Chapter Fourteen:

Domestic and Economic Policy

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• Describe the policymaking process, including:

-- Agenda building

-- Policy formulation

-- Policy adoption

-- Policy implementation

-- Policy evaluation

Chapter Fourteen Learning Objectives

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• Explain the meaning of a personal health insurance mandate.

• Describe increases of unauthorized immigrants and the effects of this increased population.

• Explain the attempts of the U.S. House and Senate to pass bills controlling the flow of unauthorized immigrants and the companies who hire them.

Chapter Fourteen Learning Objectives

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I. The Policymaking Process

II. Health Care

III. Immigration

IV. Crime in the Twenty-first Century

Chapter Fourteen Contents

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V. Energy and the Environment

VI. The Politics of Economic Decision Making

VII. The Politics of Taxation

Chapter Fourteen Contents

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• The Policymaking Process Domestic Policy

The Policymaking Process

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Five Steps of Policymaking- Agenda Building

An issue must get on the agenda

The Policymaking Process

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Congress must be aware that a problem exists and requires congressional action

The Policymaking Process

AP Photo/Charles Dharapak

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• Late 90s – early 2000s, people were able to obtain mortgages at a low interest rate, but many were obtained “subprime mortgages”

• Around 2004 – Banks began to stop issues subprime are adjustable rate mortgages

• 2004 – 2008 – Banks lost billions from people who were not able to pay pack loans, foreclosures skyrocketed, and the credit of both banks and individuals suffered

• 2008 – POLICY Decision - $700 Bank Bailout Bill

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Timeline of Economic Crisis

In late 2008, as banks were no longer taking excessive risks, it was feared that this could lead to a potential freeze on credit and lending by the nation’s firms; thus leading to a possible shut down of the economy. Financers pleaded to the government for assistance.

The Policymaking Process

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- Policy Formulation Various policy proposals are

discussed among government officials and the public

The Policymaking Process

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Bush-appointed Secretary of Treasury Henry Paulson proposed via three-page memo a $700 billion bill to buy toxic mortgage-related assets. Congress created a 110-page bill filled with pork and oversight provisions.

The Policymaking Process

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- Policy Adoption This step involves

choosing a specific policy from among the proposals that have been discussed.

The Policymaking Process

AP Photo/Richard Drew13

After the House refused to pass the bank bailout bill, Senate leaders decided to amend an existing bill already passed by the House

The Troubled Assets Relief Program (TARP) was 451 pages filled with earmarks to attract votes.

The Policymaking Process

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- Policy Implementation This step involves the

implementation of the policy alternative chosen by Congress.

The Policymaking Process

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Officials soon realized that TARP could be spent on preferred stock in banks, rather than buy toxic banks, which would not resolve the financial crisis, eventually returning TARP funds to the government.

The Policymaking Process

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- Policy Evaluation After a policy has been

implemented, it is evaluated. Groups inside and outside

government conduct studies to determine what actually happens after a policy has been in place for a given period of time.

The Policymaking Process

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Initially, the public didn’t mind the switch to preferred stock, rather they were concerned with employee compensation and future lending practices.

Soon the TARP program was viewed as a Wall Street bailout for special interests.

The Policymaking Process

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• Health Care America spends almost twice as much

as Britain or Japan.- Spending is measured by the

percentage of the gross domestic product (GDP).

Health Care

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The Government’s Role in Financing Health Care Through 2009

- Medicare—a state-federal program, specifically designed to support U.S. residents over 65

This program is funded by tax on wages and salaries.

Health Care

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Created in 1965, pays hospital and physician’s bills for those residents over 65

Second-largest domestic spending program after Social Security

Government has cut reimbursement funds and have capped specific procedures

Health Care

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The Government’s Role in Financing Health Care Through 2009

- Medicaid—a state-federal program, specifically designed to subsidize health care for the poor

Health Care

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This program is funded out of general government revenues.

In 2007, 34 million people were enrolled in the program.

