COST-BENEFIT ANALYSIS OF FOUR TYPES OF POLICIES I. Cost: any burden (monetary or non-monetary, real...

COST-BENEFIT ANALYSIS OF COST-BENEFIT ANALYSIS OF FOUR TYPES OF POLICIESFOUR TYPES OF POLICIES

I. Cost: any burden (monetary or non-monetary, real or perceived), that a group must bear, e.g.:

A. Federal child-care programs (taxes).

B. Busing to achieve school desegregation (taxes, psychological stress).

C. Tariffs (higher prices for goods).

COST-BENEFIT ANALYSIS OF FOUR TYPES COST-BENEFIT ANALYSIS OF FOUR TYPES OF POLICIESOF POLICIES

II. Benefit: any satisfaction (monetary or non-monetary, real or perceived) that a group

will enjoy from a policy, e.g.,

A. Federal child-care programs (lower child care costs for parents).

B. Busing to achieve school desegregation (improvement in opportunity, greater racial

harmony).

C. Tariffs (more jobs for workers, more profits for businesses).


III. Costs and benefits can be either widely-distributed (to many, most, or all citizens) or narrowly-concentrated (for a relatively small number of citizens or groups). Examples:

A. Widely-distributed costs: income tax,

Social Security tax, farm subsidies. B. Narrowly-concentrated costs: factory air

emission standards, higher capital gains taxes for the wealthy, gun control regulations).

C. Widely-distributed benefits: Social Security benefits, strong national security, clean air, federal highways.

D. Narrowly-concentrated benefits: farm subsidies, tariffs, exemption from antitrust legislation.


IV. Four types of policies: A. . Majoritarian policies.Majoritarian policies. 1. Involve widely distributed costs and widely distributed benefits. 2. Examples: Social Security, national defense. 3. Analysis: A. Usually not dominated by interest groups: virtually everyone

benefits from these, so why should an interest group use scarce resources to lobby for policies that everyone will benefit from? Interest groups will benefit whether or not they devote resources to lobbying ---> lack of incentive to participate.

b. When a policy is adopted and people are convinced that benefits are worth the cost, debate ends and the program tends to steadily grow, and perhaps even

becomes a "sacred cow" that government dare not touch (e.g., Social Security).

COST-BENEFIT ANALYSIS OF FOUR COST-BENEFIT ANALYSIS OF FOUR TYPES OF POLICIESTYPES OF POLICIES

B. Interest group policies.Interest group policies.

1. Involve narrowly concentrated costs and narrowly concentrated benefits.

2.Examples: tariffs, antitrust exemptions.

3. Analysis: these tend to be fought over by interest groups: the affected parties are small enough, and the potential costs and benefits are great enough, to warrant interest group participation.


C. Client policies.C. Client policies. 1. Involve widely distributed costs and

narrowly concentrated benefits. 2. Examples: farm subsidies, airline or

trucking regulation, pork barrel bills. 3. Analysis:

a. Strong incentive for interest groups to participate. Groups will receive the benefits, but the costs will be spread out to everyone.

b. Since costs are so widely distributed and therefore relatively small to each consumer, cost payers are sometimes unaware that they are even paying the costs (e.g., dairy subsidies).

c. Since interest groups benefit so much from these, they are said to be a "client" of the related federal agency – client groups.


D. Entrepreneurial policies.D. Entrepreneurial policies.

1. Involve narrowly concentrated costs and widely distributed benefits.

2.Examples: consumer product safety legislation, ending farm subsidies, deregulation.

3. Analysis: a. Strong incentive for potential cost-

paying group to participate. b. Prospective beneficiaries may find

widely distributed benefits too small to work hard for.

c. Because of a and b, policies of this category are often defeated by the concerted efforts of cost-paying interest groups.

d. Despite this, such policies are from time to time passed through the strong efforts of people who act on behalf of the unconcerned or unaware ---> these are called policy entrepreneurs (e.g., Ralph Nader).

TAXING AND SPENDINGTAXING AND SPENDING I. Sources of federal revenue. A. In the past: 1. Tariffs and excise taxes were the major sources of federal

revenue. 2. Income tax of 2% passed in 1894 was ruled

unconstitutional by Supreme Court since it was not proportional to state populations ---> passage of 16th Amendment in 1913 struck down the proportionality clause.

