John Cogan:

From 1789 to the first decade of the 20th century, Congress largely adhered to James Madison’s view that the federal spending power was limited to executing the Constitution’s enumerated powers. Congress repeatedly rejected bills appropriating federal aid to elementary and secondary education, income support for citizens, and state grants for the poor. Notable exceptions were made for the Cumberland Road, waterway clearance projects beginning in the 1820s and cash aid for land grant colleges in 1890. Yet the constitutional barrier that prevented federal spending on state and local activities largely held. The federal government experienced budget deficits only during war and economic recession—and, in other years, ran budget surpluses to pay down any debt it had incurred.

Fiscal federalism started to erode more seriously around World War I. Congress began spending on state and local activities through new programs that matched states’ spending on their existing efforts for highway construction, vocational education and rehabilitation, agricultural extension services and maternal and child health. These small programs were inconsequential for the federal budget totals but nevertheless planted the seeds for future expansions.

Policymakers finally abandoned fiscal federalism during the Great Depression. It was initially unclear whether this would be temporary or permanent. The Supreme Court, by concluding in the 1930s that Congress had the authority to spend to promote the “general welfare,” ensured the latter.