Health Care

AP Photo/J. Scott Applewhite

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Today, there are about 60 million, exceeding over $300 billion

The Federal government pays 55 percent of total costs.

Health Care

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Health Care

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Health Care

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Universal Health Insurance- President Obama signed into law

on March 23, 2010, the Patient Protection and Affordable Care Act.

VERY CONTROVERSIAL

Obamacare explained

Obamacare Rebutal

Health Care

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On March 30, the President signed the Health Care and Education Reconciliation Act of 2010.

Health Care

AP Photo/Stephen Chemin

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Largest expansion of government services since Lyndon B. Johnson

An opt-out provision if an individual rejects the coverage

Illegal immigrants will not be covered.

Health Care

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Health-care Reform Building an Agenda

- The Problem of the Uninsured Over 45 million Americans are

uninsured The uninsured are young, entry-

level workers without health benefits

Health Care

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Health-care Reform Building an Agenda

- The Problem of High Costs New technology and lifesaving

measures are a costly burden on the system.

The Medicare trust fund was projected to run out of funds in 2017.

Health Care

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Health-care Reform: Adopting a Policy

- Universal Health Insurance

- Personal Mandate- Public Option

Health Care

David McNew/Getty Images

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Health-care Reform: Implementing Policy

- Most of the provisions do not go into effect until 2014 and the last provision is not scheduled until 2018.

- Voters will not receive benefits for at least two election cycles.

Health Care

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• Americans have spent many billions of dollars on health care over the last half-century. What kind of return have they received for that spending? One way to answer the question is to observe that since 1950, the life expectancy of the average American has increased about one year with the passage of each span of six years. Much of that increase in life expectancy is doubtless due to health-care spending. In today’s dollars, since 1950 the average American spent $11,400 on health care in every span of six years. Therefore, we could say that on average, Americans spent $11,400 to buy one year of additional life. If someone asked you how much your life is worth in dollar terms, you probably would be hard-pressed to provide a figure. You might reject the question entirely. Insurance companies and government agencies, however, routinely need to estimate the economic value of a person’s life. A typical estimate by economists would be about $75,000 a year. This is about six times what it cost to buy those additional years of life. By these calculations, health-care spending appears to be a bargain. That does not mean, however, that we are spending too little on health care. To ask if we are spending too little, the correct question is as follows: If we spend one additional dollar on health care, will we get one additional dollar’s worth of benefit? This is a hard question to answer.

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• We stated in this chapter that Americans spend more on health care than the people of almost any other country. It is not an accident that the United States is also the only truly rich country that does not have a national health insurance system. Insurance provision by the government tends to hold down total costs for several reasons. One is that the government is in an excellent bargaining position to demand lower prices from medical care providers and from pharmaceutical companies. But is such bargaining a good idea? The pharmaceutical industry, for example, makes more profits selling drugs in America than in Germany, where the government has negotiated lower prices. One effect of the high profits that the industry earns in the United States is that it is able to fund a vast research effort aimed at finding new drugs. Some experts believe that the industry would be unable to mount such an effort if Americans paid German prices for drugs. (Such thoughts may have been on the minds of the Republicans who barred the government from negotiating lower drug prices as part of the Medicare drug benefit.) American spending, in other words, may be providing the rest of the world with a “free ride” in terms of pharmaceutical research. What applies to pharmaceuticals may also apply to other branches of medicine. It is possible that America’s lavish medical spending is one of the main engines driving worldwide progress in medical science.

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• Immigration The Issue of

Unauthorized Immigration

- Approx. 12 million undocumented aliens

- Hispanic populations have grown dramatically in the southwestern states.

Immigration

AP Photo/Ralph Fresco

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- Characteristics of the Undocumented Population

Studies show unauthorized immigrants return home to retire.

A great deal send money home to relatives .

Many live in mixed households; some have lawful family members.

Immigration

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- Concerns about Unauthorized Immigration

Laws and customs Coyotes may exploit or abuse

clients Contributes to the illegal drug

trade

Immigration

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Attempts at Immigration Reform- Public opinion is contradictory.