B. Presently (2007 figures): 1. Individual income taxes (progressive taxes): 43% of all

federal revenue. 2. Social insurance (payroll) taxes (regressive taxes): 32%

of all federal revenue. 3. Corporate taxes: 13% of all federal revenue. 4. Excise taxes: 2% of all federal revenue. 5. Borrowing: 6% (this has risen due to resumption of

deficit spending) Other: 4%

TAXING AND SPENDINGTAXING AND SPENDING II. Where the money is spent (2009 figures): fed. spending is ~

$3.5 trillion A. Direct benefit payments to individuals – also known as transfer

payments (Soc. Secur., Medicare, Medicaid, etc.): 54%. Nondiscretionary/mandatory

B. National defense: 26%. Discretionary.

C. Net interest: 9%. Nondiscretionary/mandatory. Nondefense discretionary (grants to states, federal

operations, etc.): 11%

III. Entitlements ("uncontrollables"): federal money that is Entitlements ("uncontrollables"): federal money that is 1) provided to those who meet eligibility requirements and 1) provided to those who meet eligibility requirements and 2) is automatically spent each year without congressional 2) is automatically spent each year without congressional review.review.

Some have a built in COLA, also without annual review. This in turn creates additional budget pressures.

B. Examples: Social Security, Medicare, federal pensions, interest on national debt.

C. These account for more than 2/3 of the federal budget These account for more than 2/3 of the federal budget ---> difficulties of bringing the budget into balance.

TAXING AND SPENDINGTAXING AND SPENDING IV. The budget process. A. Executive branch. 1. Agencies prepare their estimates of budget 1. Agencies prepare their estimates of budget

needs and present them to OMB. Amount needs and present them to OMB. Amount requested is typically based upon the amount requested is typically based upon the amount granted in the previous year (plus inflation and granted in the previous year (plus inflation and any additional needs).any additional needs).

2. OMB reviews these requests and makes recommendations to the President.

3. President reviews OMB recommendations and then submits a budget to Congress.

B. Congress. 1. CBO provides an independent analysis of the

President's budget -- a check on OMB. 2. Roles of Budget, Ways and Means, Finance, and

Appropriations Committees. 3. Input and lobbying from agencies. .

TAXING AND SPENDINGTAXING AND SPENDING 4. Majority vote needed in both houses. 5. Government Accountability Office (GAO) is a

congressional watchdog agency that ensures money is spent as prescribed by law

C. Political influences. 1. Political party differences. 2. Interest group/PAC influence. 3. Iron triangles.Iron triangles. 4. Public opinion. D. Presidential action. President signs or vetoes entire taxing and spending bills

– no line item vetoline item veto.. Congress can override a veto with 2/3 vote in both Congress can override a veto with 2/3 vote in both

houseshouses

TAXING AND SPENDINGTAXING AND SPENDING V. Deficit-spending. A. Budget deficit: incurred when govt.

expenditures exceed income during a one year period. For fiscal 2009, the deficit is projected to be $1.8 trillion!!!!

B. National (public) debt: amount owed by fed. govt. -- accumulation of past budget deficits.

C. Huge budget deficits during the 1980's (>$200 billion per year) ---> national debt tripled from $1 trillion to $3 trillion during the 1980's. Tax cuts and increases in defense spending were among the main causes.

tax cut in 2001 + recession + terrorist attacks of 9/11 + wars in Afghanistan and Iraq + end of “paygo” ended budget surpluses ---> resumption of record-high budget deficits Boy, did they get that one Boy, did they get that one

wrong…wrong…

TAXING AND SPENDINGTAXING AND SPENDINGJ. Current national debt

(2014): >$18.2 trillion. This amounts to ~$57,000 for every person in the US. In 1990s, national debt as a percentage of GDP (define), was less than it was in the early 1950s. Soaring deficits have reversed that trend.

K. Economic crisis of 2008-09 once again led to soaring budget deficits and therefore a soaring national debt.

TAXING AND SPENDINGTAXING AND SPENDING D. Failure of Congress to pass the Balanced Budget

Amendment.

E. In 1990, Cong. and Bush 41 agreed on a pay-as-you-go (“paygo”) proposal that would allow Congress to increase spending ONLY if that increase was offset by higher taxes and/or spending cuts elsewhere. The “paygo” agreement, however, expired in 2002. Its expiration helps to explain the rising deficits since then.

F. Government shutdown in mid-90s as a result of budgetary politics

H. Reduction of deficits under Clinton and development of SURPLUSES ---> political differences over what to do with these surpluses: Republicans favored tax cuts, Democrats wanted to apply the surpluses to the Social Security System to bolster it.

