A Short History of Government Taxing and Spending

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from NCPA,

From 1930 to 2012, government expenditures rose from 12.1 percent to 35.6 percent of gross domestic product (GDP), says Michael Schuyler, a fellow at the Tax Foundation.

It is necessary to describe government receipts and expenditures as shares of economic output, because the size of the economy determines whether a particular burden is manageable — $100 billion in taxes would crush a $150 billion economy but would be much less problematic for an economy of $600 billion.

From 1900 to 2012, federal government expenditures were less than 3 percent of the overall economy. The government was very small up to the New Deal era, spending on defense, the postal service and a few federal laws. Budgets were balanced, if not at a surplus, and, up to 1917, most revenue came from customs duties and excise taxes.

But in 2012, federal expenditures had hit 24 percent of GDP.

– Spending growth began in the Hoover administration and was amplified by Franklin Roosevelt. The same is true of taxes. Hoover increased the top marginal rate from 25 percent to 63 percent, with Roosevelt raising it up to 79 percent.
– War years tend to be marked by higher spending and budget deficits, and in fact, expenditures reached 20 percent of output during World War I. From 1950 to 2006, average federal expenditures have exceeded the maximum spending levels of World War I.
– Budget deficits became the norm after 1950, with Washington running a surplus very briefly at the end of the 20th century.
– With the 2007-2009 recession, federal spending reached its highest levels at any time since World War II, while revenue dropped to its lowest level since the 1940s.

The size of government has soared since 1930, with receipts increasing from 11.1 percent of GDP to 26.4 percent and expenditures rising from 12.1 percent of GDP to 35.6 percent. If the government wants to continue this expansion, something must be done to cut out unnecessary programs and bring efficiency and transparency to tax policy.

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