1/5 favor immediate deportation. Though a serious problem, most

don’t believe it should be a priority issue.

Immigration

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Immigration and the Obama Administration Administration instituted harsh

crackdowns on employers of undocumented workers.

Immigration reform was tabled for Health Care.

Immigration

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The Arizona Immigration Controversy- In April 2010, Arizona’s governor

signed legislation that would make it a crime to not carry immigration documentation.

The 2010 election and health care legislation forced immigration to take a seat behind top issues.

Immigration

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• Crime in American History Crime has been an issue of concern

throughout America’s history.- Industrialization and bureaucratic

institutions like factories and schools socialized citizens into patterns of conformity and rules.

Crime in the Twenty-first Century

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- In the 20s and 30s, organized crime flourished during prohibition.

- Crime rates began to rise in the 50s and grew substantially in the 1960s.

- Since 1995, violent crime rates have declined.

Crime in the Twenty-first Century

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The Prison Population- Many Americans believe the best

solution to curbing crime is to impose stiff prison sentences.

In 2008, 2.3 million people were imprisoned in jails.

Crime in the Twenty-first Century

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- The Incarceration Rate Men are ten times more likely to

be incarcerated than women. Prisoners are also

disproportionately African America.

Crime in the Twenty-first Century

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- Prison Construction and Conditions Prisons are releasing criminals

early due to overcrowding. Several states are building more

prisons to house the growing inmate population.

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Crime in the Twenty-first Century

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Crime in the Twenty-first Century

Crime in the Twenty-first Century

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Crime in the Twenty-first Century

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Crime in the Twenty-first Century

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• Energy and the Environment- Energy policy

addresses two key issues

America’s reliance on foreign oil

Potential global warning caused by increased emissions of CO2

Energy and the Environment

Theo Heimann/AFP/Getty Images

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Oil—A Strategic Issue - The United States imports three-

fifths of the petroleum it consumes primarily from the Middle East .

- President Obama has attempted to reduce the U.S. dependence on foreign oil.

Energy and the Environment

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Global Warming- There is much

debate over the amount of warming that will occur.

Energy and the Environment

Johnny Johnson/Getty Image

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Scientists’ agree that global warming will be significant.

Documentaries like Al Gore’s An Inconvenient Truth, brought the issue into the limelight.

Energy and the Environment

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Energy and the Environment

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The BP Deepwater Horizon Oil Spill

Energy and the Environment

AP Photo/Bill Haber

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- Extent of the spill Largest oil spill in American

history Over 3,850 square miles Gushing oil rate of 5,000 barrels

a day

Energy and the Environment

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- Attempts to Plug the Leak BP, the company responsible,

failed at plugging the leak. Failed attempts resulted in

additional amounts of oil that leaked into the ocean.

Energy and the Environment

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- Cleanup Efforts- The Federal

Government’s Response

- The Failure of Regulation

- Public Reaction

Energy and the Environment

Redux/Stephen Crowley/The New York Times59

• The Politics of Economic Decision Making

Good Times, Bad Times- Recession- Unemployment- Inflation

The Politics of Economic Decision Making

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- To try and control peaks and valleys of the national economy, the government has several policy options.

One is to change the level of taxes or government spending.

Another is to influence interest rates and the money side of the economy.

The Politics of Economic Decision Making

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Fiscal Policy- Keynesian Economics

School of thought that supports the use of government spending and taxation to help stabilize the economy

Summary of Keynesian Economics

The Politics of Economic Decision Making

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Government Spending and Borrowing- Keynes believed that forces of

supply and demand operated too slowly on their own in such a serious recession.

Government should step in and spend what is needed to return the economy to a more normal state.

The Politics of Economic Decision Making

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Government spending can be financed through increasing taxes and borrowing money.

It is essential that the spending be financed by borrowing, and not by taxes.

Government should run a budget deficit.

The Politics of Economic Decision Making

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- Discretionary Fiscal Policy Beginning with President John F.