MANAGING THE ECONOMYMANAGING THE ECONOMY I. 2 types of economic policies. A. Fiscal: taxing and

spending considerations -- budget matters. Fiscal policy is Fiscal policy is conducted by Congress and the conducted by Congress and the President.President.

B. Monetary: regulation regulation of money supply by Federal of money supply by Federal Reserve Board Reserve Board ("the Fed") adjusting interest rates to increase or decrease inflation.

II. Developments in economic policy.

A. Constitution gave Congress power to regulate interstate and foreign commerce.

B. Industrial Revolution's excesses led to Congress making greater use of economic regulatory powers, e.g., breaking up trusts, regulating meat and drugs, regulating railroads.

MANAGING THE ECONOMY C. Great Depression of 1930s led to even

greater regulation of economy by Congress. Unemployment rate of 25%, bank failures, farm crisis, and deflation demanded aggressive actions.

D. Keynesian economics.

1. During Depression, New Deal was influenced by British economist John Maynard Keynes.

2. Keynes suggested that government could manipulate the economic health of the economy through its level of spending. In hard times, govt. should increase spending (even if it means running large deficits) to stimulate economic health. In inflationary "boom" times, govt. should decrease spending to "cool down" the economy.

MANAGING THE ECONOMYMANAGING THE ECONOMY3. Keynes influenced passage of

Employment Act of 1946, which made govt. responsible for maintaining high employment rates.

4. Difficulty posed by Keynesian economics: once govt. spending rises, it is

politically difficult to cut it (consider the fights in recent years over entitlement reform). This helps to explain why we have had such high budget deficits.

5.Economic crisis of 2008-09 once again led to Congress passing stimulus and bailout packages in order to jump start the economy. Keynes is not dead!

MANAGING THE ECONOMYMANAGING THE ECONOMY E. Supply-side economics. 1. Definition: cuts in taxes will produce business investment that will compensate for the loss of money due to the lower tax rates. Tax rates will be lower, but business will boom, unemployment will go down, incomes will go up, and more money will come into the Treasury. 2. Most associated with the Reagan Administration (1981- 1989). 3. Unfortunately, the Reagan tax cuts were not accompanied by spending cuts, and the

national debt tripled from $1 trillion to

$3 trillion. .

MANAGING THE ECONOMYMANAGING THE ECONOMY 4. Tax cuts under Bush 43 have prompted

concern that they have contributed to a rising national debt.

F. Monetarism.

1. Whereas Keynesians suggest that the level of govt. spending (i.e. fiscal policy) is most important for determining the economic health of the nation, monetarists believe that the money supply (monetary policy) is the most important factor.

2. Thus "the Fed" can tighten up money supply (through adjusting interest rates) to reduce inflation, or it can loosen up money supply to stimulate the economy

MANAGING THE ECONOMYMANAGING THE ECONOMY III. Modern developments A. The push for a balanced budget amendment. 1. High deficits have led some to believe that

Congress needs to be "tied down" to a constitutional amendment that would require that spending not exceed income.

2. Supporters say that this is the only way to end the "spending bias" of Congress, and that it is the only way to overcome the political difficulties of cutting spending.

3. Opponents say that such an amendment would be "tinkering" with the Constitution, that it would decrease needed flexibility in times of crisis, and that Congress would figure out a way of evading the amendment anyway.

MANAGING THE ECONOMYMANAGING THE ECONOMY

4. This amendment was proposed in Congress, but was voted down by the House in 1992.

5. The line-item veto could have precluded the need for such an amendment, i.e., the president could have deleted wasteful spending with "the stroke of a pen.“

B. “Paygo” was passed in the early 1990s -> coupled with an expanding economy, the budget was balanced in the late 1990s.

C. Expiration of paygo and war on terrorism and in Iraq in early 2000s led to resumption of huge budget deficits. Economic crisis of 2008-09 led to an explosion of red ink.

MANAGING THE ECONOMYMANAGING THE ECONOMY D. Trade policy 1. Increasing trade deficits (where

imports exceed exports) caused by: a. Expanding economy in China Rising oil prices from our overseas

suppliers 2. Trade deficits (explain) have led to

calls for protectionism (explain) 3. Offshoring -> loss of American jobs 4. However, there has been more of a

push for free trade rather than for tariffs a. GATT b. WTO c. NAFTA d. CAFTA

GOVERNMENT REGULATION GOVERNMENT REGULATION OF BUSINESSOF BUSINESS

I. Background. A. Regulations: Rules imposed by government

on business to achieve some desired goal. (e.g., clean air regulations on factories, protection of wetlands and fragile environments, safety regulations in coal mines.)

