Unit V: Public Policy (5-15%)

1. Unit V: Public Policy (5-15%) Ch. 17: The Policy-Making Process

2. I. Setting the Agenda • What belongs on the agenda? • Legitimate scope of government action (expanding) • Groups that add new issues: • Institutions: • State governments • Changes in attitudes

3. II. Cost-Benefit Analysis of Four Types of Policies A. Cost: B. Benefit: • Any burden (monetary or non-monetary, real or perceived) that a group must bear • Federal child-care programs (taxes) • Busing (taxes, stress) • Tariffs (higher prices) • Any satisfaction (monetary or non-monetary, real or perceived) that a group will enjoy from a policy • Federal child-care programs (lower costs for parents) • Busing (improved opportunity) • Tariffs (more jobs, profits)

4. C. Distribution or concentration of costs and benefits • widely-distributed • Costs: • Benefits: • Narrowly-concentrated • Costs: • Benefits:

5. III. Four Types of Policies: A. Majoritarian B. Interest Group • Widely distributed costs and benefits • Ex: • Analysis: • Involve narrowly concentrated costs and benefits • Ex: • Analysis:

6. C. Client Policies D. Entrepreneurial Policies • Widely distributed costs, narrowly concentrated benefits • Ex: • Analysis: • Narrowly distributed costs, widely distributed benefits • Ex: • Analysis:

7. IV: Business Regulation • Defined: • Conflicting views:

8. A. History • Industrial era (late 19th/early 20th century) produced “ill side effects of capitalism” • Led to antitrust policy: • Goal: • Sherman Antitrust Act, 1890 • Clayton Act, 1914 • FTC, 1914 • Led to development of other regulatory commissions: • FCC, SEC, NLRB

9. B. Recent Developments: • 1980s deregulation • Rise of corporate mergers • Collapse of sub-prime mortgage market in 2008 and banking crisis has led for a new trend to re-regulate banking and finance industries

10. C. Debate over regulation In favor: Against: • Prevents monopolies • Protects consumers from unsafe products and practices • Safe working conditions • Advocates on behalf of people against big business • Not necessary in a free market • Inefficient, and makes US less competitive in global market • Kills jobs • Increases prices • Unreasonable

11. Ch. 18: Economic Policy I. Deficits, Surpluses, & the National Debt A. From the deficit to the debt: Deficit Spending: Gov must borrow to cover the deficit by selling Treasury bonds or other forms of gov debt to Americans and foreigners National debt: B. How big is the national debt? Growing since 1900: 1.3bn; 1929: 16.9bn; 1940: 50.7bn 2003: 6.74tn; 2008: 9.2tn (each individual’s share calculated at $30,265), current (2012): $15.4tn ($49K/capita) $15,437,987,849,460.91 (as of 2/24/12)

12. C. Taming the Debt • Two theories: raise taxes (liberals) OR cut spending (conservatives) • Balanced budget attempts: • 1990s • Goal was to eliminate deficit spending & reduce the rate of growth of the deficit through spending reductions & tax increases • By 1998 there was a budget surplus due to a strong economy & reduced federal spending

15. National Debt as % GDP Projected US Federal Deficit FY2008-2014 (CBO) Deficit: spending more than the gov receives

16. II. Economic Theories: A. Monetarism (Milton Friedman) B. Keynesianism (John Maynard Keynes) • The money supply (monetary policy) is the most important for determining the health of the nation • The Fed can tighten up money supply (through adjusting interest rates) to reduce inflation, or it can loosen money supply to stimulate the economy • New Deal influenced by Keynes • Government could manipulate the economic health of the economy through its level of spending: • When demand is too low, gov spends • When demand is too high, gov should increase taxes • Difficulty: • Economic crisis (current) led to Congress passing stimulus and bailout packages in order to jump start the economy

17. C. Planning (John Kenneth Galbraith) D. Supply-side economics (Arthur Laffer) • The free market is too unpredictable to ensure economic efficiency; thus the gov should control it • Wage and price controls • Industrial policy-government directs investments towards particular industries • Less government interference and lower taxes • cuts in taxes will produce business investment that will compensate for the loss of tax revenue • Tax rates will be lower, but business will boom, unemployment will decline, incomes will go up, and more money will go to the Treasury • Most associated with Reagan

18. E. Reaganomics • Combination of monetarism, supply-side tax cuts, and domestic budget cutting • Reduced the size of the federal government • Increased military strength and spending Effects: • Rate of growth of spending slowed • Money supply controlled • Federal taxes decreased • Large deficits incurred, dramatic rise in debt • Decline in unemployment

