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US Defense Spending History

In peace time, the US government used to spend very little on defense, about one percent of GDP. But that changed after World War II when the United States found itself in a global contest against Communism. Ever since, defense spending has never been less than 3.6 percent of GDP. In wartime, of course, the United States spends as much as it can command. In World War II defense spending exceeded 41 percent of GDP in 1945.

A Century of Defense Spending

There were two major peaks of defense spending in the 20th century: World War I and World War II.

Chart 2.31: Defense Spending in 20th Century

At the start of the 20th century, defense spending averaged about one percent of GDP. Then it spiked to 22 percent at the end of World War I. Defense spending in the 1920s ran at about 1 to 2 percent of GDP and in the 1930s, 2 to 3 percent of GDP.

In World War II defense spending peaked at 41 percent of GDP, and then declined to about 10 percent during the height of the Cold War. Thereafter it declined to 3 to 5 percent of GDP, with surges during the 1980s and the 2000s.

Recent Defense Spending

Defense spending declined in the 1990s after the end of the Cold War and increased in the 2000s during the War on Terror.

Chart 2.32: Recent Defense Spending

Defense spending stood at 6.8 percent of GDP at the height of the Reagan defense buildup. But, beginning even before the breakup of the Soviet Union it began a decline, reaching below 6 percent in 1990, below 4 percent in 1996 and bottoming out at 3.5 percent of GDP in 2001, about half the level of 1985.

But 9/11, the terrorist attack on iconic US buildings in 2001, changed that, and defense spending began a substantial increase in two stages. First, it increased to 4.6 percent by 2005 for the invasion of Iraq, and then to 5.0 percent in 2008 for the the “surge” in Iraq.

Spending increased further to 5.7 percent in 2011 with the stepped up effort in Afghanistan. Defense spending is expected to decline to 4.5 percent of GDP in 2015 and 3.8 percent GDP by 2020.

Big War Spikes

There have been four major spikes in US defense spending since the 1790s.

Chart 2.33: Big Spikes in Defense Spending

Viewed across the two centuries of US power, defense spending shows four spikes. It spiked at nearly 12 percent of GDP in the Civil War of the 1860s (not including spending by the rebels). It spiked at 22 percent in World War I. It spiked at 41 percent in World War II, and again at nearly 15 percent of GDP during the Korean War.

Defense spending exceeded 10 percent of GDP for one year in the 19th century and 19 years in the 20th century. The last year in which defense spending hit 10 percent of GDP was 1968 at the height of the Vietnam War.

The peak of defense spending during the Iraq conflict was 5.66 percent GDP in 2010.

Defense Spending Since World War II

For 20 years after World War II, defense spending ran at about 10 percent of GDP. Then it began a steady decline.

Chart 2.34: US Defense Spending Since WWII

After World War II, the US reduced defense spending to 7.2 percent of GDP by 1948, boosting it to nearly 15 percent during the Korean War. During the height of the Cold War with the Soviet Union US defense spending fluctuated at around 10 percent of GDP.

At the height of the Vietnam War in 1968 defense spending was 10 percent of GDP. But then it began a rapid decline to 6 percent of GDP in the mid 1970s and hit a low of 5.5 percent of GDP in 1979 before beginning a large increase to 6.8 percent in 1986.

Starting in 1986 defense spending resumed its decline, bottoming out at 3.5 percent of GDP in 2001. After 2001, the US increased defense spending to a peak of 5.7 percent of GDP in 2010. It is expected to reduce to 4.5 percent of GDP in 2015 and 3.8 percent by 2020.

Defense as Share of Federal Spending

Since WWII defense has steadily reduced its share of federal spending.

Chart 2.35: Defense Share of Federal Spending

Aft pegging along at 20 percent share of federal spending in the late 1930s, defense spending soared to a peak share of 88 percent in 1945. After declining to about 60 percent share in the late 1940s, defense spending peaked at a 72 percent share of federal spending in 1952.

The Cold War saw a steady decline in defense spending as a share of federal spending, down to a 52 percent share in 1969. But when the Vietnam War wound down defense share dropped rapidly, and bottomed at 28.5 percent share in 1979-80.

In the early 1980s defense spending recovered a larger share of federal spending, reaching 32 percent in 1987. Then it declined to 20 percent share by the late 1990s.

The War on Terror of the 2000s saw an increase in defense spending share, peaking at 24.5 percent share in 2010. Defense share of federal spending is expected to decline to 21.6 percent share in 2015 and 17.4 percent share by 2020.

Spending on Veterans

How the US looks after its veterans.

Chart 2.36: US Veterans Spending

At the start of the 20th century the US spent about 0.6 percent of GDP on its veterans. By the start of World War I veterans spending had declined to 0.5 percent of GDP and to 0.3 percent by the end of the war.

After World War I veterans spending climbed back to 0.6 percent of GDP and hit 1.6 percent of GDP in the Bonus March year of 1932. In 1936 veterans spending peaked at 2 percent of GDP before declining steadily to 0.26 percent of GDP in the middle of World War II.

Immediately after World War II the US ramped up spending on veterans, peaking at 2 percent of GDP in 1950. Thereafter veterans spending declined slowly to 0.7 percent in 1966, before rising to one percent of GDP by the mid-1970s in the aftermath of the Vietnam War.

Veterans spending declined slowly in the 1980s and 1990s and reached 0.42 percent of GDP in the early 2000s. But veterans spending has increased in the late 2000s, hit 0.82 percent of GDP in 2011, and is expected to continue at about 0.9 percent GDP through 2020.

Foreign Aid

Foreign Aid Peaked in World War I

Chart 2.37: Foreign Aid Spending in 20th Century

US Foreign Aid got its start in World War I when the US contributed up to 6 percent of GDP to the war in Europe. The program got started again with “Lead-Lease” in World War II, peaking at 5.0 percent of GDP in 1945. After World War II the rescue of Europe in the Marshall Plan and the Korean War kept foreign aid at or above 2 percent of GDP. And then assistance to nations fighting the Soviet threat kept foreign aid above 1.4 percent of GDP throughout the 1950s.

Recent Foreign Aid

Foreign Aid has declined in recent years

Chart 2.38: Recent Foreign Aid Spending

Since 1962 the federal budget data differentiates economic and military aid, and aid shows a sharp decline from one percent of GDP down to 0.4 percent of GDP by 1970. In the 1970s and 1980s foreign aid oscillated around 0.4 percent. But after 1985, foreign aid declined to about 0.2 percent GDP.

In the 2010s foreign aid has increased to 0.3 percent GDP.

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Spending Data Sources

Spending data is from official government sources.

Gross Domestic Product data comes from US Bureau of Economic Analysis and

Detailed table of spending data sources here.

Federal spending data begins in 1792.

State and local spending data begins in 1890.

State and local spending data for individual states begins in 1957.

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Data Source

Source: CBO Long-Term Budget Outlook .

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State FY15 Tax Update

On September 27, 2015 updated FY2015 state revenue with quarterly tax data from the US Census Bureau.  Local tax data was updated by assuming that local taxes for 2015 changed by the same percent as state taxes of the same type.

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