B. History of govt. regulation of business. 1. Industrial era of late-19th/early-20th century had produced a number of "ill

side effects of capitalism:" a. Growth of abusive monopolies and oligopolies that unfairly drove out competition. b. Atrocious working conditions. c. Unsafe and unhealthy products: The Jungle, Silent Spring (1962: unsafe pesticides), Unsafe at any Speed

(1965: unsafe automobiles). d. Business bribery of politicians.

GOVERNMENT REGULATION OF BUSINESSGOVERNMENT REGULATION OF BUSINESS 2. Growth of such abusive practices by monopolies led to an antitrust policy: a. Such policy did not necessarily mean that all monopolies were bad. The policy was merely to regulate or break up the abusive ones and restore competition. b. Examples of such antitrust policy:

1.Sherman Antitrust Act, 1890. 2.Clayton Act, 1914. 3. Federal Trade Commission Act, 1914: FTC to be "traffic cop" to ensure competition. Issues cease and desist orders and negotiates consent decrees with businesses to end unfair practices. 3. Development of other regulatory commissions (e.g., FCC, SEC).

D. Developments in recent years.

1. FTC and Antitrust Division intentionally understaffed by Reagan and Bush to discourage excessive antitrust activity.

2. Corporate mergers have exploded in recent years (e.g., G.E. and RCA, Time and Warner (then Time Warner/AOL), RJ Reynolds and Nabisco, XM and Sirius satellite radio), with little response from the federal govt.

3. Antitrust lawsuit against Microsoft was an exception to this trend.



4. Business claims that with such strong foreign competition, it needs to consolidate in order to be competitive.

5. Energy crisis in early 00s led to pressure for Bush 43 to tighten regulation of energy markets. Bush claimed that California’s problems were the result of its own deregulation policy, and was therefore reluctant to have FERC (Federal Energy Regulatory Commission) impose price caps

6. Collapse of subprime mortgage market in 2008 and the resulting crisis has led some to call for re-regulation of banking and finance


II. The debate over regulation. A. Arguments in favor of regulation. 1. Prevents unhealthy monopolies and oligopolies as existed in Industrial Revolution. 2. Protects consumers from unsafe and unhealthy products. 3. Protects consumers from unsafe practices, e.g., airline regulations that prevent pilots from flying excessive hours, federal airline inspections, etc. 4. Protects working people from unsafe working conditions. 5. Protects those (e.g., poor, consumers) who lack strong voice in govt. "Levels out the playing field" with giant corporations.

GOVERNMENT REGULATION OF BUSINESSGOVERNMENT REGULATION OF BUSINESS B. Arguments against regulation. 1. Not needed -- Market forces will compel businesses to

work for the benefit of consumers. If businesses don't, consumers will simply buy elsewhere.

2. Regulation is inefficient. Businesses have to hire hordes of people to comply with the endless regulations imposed by Washington. This makes U.S. business less competitive with the rest of the world, which is not overburdened by such regulations.

3. Regulation kills jobs. Because it lessens our competitiveness with the rest of the world, we lose business (and the jobs that come with it) to other nations.

4. Regulation increases prices. Complying with regulations costs money; these costs are then passed on to the consumers in the form of higher prices.

5. Regulations have become increasingly unreasonable, e.g., farmers are denied the use of their lands because a rodent on the endangered species list lives there, loggers lose their jobs because the spotted owl nests in forests that would otherwise be open to logging, property owners are prevented from developing property because it includes some federally-protected "wetlands."

ENVIRONMENTAL POLICYENVIRONMENTAL POLICY I. Context of American environmental policy.

A. Environmental policy is affected by federalism: Centralization/decentralization tension between national govt. and state govts. Latter have incentive to reduce regulations for fear that businesses will relocate to other states, while former may want a uniform policy.

B. Key issue has not been whether or not the environment should be protected, but the

extent to which it should be protected and the costs of doing so. Involves a delicate balance because environmental regulation involves so many competing interests:

1. The public wants a clean environment. 2. Business is concerned about the extent and the costs of regulations. 3. Workers are concerned that excessive regulation may lead to loss of jobs, e.g., logging restrictions to protect the spotted owl could lead to loss of jobs for loggers.