19. III. Economic Policy Making Fragmented-not under President’s full control: • CEA (headed by Alan Krueger) • Part of EOP • Responsible for forecasting economic trends • Prepares annual economic report for the president • OMB (Director (Acting): Jeffrey Zients) • Largest component of EOP • Assists the president in the preparation of the federal budget • Implements and enforces president’s policies across the Executive Branch (budget development, agency oversight, procurement, legislative clearance, review of regulation…) • Secretary of the Treasury (Tim Geithner) • Part of the president’s cabinet • Promoting economic prosperity and financial security, recommends tax changes • Advises president on economic and financial issues

20. The Fed (Federal Reserve Board) (Bank for banks) • Board of Governors (7) appointed by President, confirmed by Senate, 14 year terms, cannot be reappointed, may not be removed for policy decisions • Fed Reserve Chair (Bernanke) appointed by President, confirmed by Senate, 4 year terms, can be reappointed (reconfirmed 2010) • Sets monetary policy (regulation of the money supply by the Federal Reserve Board) by controlling the amount of money and bank deposits and sets interest rates (adjusting rates to increase or decrease inflation) • Supervises and regulates banks and financial institutions • Independent entity • Congress sets nation’s fiscal policy: • Taxing and spending; budget matters • Fiscal policy is conducted by Congress and the President

21. Federal Reserve District Banks • There are 12 Fed Reserve district banks and 25 additional branches strategically located nationwide to serve commercial banks • California is located in the 12th district, operated by the Federal Reserve Bank of San Francisco.

22. Trade Policy • Increasing trade deficits (imports exceed exports) caused by: • Expanding economy in China • Rising oil prices from overseas suppliers • Effects: protectionism • Outsourcing of American jobs • Despite this, more of a push for free trade than for tariffs (GATT, WTO, NAFTA, CAFTA) • Republicans tend to support free trade, Democrats (union supported) tend not to

23. IV. The Budget A. The Executive Branch B. Congress • Agencies prepare their estimates of budget needs and present them to the OMB. Amount requested is typically based on the amount granted the previous year (plus inflation and any additional needs) • OMB reviews these requests and makes recommendations to the President • President reviews OMB recommendations and submits budget to Congress (February) • CBO provides an independent analysis of the President’s budget (a check on OMB) • Budget committees in House and Senate study proposal and submits a budget resolution to its house, Appropriations committees in both House and Senate set spending ceilings, House Ways and Means considers budget’s tax proposals, Senate Finance studies fiscal impact of budget • Input and lobbying from agencies • Majority vote in both houses • Gov Accountability Office (GAO), watchdog agency that ensures money is spent as prescribed by law

24. THE BASIC STAGES OF THE CONGRESSIONAL BUDGET PROCESS The President’s Budget Submission. Adoption of the Budget Resolution. Passage of Appropriation Bills. Consideration of Reconciliation Legislation. Consideration of Authorization Legislation.

25. Congressional Budget Process Timetable • First Monday in February: President submits budget to Congress • February 15: Congressional Budget Office submits economic and budget outlook report to Budget Committees • Six weeks after President submits budget: Committees submit views and estimates to Budget Committees • April 1: Senate Budget Committee reports budget resolution • April 15: Congress completes action on budget resolution • May 15: Annual appropriations bills may be considered in the House, even if action on budget resolution has not been completed • June 10: House Appropriations Committee reports last annual appropriations bill • June 15: House completes action on reconciliation legislation (if required by budget resolution) • June 30: House completes action on annual appropriations bills • July 15: President submits mid-session review of his budget to Congress • October 1: Fiscal year begins

27. C. Political Influences D. Presidential Action • Political party differences • Interest group/PAC influence • Iron triangles • Public opinion • President signs or vetoes entire spending and taxing bills (no line item veto) • Congress can override a veto with 2/3 vote in both houses.

