoed three times. They also passed the balanced budget act which Clinton vetoed twice. Just those two alone cut billions out of the budget. The Republicans were elected on their campaign promises of cutting government spending. They cut so much that Clinton in his 1996 State of the Union speech said that the Republicans have put an end to the age of Big Government.

Don't believe me though, research it yourself. Republicans were the ones responsible for cutting the wasteful government spending.

The Republicans were voted out in 2006 because they became just like the Democrats. They started spending like "drunkin sailors". They got greedy and started spending like Democrats.

Conservative Republicans are for cutting government spending. The Democrats want to take care of everyone(socialism). Free healthcare, free college, vote for us and we will take care of you.

Republicans just need to get back to conservative principles and the country will be better off.

[VINAY]

YOU SHOULD HAVE SHOWN IT'S COMPARISON WITH INDIA..OK

[Bill Kimball]

The years 1992-1994 were the years in which Clinton and a Democratic Congress increased spending and tried to pass "Hillary-Care", remember? The Republicans won the Congress from the Democrats in 1994 and, under Newt Gingrich's leadership, finally balanced the federal budget. Thus, % spending decreased under the last six years of the Clinton administration because of Newt Gingrich (a real conservative); Clinton had nothing to do with it (except inasmuch as he was intelligent enough to not fight the Republican Congress and signed whatever budget that Gingrich sent him).
Spending increased under G.W. Bush? Yep! Why? Because he was a "neo-con". What is a neo-con? He or she is a person who believes in big gov't spending and gov't interference in the economy, while holding "socially" conservative values. Our country needs real conservatives in power. Newt Gingrich for President!!!