ENVIRONMENTAL POLICYENVIRONMENTAL POLICY II. Key legislation. A. National Environmental Policy Act of 1969: required environmental impact reports (EIRs) before major construction projects began. B. Air Quality Act of 1967 and the various Clean Air Acts from 1960s-1990s: established emission standards for cars and factories. Clean Air Act of 1990 has esp. tough standards to which states must comply. This is another example of federal encroachment upon states. C. Various Clean Water Acts of 1970s and 1980s. D. Creation of Environmental Protection Agency (EPA), 1970. E. Endangered Species Act, 1973 F. CAFÉ (Corporate Average Fuel Economy) standards established in 1975: set standards for average m.p.g. of a manufacturer’s automobiles. G. Creation of the Superfund, 1980, to fund the cleanup of toxic waste dumps.

ENVIRONMENTAL POLICYENVIRONMENTAL POLICY

D. Client group environmental policies.

1. These involve programs that have widely-distributed costs and narrowly concentrated benefits.

2. Example:

a. The Superfund: taxpayers pay the costs, but only the affected communities benefit.

b. Arctic National Wildlife Refuge (ANWAR): the

people “pay” the cost of losing an environmental treasure, while only the oil companies benefit. (Could ANWAR be considered an entrepreneurial policy?)

- Which type of policy is the Endangered Species Act?

DEREGULATIONDEREGULATION I. Deregulation or regulatory reform: cutting back on

govt. regulation II. Areas that have been deregulated A. Airlines. 1. Before 1978, the airline industry was regulated, i.e.

the Civil Aeronautics Board controlled rates and fares to protect the industry from excessive competition. As a result, all airlines charged the same rates and fares.

2. In 1978, Congress passed legislation that 1) led to the phasing out of the CAB, and 2) allowed airlines to set whatever rates and fares they wished.

3. Effects of airline deregulation: a. Due to competition, some airlines went bankrupt. b. Some smaller cities lost airline service as airlines

found it unprofitable to provide service to them. c. Concern that airlines have "cut corners" in safety

and maintenance to keep up with the cutthroat competition.

d. On the up side, rates and fares have come way down, and more people are able to travel by air than before.

DEREGULATIONDEREGULATIONB. Telecommunications:

Telecommunications Act of 1996 Phone, cable, and other communication

companies were allowed to compete in the others’ core businesses, e.g., local telephone companies could offer cable t.v. services.

Act also provided for regulation of Internet content (later overturned by S.C.)

Act also required that TV makers install “V-chip” allowing parents to block objectionable programming.

DEREGULATIONDEREGULATION III. Evaluation of deregulation:

positives: Restores natural market forces in

pricing, efficiency, resources.Encourages competition.Encourages technological innovation.Prevents government agencies from

being “captured” by the businesses they are supposed to regulate.

Lower costs for industry, and lower prices for consumers.

IV. Negatives: See previous notes on

Govt. Regulation of Business. In addition: Due to our federal system, states will continue to regulate business. This produces even more confusion: Under national regulation, there was generally only one set of regulations; now, with deregulation, companies may have to deal with 50 different sets of regulations.

GOVERNMENT SUBSIDIESGOVERNMENT SUBSIDIES I. Definition: governmental financial

support. Main types of subsidies:

A. Cash, e.g., Temporary Assistance for Needy Families (TANF).

B. Tax incentives, e.g., home mortgage interest payments are tax deductible.

C. Credit subsidies, e.g., Veterans' Administration home loans.

D. Benefit-in-kind subsidies: non-cash benefits, e.g., food stamps, Medicaid, Medicare.

II. Purpose of subsidies: to encourage a particular type of private sector action.

A. Example: the govt. has encouraged home ownership by making mortgage interest tax deductible. In other words homeowners have been "subsidized" by the govt.

B. Most people associate subsidies with welfare programs for the poor; actually, most subsidies go to people in the top half of the nation's income distribution. Many subsidies, in fact, go to corporations, leading liberals to criticize such "corporate welfare." Example: tax breaks for pharmaceutical companies with operations in Puerto Rico.

GOVERNMENT SUBSIDIESGOVERNMENT SUBSIDIES

III. The politics of subsidies. A. Most Americans complain about

subsidies; however, most of them also receive them in one form or another.

