Chapter 10: Government Spending
Chapter 10 explores the way federal, state, and local governments
spend their revenues. In 2003 these expenditures were about
$13,000 per capita.
1 discusses the growth of government spending and examines
the two types of expenditures: (1) goods and services, and
(2) transfer payments for which the government does not receive
anything in return. This spending affects the distribution
of income and competes with the private sector for scarce
2 examines the process required of the president, the House
of Representatives, and the Senate to develop and approve
the federal budget. Currently, the three largest components
of the federal budgetaccounting for more than one-half of
all federal expendituresare Social Security, national defense,
and income security.
3 describes the major categories of state and local spending.
The largest state expenditures are intergovernmental transfers,
public welfare, insurance contributions, and higher education.
The largest single category of spending for local governments
is elementary and secondary education. Public utilities, hospitals,
police protection, interest on debt, public welfare, and highways
4 discusses the persistent nature of the federal budget deficit
and the way that deficit spending adds to the federal debt.
Attempts to control the deficit have taken the form of mandated
deficit targets and pay-as-you-go provisions. President Clinton's
Budget Reconciliation Act of 1993 significantly reduced the
federal budget deficit by introducing higher marginal tax
brackets. The 1996 line-item veto also gave the president
some power to trim federal expenditures, but it was ruled
unconstitutional by the Supreme Court. Spending caps were
introduced in the balanced budget agreement of 1997 in a further
attempt to control the deficits. Finally, after 29 consecutive
years of deficits, the federal budget was in surplus by 1998.