Only two actions can reduce the $200 billion federal budget deficit: Cut government spending or raise taxes. The President and the Congress are currently considering both actions. But they should consider who benefits from government spending and who would be hurt if spending is cut.
Federal, state, and local governments finance one-third of the nation's economy. Government expenditures enter the economy through the compensation of public employees, purchases of goods and services from the private sector, and through transfer payments to individuals for social security, welfare, and other needs.
These expenditures benefit industries, communities, and individual citizens. Aircraft manufacturing, business services, and several other industries depend on government purchases for a large share of their sales. These companies, together with the nation's military bases, contribute to the economic welfare of the communities where they are located. And many Americans depend on government services for their personal welfare.
Many others benefit from government spending through the jobs it creates. In 1980, 16 million people - 17 percent of the nation's work force - held jobs in federal, state, and local government. Eight million more workers in the private sector owed their jobs to government purchases of goods and services, from fighter-bombers to janitorial services. And still 8.5 million more private-sector workers held jobs that resulted from individual purchases financed from welfare, social security, and other transfer payments. Altogether, one-third of all workers owe their jobs to government spending.
Some groups benefit more than others from these jobs. Government spending generates 40 percent of all professional and managerial jobs in the economy and 50 percent of all jobs held by college gradutes. Women and minorities benefit particularly from the jobs created from government spending, especially at the professional level. For instance, more than two-thirds of all professional and managerial jobs held by black women come from this source.
Government spending for defense programs generates different kinds of jobs than spending for social programs. Most defense spending is used to purchase goods and services in the private sector, particularly weapons systems. Most social spending, apart from transfer payments, creates government jobs in medical, educational, and other social services. Since the proportion of professional and managerial jobs is 50 percent higher in the public sector than in the private sector, social spending generates a greater proportion of professional jobs than defense spending.
Defense spending and social spending also benefit different workers. In 1980, for example, women and minorities made up 50 percent of the work force. Yet they held only 42 percent of the private-sector jobs generated from defense spending, compared with 56 percent of all public-sector jobs. An even greater share of professional-level jobs in the public sector go to women and minorities. Thus social spending favors women and minorities, while defense spending favors men and whites.
Any reduction in government spending will eliminate jobs and throw some people out of work. Raising taxes will also eliminate jobs, because consumers will have less money to spend on goods and services. But which action will eliminate the most jobs?
Recent estimates show that a billion dollars spent by government creates 20, 000 more jobs than a billion dollars spent by consumers. Social spending also creates more jobs than defense spending.
Government spending not only creates jobs, it provides useful goods and services. Many of the nation's highways, bridges, and hospitals are in need of repair. According to Business Week, this erosion of the public infrastructure may undermine the capacity of private industry to maintain its current recovery. Public opinion surveys reported in Common Cause show that the majority of Americans support the many activities of government, from providing health care and social security to protecting the environment.
Government spending plays a vital role in the nation's economy. The American public and business depend on the goods and services that government provides. And many depend on the government for their jobs. These matters should not be overlooked as the President and Congress wrestle with the federal budget deficits.