B. Once subsidies are established, they are extremely difficult to eliminate. "Iron Iron triangles triangles (remember these?) or issue networks develop and work quite hard to keep the subsidies. Some subsidies even become "sacred cows;" woe to the member of Congress who votes against these! Social Security, for example, is “3rd rail of Amer. Politics:” touch it & you die.

C. Another reason subsidies are hard to eliminate is that they are often difficult to "see."

The dairy industry, for example, receives heavy subsidies for milk production, yet few people seem to be aware of this. If consumers are not even aware of the subsidies, how can they even complain?



IV. Subsidies that promote commerce. A. Examples of subsidies to business and

industry.

1. Oil companies receive tax breaks to encourage oil production and make us less dependent on foreign oil.

2. Airlines received billions in federal aid after the 9/11 terrorist attacks. A federal agency took over United Airlines pension program in 2005.

3. Bank and auto company bailouts in 2009

GOVERNMENT SUBSIDIESGOVERNMENT SUBSIDIES B. Examples of subsidies to agriculture: The

federal govt. today provides loans and cash payments to farmers ("price support payments"), and in some cases pays farmers to not grow crops to prevent surpluses. Criticisms of these subsidies:

1. Though these are supposed to help farmers, much (30%) of these subsidies go to huge "agribusiness" firms, leading once again to charges of "corporate welfare."

2. Consumers end up paying higher prices for food, yet so much of the subsidies go not to the small farmers, but instead agribusiness.

V. Social welfare subsidies. A. Major social welfare programs: Social Security: for elderly, survivors, and

disabled (OASDI). No means test, i.e., one does not have to prove that one lacks the means in order to qualify for benefits. In other words, one does not have to have a low level of income to qualify for these benefits. Even upper income people qualify for benefits if they fall into one of the three categories. Financed by FICA (Federal Insurance Contribution Act) payroll tax: 6.2% of first $102,000 of earnings (and same from employer).

.

GOVERNMENT SUBSIDIESGOVERNMENT SUBSIDIES 2. Medicare: Federal medical coverage for the elderly.

Financed by payroll tax of 1.45%.No means test.

3. Unemployment insurance: Payments to the unemployed. No means test.

4. Temporary Assistance to Needy Families (TANF): Payments to poor families with children. The program that most people are talking about when they discuss the "welfare system." Means test.

5. Supplemental Security Income (SSI): Cash payments to disabled people whose income level is below a certain amount. Means test.

6. Food stamps: Coupons given to the poor in order to buy food. Means test.

7. Medicaid: Federal medical coverage for the poor on TANF or SSI. Means test

GOVERNMENT SUBSIDIESGOVERNMENT SUBSIDIES B. Two kinds of welfare policies.

1. Majoritarian policies: Everybody benefits from these, and everybody pays (e.g.,Social Security). Often become politically popular; "sacred cows" at times.

2. Client policies: Relatively few people benefit, but everybody pays (e.g., TANF). Can you see why there is such widespread resentment?

The Social Security problem.

1. Demographic problems. a. Increasing birth rate during Baby Boom era. b. Declining birth rate since then. c. Increasing life expectancy, esp. due to medical improvements d. These two factors have created the following situation: When Social Security began in 1935,

there were 16 people working for every Social Security recipient. Now there are just 3, and by the year 2020 there are projected to be only 2! What is now a huge surplus in the S.S. Trust Fund will decline to the point at which, unless something is done, more money will be going out than coming in. These realities have led some to propose reforms for Social Security:

1) Increasing the age of recipients from 65 to 67or 70 2) Adopting means testing for recipients 3) Reducing the annual "COLA" (cost of living adjustment) for recipients, i.e., reducing the annual

benefits increase 4) Reducing benefits for recipients. 5) Increasing the amount of income (currently ~$97,500) that is subject to Social Security tax. 6) Privatizing part of Social Security deductions, i.e., allowing citizens to earmark part of their

Social Security contributions to their own choices of investments in hopes of earning greater returns.

GOVERNMENT SUBSIDIESGOVERNMENT SUBSIDIES E. Welfare has become a huge political issue for the two

parties: 1. Republicans linked the "welfare mess" to various social

pathologies, e.g., a higher illegitimacy rate, a higher rate of single-parent families, higher crime rate, drug problems, etc. They stressed welfare reform and claimed that the Democrats had blocked their efforts at reform.

