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Smaller government? Look again! |
Members of Congress, commentators, political pundits and indeed the President himself have all proclaimed that the era of big government is over. "We have the smallest government in 35 years," President Clinton has said. That may be so, but when the Beacon Hill Institute took a longer look, back to the beginning of our nation, a different picture emerged.
In 1790, when George Washington was President, the average citizen paid the modern equivalent of about $10.40 in taxes to the federal government. Today that amount has ballooned to $4,268, an increase of 40,938%.
By this standard, the growth of the federal government has substantially exceeded that of the rest of the economy. Suppose, for example, that since Washington's day, the growth of the federal government had just matched that of U.S. exports, in inflation-adjusted dollars. Then, the average citizen's tax bill would be just $516 today.
Throughout our nation's first century, the American republic followed the core outline of the framers: The federal government's responsibilities were to include only national defense, the regulation of commerce between states and with other nations, the preservation of peace between the states, and international relations. There were few entitlements. Earlier Congresses did not liberally interpret the general welfare clause of the Constitution with such dexterity as the moderns. There were fewer "responsibilities" to the members of an agrarian society. There was no social security and "welfare" was provided predominately by private charities.
This trend toward small government continued through the nineteenth century. The only exception was the crisis precipitated by the Civil War when federal taxes per capita rose to a post-Civil War high of $63.89 in modern dollars.
By 1917, when the United States entered World War I, federal government budget receipts were 1.58% of gross national product. They rose to a then record high of 8% shortly after World War I, but trended downward again.
The New Deal and our entry into World War II saw federal government budget receipts skyrocket. At the start of World War II, the average citizen's tax bill was $359. By the time the Korean War ended, in 1953, the bill had risen to $1,437. The fraction of GNP accounted for by tax dollars had risen to 19.09%. The current fraction is almost as large: 18.58%. In 1983, immediately following the Reagan tax cuts, it was 16.94%.
How can we explain the phenomenal growth of the federal government over the nation's history? The culprit is neither the growth of the economy nor the growth of population. Rather, it is the result of government's capitalizing opportunistically on crisis, usually war. During a crisis, the revenue floodgates are opened wide. Those floodgates remain open with revenues flooding in long after the need for them has passed.
In private enterprise, crisis often marks the decline of the business affected by it. In government, it is just the opposite. The bigger the crisis, the bigger the reward.
Researcher Scott Fontaine assisted in the preparation of this article.
NewsLink is the quarterly newsletter of the Beacon Hill Institute for Public Policy Research at Suffolk University. © 1996-2002. All rights reserved.
Revised on 9/9/02 4:19 PM