Pub Pol

PUBLIC POLICY OVERVIEW

A quick reference guide for the main ideas of Unit 5

Public Policy Basics

COSTS vs. BENEFITS

• Cost = any burden (monetary or non-monetary, real or perceived) that a group must bear

• Benefit = any satisfaction (monetary or non-monetary, real or perceived) that a group will enjoy from a policy

COSTS vs. BENEFITS

• Costs and Benefits can be widely distributed or narrowly concentrated– Widely-distributed costs: Income tax, Social

security tax– Narrowly-concentrated costs: Factory air emission

standards– Widely-distributed benefits: Social Security

benefits, national defense– Narrowly-concentrated benefits: farm subsidies

4 types of Policies

• Majoritarian: Widely distributed costs and widely distributed benefits– EX: Social Security, National Defense

• Interest Group: narrowly concentrated costs and narrowly concentrated benefits:– EX: Tariffs on imports and exports

4 types of Policies

• Client: Widely distributed costs and narrowly concentrated benefits– EX: Pork barrel pet projects for Senators

states (Alaska’s Bridge to nowhere)

• Entrepreneurial: narrowly concentrated costs and widely distributed benefits:– EX: Consumer product safety legislation

ECONOMIC POLICY

Taxing and Spending

• Progressive taxes: a tax where the tax rate increases with increased wealth (example= Income taxes)

• Regressive taxes: a tax that places a higher burden on those with lower income (example = gasoline taxes at a fixed amount impact those with lower incomes)

Taxing and Spending

• Sources of Federal Revenue:– Individual Income taxes: 49%– Social Insurance (payroll) taxes: 33%– Corporate taxes: 10%– Excise taxes: 3%– Borrowing: varies depending upon deficit– Other: 4%

Taxing and Spending

• Discretionary Spending: Government has a choice in how money is spent

• Nondiscretionary: Government must spend the money for programs or commitments previously made

• Where the money is spent– Direct benefit payments to individuals (Social Security,

Medicare, Medicaid) 55%– National Defense 16%– Interest on National Debt 10%– Nondefense discretionary Spending 19%

Taxing and Spending

• Entitlements– Automatically spent (without annual review

of other programs)– Ex: Social Security, Medicare, Federal

Pensions, Interest on National Debt– 2/3 of federal budget. Problem becomes

that Congress and the President cannot control much of spending.

Taxing and Spending• Budget Process

– Agencies prepare their budget needs and submit to President’s Office of Management and Budget (OMB)

– OMB makes recommendations to President– President submits budget to Congress– Congressional Budget Office (CBO) checks President’s

budget– Ways and Means committee in house review taxes and

revenues. Appropriations committees review spending– Agencies lobby for money– Majority vote in both houses passes budget– President signs or vetoes bill (no line-item veto)

Managing the Economy

• 2 types of Economic Policies– Fiscal: taxing and spending (budget).

Handled by Congress and the President– Monetary policy: regulation of the money

supply by the Federal Reserve Board (the Fed). Adjustments of Interest rates

FYI- Treasury Department prints our money


• Economic Theories:1. Keynesian economics: Government can

manipulate the health of an economy through spending. In tough times, government should increase spending and in boom times, government should reduce spending to cool down the economy.


• Economic Theories:2. Supply-side economics: Cuts in taxes will

produce business investment that will offset loss of $ due to lower taxes. Associated with Reagan.

3. Monetarism: Money supply is the most important factor for determining the health of the economy


• Trade Policy– Trade deficits (US imports more goods

from other nations than it exports) have led to calls for protectionism where the government protects US industries with tariffs on foreign goods.

– Recent push for Free trade• GATT• NAFTA

Government Regulation

• Rules imposed by government on business to achieve a desired goal (clean air, safety for workers)

• Antitrust policies 1890s-1910s to counter ill effects of capitalism

• Creation of regulatory agencies like FTC, FCC and SEC

Environmental Policy

Environmental Policy

• Key issue is the extent to which the environment should be protected and the costs of doing so.

• Key legislation:– Clean Air acts and Clean water Acts– EPA created in 1970

Social Welfare

Government Subsidies

• Government Financial Support– Cash (ie TANF- Temporary Assistance for Needy

Families)– Tax Incentives (Home mortgage interest payments

are tax deductible)– Credit subsidies- Veterans Administration provides

Home loans– Benefit in kind subsidies: Non cash benefits (foods

stamps, Medicare, Medicaid)


• Purpose: to encourage a particular type of private sector action. Homeownership is encouraged by the government, so Mortgage interest is tax deductible.

• Most subsidies go to upper income people and corporations

• Most people complain about subsidies, but many of those who complain also receive subsidies in some form.


• Business Subsidies:– Oil companies receive tax breaks to encourage oil

production to make us less dependent upon foreign oil

– Airlines received government aid post 9/11 to help offset lost revenue.

– Government pays farmers to not plant certain crops to keep production down and stabilize prices


• Social Welfare Subsidies:– Social Security (no means test, i.e. one does not have to

prove that one lacks the means in order to qualify for the benefit.) Financed by FICA payroll tax

– Medicare (no means test)– Unemployment Insurance (no means test)– Temporary Assistance to Needy Families (TANF0 means

test)– Supplemental Security Income (means test)– Food Stamps (means test)– Medicare federal medical coverage for people on TANF or

SSI (means test)

Foreign Policy

Foreign Policy

• President and Congress Share powers– President is commander in chief and can deploy

troops, while Congress controls the money funding the military and can declare war.

– President makes appointment for ambassadors, but Senate approves

– President makes treaties, but Senate ratifies (some presidents use Executive Agreements, which do not need to be ratified to get around this)

Foreign Policy

• President and Congress Share powers– WAR POWERS ACT

• Response to Vietnam• President must notify Congress within 48 hours of

deploying troops• President must bring troops home after 60 days unless

further authorized by Congress to keep troops in hostile situation

• Act has had little impact on the execution of our military policy

Foreign Policy

• Presidential Support for Foreign policy:– Secretary of State– Secretary of Defense– Director of National Intelligence– CIA– NSA– National Security Council-”NSC” (coordinates

efforts that effect National Security)• President, VP, Sec of State, Sec of Defense, CIA head,

National Security Advisor