2. Given this political climate, even Democrats stressed the importance of welfare reform. President Clinton promised to "end welfare as we know it," and signed a huge welfare reform bill in 1996 (Personal Responsibility and Work Opportunity Reconciliation Act) that was passed by the Republican Congress! Some of the bill's highlights:

a. Ended the federal entitlement status of various welfare programs. More state authority. Funded by federal block grants and matching state funds. Note the impact of federalism.

b. Limited welfare payments to no more than five years. c. Welfare recipients must work within two years of applying

for benefits. d. Required food stamp recipients to work. e. Prohibited aliens (legal or illegal) from receiving various

welfare benefits. (Later changed – legal aliens may receive welfare benefits)

f. Required teen mothers to live with parents and attend school in order to receive welfare benefits.

3. Welfare rolls declined by 60% between 1996-2004

HEALTH CARE POLICYHEALTH CARE POLICY I. A mostly private health care system Traditional approach: fee for service. Paid for by

insurance (3rd party payer). Rising costs of health care -> HMOs: Health

Maintenance Organizations II. Federal involvement with health care Medicare (a prescription drug benefit for Medicare

patients was added during the first Bush 43 administration).

Medicaid Research efforts III. Problems w/health care Rising costs Uninsured. Working poor and unemployed unable to

afford health insurance High cost of malpractice insurance because of

increased litigation Unnecessary procedures, esp. to protect physicians

from risk of lawsuit, e.g., growing number of caesarian sections.

Endless paperwork from fed. govt. and insurance companies

Lack of flexibility and choice with HMOs

HEALTH CARE POLICYHEALTH CARE POLICY IV. Health care reform An early priority of Clinton, who appointed Hillary

to head a task force on health care Various proposals

Single payer, i.e., socialized medicine “Managed competition.” Use of HMOs to

accomplish “cost containment.” Problems of HMOs -> desire for “HMO patient’s bill of rights.”

Requiring coverage from employers. Abolishing employer provided coverage and

requiring people to buy health insurance individually

C. This is a major policy concern for Obama. One of his priorities is to insure those who are currently without health care insurance.

Reasons for failure of major health care reform Reaction against Hillary’s task force Added expenses imposed upon citizens Congressional gridlock Tainted with “socialized medicine.” Interest group pressure Contributions to members of Congress

EDUCATION POLICYEDUCATION POLICY

I. Impact of federalism

Education is largely run by state and local govt. Impact of 10th Amendment

However, federal government has also taken some involvement by attaching “strings” to federal education grants to the states. States don’t have to take the money, but if they do, they must comply with those federal requirements

II. Important federal education legislation.

Head Start program for disadvantaged preschool-age children, 1964

Elementary and Secondary Education Act, 1965: funding for disadvantaged students

Title IX of Education Act of 1972: banned sex discrimination in federally funded education programs

Individuals with Disabilities in Education Act, 1975

.

EDUCATION POLICYEDUCATION POLICY Even though states are not required to

participate, the act makes funds available to states that adopt at least the minimum policies and procedures specified in the IDEA regarding the education of children with disabilities.

When passed, federal government was supposed to pay for 40% of the cost of educating students with disabilities. However, Congress has yet to provide all of this 40%. As of 2007, the federal government pays for only about 12% of special education costs.

No Child Left Behind Act of 2001: In order to receive federal funds for education, states must:

1. Adopt subject matter standards Test all students in grades 3-8 on those standards Identify low-performing schools based upon that

testing Require low-performing schools to develop

improvement plans Allow parents of students in such schools that do

not improve to transfer to other public schools ALL students must be proficient in state

standards by 2014

MAKERS OF FOREIGN POLICYMAKERS OF FOREIGN POLICY I. Key foreign policy players. A. Foreign policy is a shared responsibility of the

President and Congress. System of checks and balances applies, e.g., war (Cong. declares, but Pres. is Comm. in Chief), treaties (Pres. makes them, but Senate ratifies), appointments (Pres. makes them, but Senate approves them).

B. Despite shared responsibilities, the President is primarily responsible for foreign policy (U.S. v. Curtiss-Wright), and has extensive support within the executive branch:

1. Secretary of State: Cabinet official responsible for

foreign affairs. 2. Other Cabinet officials: Since foreign policy affects

domestic policy, other Cabinet officials (e.g., Commerce, Treasury, Defense, Agriculture) also have inputs.