Kennedy, policymakers have attempted to use Keynesian methods to fine-tune the economy.

Discretionary fiscal policy—left to the judgment of the policymaker

The Politics of Economic Decision Making

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- Criticisms of Keynes Those who object to

Keynes’ theories argue that fiscal policy has no effect or that it has negative side effects that outweigh the benefits.

The Politics of Economic Decision Making

Walter Stoneman/Samuel Bourne/Getty Images

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The Politics of Economic Decision Making

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Deficit Spending and the Public Debt- U.S. Treasury Bonds- Public Debt, or National Debt

The total amount of debt carried by the federal government

China and Japan own most of the debt of the United States.

The Politics of Economic Decision Making

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The Public Debt in Perspective- Gross Public Debt- Net Public Debt- Our Debt Ceiling - $16.4 Trillion

The Politics of Economic Decision Making

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Are We Always in Debt?- From 1998 to 2002, President Bill

Clinton obtained a tax increase as the nation emerged from a mild recession.

A series of events led to the fall of the surplus, increasing the federal debt starting in 2002.

The Politics of Economic Decision Making

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- Events that led to the increase in public debt

The “dot-com bust”, which lowered the rate of growth and the federal government’s tax receipts

September 11, 2001, and the spending associated with Homeland Security

The War in Iraq

The Politics of Economic Decision Making

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Congressional discretionary programs

In 2009, President Obama pushed for the largest spending bill not seen since WWII with “The Economic and Reinvestment Act of 2009”.

The Politics of Economic Decision Making

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Monetary Policy- Federal Reserve System (The Fed)

The agency created by Congress in 1913 to serve as the nation’s central banking organization.

The Politics of Economic Decision Making

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The Fed regulates the amount of money in circulation; supervises banking industry; holds reserves deposited by most banks; and so on.

The Politics of Economic Decision Making

AP Photo/Alex Brandon

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- Federal Open Market Committee The most important body within

the Federal Reserve System The Committee decides how

monetary policy should be carried out.

The Politics of Economic Decision Making

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- Loose and Tight Monetary Policies Monetary Policy Loose Monetary Policy Tight Monetary Policy

The Politics of Economic Decision Making

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- Time Lags for Monetary Policy The time between a policy and its

implementation may take several months.

Reliable information may not be available for months.

The Politics of Economic Decision Making

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- Monetary Policy During a Recession

- Regulating Banks

The Politics of Economic Decision Making

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The Politics of Economic Decision Making

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Review of TermsKeynesian Economics

Budget Deficit

Treasuries

National Debt (Public Debt)

Gross Public Debt

Net Public Debt

Federal Reserve System

Credit

Interest Rates

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• The Politics of Taxes Federal Income Tax Rates - The first couple of dollars you make

is not taxed.- The last couple of dollars you make

is the most taxed.

The Politics of Taxation

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- Individuals find legal loopholes to avoid paying the highest percent of taxes.

Loopholes and Lowered Taxes- Loophole- Progressive Tax

The Politics of Taxation

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- Regressive Tax A tax that falls in percentage

terms as income rises

The Politics of Taxation

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The Politics of Taxation

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The Politics of Taxation

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Who Pays?- Democrats- Republicans- The U.S. tax system

The Politics of Taxation

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• Federal Income Tax – Between 10 and 35% (Varies by income)

• State Income Tax (Ibid)

• SS tax – 4.6% of gross

• Medicare – 1.5% of gross

• Payroll tax – varies

• Other state and local taxes

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All The Different Taxes

• What muddies the waters – Deductions, credits, and exemptions – what are some examples of these?

• What about investments, etc?

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• Tax revenue collected - $2,674,007,818,000

• 2012 Budget $128,900,000,000

• How much was actually spent? Over $3,000,000,000,000

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• Other options – Flat Tax, National Sales Tax

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Do you believe a flat tax is a better alternative to income taxes based on a sliding scale?

?Questions for Critical Thinking

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