Appendix I: Public Social Welfare Expenditures

Social welfare expenditures, that is, the cash benefits, services, and administrative costs of public programs that directly benefit individuals and families, accounted for just 3.9% of the gross national product (GNP) in 1929. By far, the largest component of the expenditures—60% of the total—was accounted for by public education, which then, as now, came primarily from State and local funds. Federal expenditures were mostly for veterans' benefits and staff retirement systems, and accounted for only 20% of the social welfare expenditures total. In 1993 (the latest year for which complete data are available), social welfare spending reached 21.1% of the gross domestic product (GDP). Nearly half of the total was spent on social insurance programs. The following table presents a summary of social welfare expenditures under public programs for selected fiscal years beginning with 1970.

It was the Depression of the 1930's that brought the Federal Government into the social welfare field. In 1933, the Federal Emergency Relief program began to take over the mounting cost of support for the unemployed, and in 1935 the Social Security Act established a national system of old-age insurance, a Federal-State system of unemployment insurance, and Federal programs of grants-in-aid to develop and strengthen the State public assistance and other programs.

The first year in which expenditures for public aid outstripped those for education was 1934, and the bulk of that aid came from the Federal Government. This pattern continued throughout the 1930's and early 1940's, but by fiscal year 1943, education was once more the largest spending category. In the post-World War II years veterans' benefits became the largest category of expenditures, accounting for about one-third of the total through 1949. In the 1950's, education resumed its primacy, although it was now closely followed by social insurance. The latter had begun to increase in importance in the 1940's. At that time, the Federal-State system of unemployment insurance accounted for 45–60% of all social insurance spending.

It was in 1951 that the Old-Age and Survivors Insurance (OASI) program first became the leading component of the social insurance category. With the addition of Disability Insurance (DI) to OASI in 1956, that lead grew, and it has been increasing ever since. The year 1965 brought the introduction of Health Insurance (HI) for the Aged (Medicare), and by 1967 social insurance had become indisputably the largest of the social welfare categories, a position it continues to hold. In the succeeding years, coverage under the OASDI and HI programs was expanded, most notably by the inclusion in 1972 of the disabled in the Medicare program. This expansion of the Medicare program, the aging of the insured population, and the rapidly rising cost of health care ensured the social insurance category's continued growth. By the 1980's, social insurance expenditures accounted for half of the social welfare total, and the OASDI and HI programs alone represented a larger share of Federal spending than any category except defense. This remained true in 1993.

There have been changes in the area of public aid. On the eve of World War II the exigencies of the Depression had increased public aid spending to more than 40% of the social welfare total. After the war, that percentage dropped sharply and by 1960 had fallen to 8%. The programs that accompanied the 1960's War on Poverty increased both the amount and the share of public money spent in this area.

The Food Stamp program began paying benefits in 1961. In 1964, Congress passed the Economic Opportunity Act, and the 1965 Amendments to the Social Security Act created the Medicaid program. By 1970, public aid accounted for 11% of all social welfare spending, and by 1993 it accounted for more than 16%.

The increase in public aid spending involved the State and local governments, due to the matching funds required by several of the Federal programs. Whereas State and local governments provided only 15–20% of the social insurance funds spent between 1965 and 1993, their share of the public aid bill ran between 30% and 40%. The largest State and local insurance expenditures are for employee pensions, unemployment insurance, and the workers' compensation program; assistance programs such as Aid to Families with Dependent Children and Medicaid account for the bulk of State and local public aid funds.

Despite the public aid increases, education has remained the largest social welfare expense for the States and localities. In 1929, 77% of all State and local social welfare funds were spent on education. Even with the growth of social insurance and the poverty programs over the years, in 1993 nearly 53% of State and local social welfare spending went for education.

Governments at all levels have spent somewhat more of their funds for social welfare purposes since the 1960's. During the years from 1929 to 1965 the percentage of all government expenditures that went for social welfare was between 32% and 50%, with the exception of the war years, when the percentage fell as low as 9%. In 1965–70, the range was 42% to 47%; and since 1971 more than half of all government spending has been for social welfare.