28. E. Sources of Federal Revenue Historically: tariffs and excise taxes • 1894: income tax ruled unconstitutional by SCOTUS, but passage of 16th Amendment in 1913 created income tax Presently: individual income taxes (progressive structure) make up 45% of all federal revenue • Social insurance (FICA payroll taxes-regressive structure): 36% • Corporate taxes: 12% • Excise taxes: 3% • Other: 4%

29. Types of Taxes (Bases and Structures) There are 3 types of taxes in the US • 1st goal: • 2nd goal: • Proportional Tax: (flat tax) • Progressive Tax: (income tax) • Regressive Tax: (sales tax)

30. F. Federal Spending • Federal spending is $3.5tn (FY2010) • Transfer payments (direct benefit payments to individuals, Social Security, Medicare, Medicaid…): 54% (nondiscretionary/mandatory) • National defense: 26% (discretionary) • Net interest: 9% (nondiscretionary/mandatory) • Nondefense discretionary: 11%

31. 2-Types of federal spending: • Mandatory Spending: • 2/3 of federal budget • Spending authorized by law without annual Congressional approval, some have built in COLA • Social Security, Medicare, Medicaid, food stamps, retirement benefits for federal workers & veterans, unemployment insurance • Entitlement Programs (“uncontrollables”): • Federal money that is 1) provided to those that meet established eligibility requirements, and 2) is automatically spent each year without congressional review • Discretionary Spending • 1/3 of budget • Spending must receive annual Congressional authorization • National Defense, education, the environment, public parks, scientific research, housing, transportation, disaster relief, student loans, law enforcement, etc.

33. V. Reducing Spending • Budget deficit: gov expenditures exceed income during a one year period (debt is accumulation of deficits) • 1985 Gramm-Rudman-Hollings Act (1985) • Established maximum deficit amounts, if statutory limits went above, the President was required to issue a sequester order to reduce all non-exempt spending to a uniform percentage • 1990: BEA replaced Gramm. Congress and Bush 41 agreed on 1) caps on discretionary spending, and 2) 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 cuts. Paygo expired in 2002, but was signed into law by Obama in February 2010. • Failure of Congress to pass Balanced Budget Amendment (House voted down in 1992) • Reduction of deficits under Clinton and development of surpluses led to political disputes over what to do with them. Republicans favored tax cuts, Democrats wanted to apply them to Social Security. • Bush (W.) $1.36tn tax cuts in 2001 + recession + 9/11 + wars in Afghanistan and Iraq + end of paygo ended surpluses

34. Ch. 19: Social Welfare.I. Two Kinds of Welfare Programs A. Majoritarian policies B. Client Policies • Everyone benefits, everybody pays (Social Security, Medicare) • Not means tested; eligibility requirements • Biggest problem: • Few people benefit, everyone pays (TANF, Food Stamps, Medicaid) • Means tested • Biggest problem:

35. C. Social Security (1935) • Financed by FICA payroll tax 6.2% of first $110,100 of earnings; not means tested (employee portion reduced to 4.2% for 2011 for ONE year only; extended for an additional year in 2012) • Demographic changes: in 1935 there were 16 people working for every recipient; today there are just 3, by 2020 only 2. PLUS, increasing life expectancy rates. • Proposed changes: • Increasing age from 65-67, then 70 • Adopting means testing • Increase wage cap (from $110,100 [2012] to $150,000) • Reduce benefits • Privatize part of SS • Raise payroll taxes (from 6.2% to 6.7%)

37. D. Healthcare • Most people have private health care paid for by insurance • Problems: • Rising costs • Uninsured • High cost of malpractice insurance • Unnecessary procedures, doctor’s visits • Paperwork • Lack of flexibility and choice with HMOs • Fed gov passed Medicare (elderly and disabled) and Medicaid (poor) in 1965 • Medicare financed by payroll tax of 1.45%(not capped), not means tested • provisions: A) hospital insurance, B) medical insurance, D) prescription-drug coverage (passed during W’s 1st term) • Complaints: not efficient, cost of program rising due to life expectancy rates

38. E. Healthcare Reform? Various proposals: • Single-payer (socialized medicine) • Managed competition, use of HMOs to accomplish cost containment • Requiring coverage from employers • Requiring individuals to buy health insurance – constitutional? • Obama’s Plan: passed in Congress; challenged in the Courts

39. F. Welfare (AFDC to TANF) • Means tested program • Transfer program • Partisan issue: • AFDC abolished in 1996 and replaced with TANF: • Funded by federal block grants and matching state funds (federalism) • Limited payments to no more than 5 years • Recipients must work within 2 years of applying • Required food stamp recipients to work • Required teen mothers to live with parents and attend school in order to receive benefits • Welfare rolls declined by 60% between 1996-2004

40. G. Education Policy • federalism: largely run by state and local gov (10th Amendment) but fed gov provides funds through categorical grants (with strings) to states • Important legislation: • Head Start: 1964, • ESEA, 1965: • Title IX, 1972: • IDEA, 1975: • NCLB, 2001: • Adopt subject matter standards and test all students (grade 3-8) • Identify low-performing schools based on those tests and require improvement plans • Allow parents is such schools that do not improve to transfer • ALL students must be proficient in state standards by 2014

