Domestic Policy Essentials Notes

Domestic Policy Essentials

Fiscal Policy

• Definition: The government’s use of taxing, monetary, and spending powers to manipulate the economy.
• Purpose: To counteract the business cycle (e.g., stimulating the economy or counteracting inflation).

Taxation

• Historical Revenue Sources: In the 1800s, revenue primarily came from tariffs on imported goods; now, it mainly comes from income tax.
• Goals of Federal Tax System:
  • Raise government revenue.
  • Achieve income redistribution, reducing wealth disparities.
  • Reward investments through tax deductions for business expenditures.

Income Tax

• Progressive Tax: Tax rate increases with higher income brackets, contrasting with regressive taxes that burden lower incomes more.
• Current Trends: The individual and corporate income tax systems have grown less progressive over time.

Federal Revenues Breakdown (2022)

• Individual income taxes: 51%
• Social insurance and retirement receipts: 32.6%
• Corporate income taxes: 5.9%
• Excise taxes: 1.9%
• Other: 8.6%

Spending and Budgeting

• Budget Deficit: Amount whereby government spending exceeds revenue within a fiscal year, contributing to national debt.
• National Debt: Total amount borrowed by the government over time.
• Subsidies: Government grants to support specific economic sectors.
• Budgeting Bodies:
  • Office of Management and Budget (OMB) prepares the president’s budget.
  • Congressional Budget Office (CBO) supports Congress with reliable cost and economic impact information.

Monetary Policy

• Definition: Regulatory efforts to control the economy through the money and credit supply.
• Federal Reserve System: Composed of 12 banks managing cash exchanges and regulating member banks.
  • Responsibilities: Ensure high employment and price stability.
  • Leadership: Comprised of seven members appointed by the president, confirmed by the Senate.

Regulation and Antitrust Policy

• Purpose: Government regulation to control monopolistic firms in the market.
• Monopoly Definition: A firm controlling an entire market, eliminating competition.
• Economic Regulation Trends: Increased in the 20th century, with some deregulation in the 1980s-1990s, particularly by Republican presidents.

Government Intervention in the Economy

• Historical Perspective: Pre-1929, limited government intervention was largely accepted (laissez-faire capitalism).
• Keynesian Economics: Advocated by John Maynard Keynes, emphasizes government’s role in stimulating demand via public spending or tax cuts.
• Opposition: Shift in the 1980s with Republican interest in supply-side economics and lower taxes, contrasting continued Democratic support for active government roles.

The Welfare State

• Definition: Policies that promote economic and social well-being of citizens.
• Categories of Social Policy:
  • Contributory Programs: Funded by contributions from current or future recipients (e.g., Social Security, Medicare).
  • Noncontributory Programs: Based on need, not prior contributions (e.g., TANF, Medicaid).
  • Tax Expenditures: Benefits provided through tax breaks (e.g., deductions for mortgage interest).

Key Programs to Know

• Social Security: Provides cash benefits after retirement or disability; adjusted for cost of living (COLAs).
• Medicaid: Health services for low-income individuals, significantly expanded since 1965.
• Supplemental Nutrition Assistance Program (SNAP): Largest anti-poverty program offering food assistance.

Equality of Opportunity

• Objective: Ensuring all individuals can reach their potential regardless of socio-economic background.
• Key Policies: Education, health, and housing policies.

Education Policy

• Federal Involvement: Increased post-WWII; significant laws include NDEA (1958) and ESEA (1965).
• Impact of NCLB (2001): Aimed for improved standards, generated considerable debate.
• Subsequent Reforms: Successful adjustments by the Obama administration, including passage of the Every Student Succeeds Act.

Higher Education

• Major federal programs include the GI Bill for veterans and Pell Grants for low-income students; however, state funding has declined.

Health Policies

• Key institutions: U.S. Public Health Service, National Institutes of Health (NIH), CDC.
• Major developments include the Affordable Care Act (2010) with significant provisions affecting health access for low-income populations.