Policy Process

1. Policy Process Laws are like sausages, it is better not to see them being made.   Otto Von Bismarck

2. Five Steps: 1 • Problem Recognition or Agenda Setting • An issue can be brought to the government’s attention through citizens, interest group activities, or court cases • An issue could be related to a party’s position or a campaign promise * When the parties don’t agree about what issues are important, it can be difficult to get government action

3. Five Steps: 2 • Policy Formulation • If people agree to act on a problem, one or more plans must be developed • Plans are commonly generated by politicians or involved interest groups • When the proposed actions are very different, compromise becomes vital

4. Five Steps: 3 • Policy Adoption • The proposed policy becomes official • This is commonly legislation, an executive or bureaucratic order, or a court decision • Policies are often created through a series of small actions taken over time

5. Five Steps: 4 • Policy Implementation • The policy must be put into practice • The public must be informed • There must be a means of monitoring compliance • The must be a means of enforcement • There must be consequences for non-compliance

6. Five Steps: 5 • Policy Evaluation • Evaluation of the policy takes place over time • Some policies have a rough start and recover • Some policies seem great, then experience unforeseen difficulties or high costs • Changes or corrections start with recognition that a problem exists, and usually starts the whole cycle over again • Policy making is a continuous process

7. Monetary Policy • Monetary policy – Affects supply of money, interest rates, and control of inflation • Federal Reserve System – Makes monetary policy and regulates the lending practices of banks • The Fed is intended to be beyond the control of either the president or Congress • Its seven-member Board of Governors is appointed by the president (and confirmed by the Senate) for 14-year terms—a length of the time designed to insulate them from political pressures

8. Tools of the Fed • The Federal Open Market Committee (FOMC) • sets a target for the “federal funds rate,” the interest rate banks can charge each other for overnight loans • The Fed also buys and sells government bonds, which determines whether banks have more or less money to lend out. • The more money banks have to lend, the cheaper borrowing is; if banks have less to lend, borrowing becomes more expensive, and interest rates rise.

9. Fiscal Policy • Controlled by the executive and legislative branches through the budget process • Fiscal policy deals with tax policy and government spending programs • Laissez-faire economics dominated til FDR, then the government became more active Keynesian vs. Supply-Side voodoo Economics

10. On our left… • Keynesian economic theory – Government spending (and resulting deficits) can help the economy deal with its ups and downs • Results in big government • Favored by Democrats • Government must stimulate greater demand, when necessary, with bigger government and higher spending (such as federal job programs)

11. …and to our right… • Supply-Side Economics – Cutting tax rates will stimulate the supply of goods and creates jobs; greater spending power will increase demand • a.k.a. Reaganomics, Trickle-down Economics, J-Lo-nomics • Favored by Republicans • Leads to smaller government

12. Does it matter? • Most policies must be decided a year or more before their full impact will be felt on economy • Budgetary process is dominated by uncontrollable expenditures mandated by law, and many benefits automatically increase with the cost of living • The American free enterprise system imposes the biggest restraint on controlling the economy • The billions of economic choices made by consumers and businesses are more important in their impact than are government policies • The federal government only spends 25% of our GDP • Consumers and businesses make the vast majority of our economic decisions because the private sector is much larger than the public sector

13. Revenue I • Personal and Corporate Income Tax – Shares of individual wages and corporate revenues collected by the government (progressive tax) • Today corporate taxes yield only about 12 cents of every federal revenue dollar, compared with 44 cents coming from individual income taxes • Sixteenth Amendment – Explicitly authorized Congress to levy a tax on income • Capital Gains Tax – on profits derived from sales of real estate or stock

14. Revenue II • Social Insurance Taxes • Both employers and employees pay Social Security and Medicare taxes (regressive tax) • Unlike other taxes, these payments are specifically earmarked for the Social Security Trust Fund to pay benefits. • Social Security taxes have grown faster than any other source of federal revenue (1957 -12 percent of federal revenues; today about 36 percent)

15. Revenue III • Excise Tax – tax on the manufacture, sale, or consumption of a good or service • Estate and Gift Tax – imposed on the assets of someone who dies or gifts over $14,000 • Custom Duties – tariffs on goods brought into the U.S. from abroad • Borrowing • Treasury Department sells bonds when the federal government wants to borrow money • Today the federal debt is about $17.5 trillion

16. Spending I • Discretionary Spending • Programs not required by law • Government can choose to cut spending • Defense • Education • Agriculture • Transportation • Research Grants

17. Spending II • Mandatory Spending (Entitlements) • Congress and the president cannot change spending • Over 60% of federal spending falls into this area • Entitlement programs guarantee a level of benefits to persons who meet the legal requirements • Social Security • Medicare and Medicaid • Food Stamps • Unemployment insurance • Veteran’s pensions

24. Social Security • The Social Security Act of 1935 • Put in place a social safety net to help those in need (private charities and local relief overwhelmed) • Workers contribute to a fund while employed • Workers receive benefits from the fund upon retirement • Originally 25 workers for each beneficiary • Currently ~ 3 workers for each beneficiary >>>>>>Solutions????

25. Medicare • Medicare Act of 1965 • Originally only covered hospital bills for citizens 65 and older • Currently four parts • Part A – hospitalization • Part B – out patient, doctor visits • Part C – Medicare Advantage (better coverage, higher cost to participant) • Part D – Prescriptions (closed the “donut hole”) • Patients often have deductibles, co-pays and other out of pocket costs including premiums • Supplemental programs (Medigap), Medicaid

26. Medicaid • Social Security Amendments of 1965 • Medical coverage for low income families • Means tested, income based • Co-funded by federal and state • Administered by the states • Affordable Care Act (2010) attempted to force states to expand Medicaid, deemed unconstitutional by SCOTUS

27. Domestic Policy • Agriculture • Drug • Education • Energy • Environmental • Health • Housing • Immigration • Social

28. Foreign Policy • International relations • Trade • Defense • Military • Terrorism • Human rights • War on Drugs