41. II. Government Subsidies • Main types of subsidies: • Cash: • Tax incentives: • Credit subsidies: • Benefit-in-kind: • Purpose: to encourage private sector action • Home ownership • Most subsidies go to corporations (not poor) • Politics of: • Most people complain, but most people also receive them • Once established, hard to eliminate • Promote commerce: • To business and industry: oil co., auto, banking, airlines • Agriculture • Social Welfare Subsidies: • Not means tested: Social Security, Medicare, Unemployment Insurance • Means tested: TANF, Medicaid, Food Stamps, Supplemental Security Income

43. Ch. 20: Foreign and Military PolicyI. Key Foreign Policy Players • Foreign policy powers are shared by the President and Congress. • President, though, is primarily responsible for foreign policy (U.S. v. Curtiss-Wright) and has extensive support in the executive branch: • Secretary of State: Cabinet official responsible for foreign policy • Other cabinet officials: since foreign policy affects domestic policy, Commerce, Treasury, Defense, Agriculture also have a role • NSC: coordinates executive agencies that affect national security • Members: President, VP, DNI, Sec State, Sec Def, CIA head, NSA, Chair Joint Chiefs, AG • NSA has emerged as key player, who sometimes has more influence than Sec State • Homeland Security: coordinates anti-terrorism efforts • State Dept. and Foreign Service: day-to-day management of foreign policy • US Information Agency: propaganda agency that includes Voice of America and Radio Free Europe • NSA: cryptology and surveillance organization • CIA

44. CIA • Functions: gather and evaluate intelligence • Created in 1947 to monitor Soviet threat. Post-Cold War has led agency to branch out into other areas: international drug trafficking, terrorism, nuclear proliferation • Covert operations have led to concern about government secrecy in a democracy • Creation of intelligence oversight committees in both House and Senate • 9/11 renewed interest to effectively manage intelligence; the Office of the DNI was created to coordinate CIA , FBI, DIA, and other intel agencies • Use of CIA torture and rendition under Bush Administration-memos released under Obama but not prosecuted (John Yoo & Jay Bybee’s memos on “enhanced interrogation” techniques protected under executive power supported by DOJ in 2010)

45. II. Constitutional Powers A. President B. Congress • commander-in-chief of armed forces • Appoints ambassadors • Makes treaties How can the President assert authority? • Can send troops abroad without congressional declaration of war • Use of executive agreements • Presidential agencies that are under presidential power • Must authorize and appropriate funds for forces • Appointments confirmed by Senate • Must ratify by 2/3 supermajority of Senate • Sole power to regulate commerce • Sole power to declare war Generally, Congress defers to the president on foreign policy, while Congress holds more power to check the president’s domestic policy agenda

46. III. Checks on presidential power: • Trend of 20th century to give President great discretion in foreign affairs (Schlesinger’s “Imperial Presidency”), but some notable exceptions when Congress asserted its authority: • Treaty of Versailles blocked by Senate (1919) • Neutrality Acts (1930s) • War Powers Act of 1973 • Opposition to Gulf War (1990-91) • Criticism of Patriot Act and Iraq War (by 2006) • Push for “Truth Commission” to investigate human rights abuses by US in Iraq and Afghanistan • Senate Foreign Relations Committee responsible for oversight of foreign affairs

47. IV. Foreign Policy and Public Opinion A. Public Opinion B. Interest Groups • Mass public (75%) relatively unaware of foreign policy, except during a crisis • Attentive public (20%) aware and interested • Opinion makers (media, government officials, think tank researchers, professors) aware and influence the other two publics • Think Tanks, such as RAND and Council on Foreign Affairs • Ethnic organizations, American Arab Anti-Discrimination Committee, American-Israeli PAC

48. C. Foreign Nations’ lobbyists: D. Political Parties • Many nations hire lobbyists to represent their interests in Washington 1. Tradition for bipartisan foreign policy (“politics ends at the water’s edge”)

50. Ch. 21: Environmental Policy • The American Context • Environmental policy is affected by federalism: centralization/decentralization tension b/w national and state gov. (Latter have incentive to reduce regulations for fear that businesses will relocate to other states, while former may want a uniform policy). • Key issue: to what extent and cost should the environment be protected. • Competing interests: • Public wants a clean environment • Business is concerned about cost and extent of regulation • Workers are concerned that excessive regulation may lead to job losses