3. National Security Council (NSC) a. Coordinates policies that affect national security. b. Members include Pres., V.P., Sec. St., Sec. Def., CIA

head, National Security Adviser, and others. c. National Security Adviser has emerged as a key player

who sometimes has more influence than the Sec. of St., e.g., Henry Kissinger was Nixon's National Security Adviser who had great influence with the President. Presidents may rely more upon the NSA because he is literally "closer " to the Pres. (office in the White House) and his loyalties are not divided between the Pres. and a Cabinet Dept. (as with the Sec. of St.)

MAKERS OF FOREIGN POLICYMAKERS OF FOREIGN POLICY 4. Dept. of Homeland Security: to coordinate anti-terrorism efforts 5. State Department and its Foreign Service: responsible for day-to-

day management of foreign policy. 6. U.S. Information Agency: propaganda agency that includes Voice

of America and Radio Free Europe. 7. Director of National Intelligence: new position that has

responsibilities for overseeing all 15 intelligence agencies. 8. CIA. a. Functions: gather and evaluate intelligence, i.e., information

about other nations. b. Created in 1947 to monitor the Soviet threat. Fall of communism

since 80s has led the agency to branch out into other areas, e.g., international drug trafficking, terrorism, nuclear proliferation.

c. Agency's covert operations (e.g., helped overthrow govts. in Iran and Guatemala in 1950s) have led to some concern about govt. secrecy in a democracy. Can these two co-exist?

D. This concern has led to the creation of intelligence oversight committees in both the House and Senate.

E. Terrorist attacks of 9-11 renewed the call for a stronger and more effective CIA.

f. Obama administration released memos regarding use of CIA torture during Bush administration

MAKERS OF FOREIGN POLICYMAKERS OF FOREIGN POLICY 9. NSA: huge cryptologic and surveillance organization

II. Influences on foreign policy. A. Public opinion. 1. Mass public (75%) relatively unaware of foreign policy, except during crisis. 2. Attentive public (20%) aware and interested. 3. Opinion makers (e.g., journalists, govt. officials, "think tank" researchers, professors) aware and influence the other two publics. B. Interest groups. 1. "Think tanks" such as RAND and Council on Foreign Affairs.

2. Ethnic organizations, e.g., American Arab Anti-Discrimination Committee, American- Israeli PAC ("Jewish Lobby”).

MAKERS OF FOREIGN POLICYMAKERS OF FOREIGN POLICY C. Foreign nations' lobbyists. 1. Many nations hire lobbyists to represent their interests in Washington. 2. This issue led people like Ross Perot to blast the government for listening to lobbyists of foreign nations who obviously do not have the best

interests of the U.S. in mind. D. Political parties. 1. The tradition has been for the U.S. to have a bipartisan foreign policy, i.e., one that is united and not torn apart by party squabbling (“Politics ends

at the water’s edge”). For example, both political parties supported containment of communist aggression after World War II, both supported the Vietnam War, both supported the Gulf War, both supported the war on terrorism and (initially) the war in Iraq

E. Congress. 1. Key congressional "checks" on the

President: funding, war declaration, ratification of treaties, approval of appointments. Key role of Senate Foreign Relations Committee for oversight of foreign affairs.

2. The trend in the 20th century has been to give the President great discretion in the area of foreign affairs (Remember the "imperial presidency" thesis?); however, there have been some notable instances of Congress asserting its authority in foreign affairs:

a. Senate blockage of the Treaty of Versailles after World War I.

MAKERS OF FOREIGN POLICYMAKERS OF FOREIGN POLICY

MAKERS OF FOREIGN POLICYMAKERS OF FOREIGN POLICY B. Neutrality Acts of the 1930s that tried to prevent U.S.

involvement in foreign conflicts. c. Senator Fulbright's hearings on the Vietnam War in the

1960s that raised doubts about U.S. involvement in the war. d. War Powers Act War Powers Act of 1973. (Remember?) e. Congressional refusal to commit troops to Vietnam after

N. Vietnam broke the peace accords in 1975. f. Some opposition to U.S. involvement in the Gulf War of

1990-91 g. Senate rejection of Comprehensive Test Ban Treaty in

1999. h. Some criticism of giving MFN status to China i. Some criticism of Bush’s security measures after 9/11

terrorist attack j. Increasing criticism against war in Iraq by 2006 –

Congress passed bill in April of 2007 to set a deadline for withdrawal of US forces from Iraq by 2008.

k. Some in Congress have called for a “truth commission” to investigate human rights abuses by US during war in Iraq and Afghanistan.

COST-BENEFIT ANALYSIS OF FOUR TYPES OF POLICIES I. Cost: any burden (monetary or non-monetary, real...

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