PUBLIC POLICY OVERVIEW

COSTS vs. BENEFITS Cost = any burden that a group must bear Benefit = any satisfaction that a group will enjoy from a policy Costs and Benefits can be widely distributed or narrowly concentrated o Widely-distributed costs: Income tax, Social security tax o Narrowly-concentrated costs: Factory air emission standards o Widely-distributed benefits: Social Security benefits, national defense o Narrowly-concentrated benefits: farm subsidies

4 Types of Policies

4 types of Policies Majoritarian: Widely distributed costs and widely distributed benefits o EX: Social Security, National Defense Interest Group: narrowly concentrated costs and narrowly concentrated benefits: o EX: Tariffs on imports and exports Client: Widely distributed costs and narrowly concentrated benefits o EX: Pork barrel pet projects for Senators states (Alaska’s Bridge to nowhere) Entrepreneurial: narrowly concentrated costs and widely distributed benefits: o EX: Consumer product safety legislation

Taxing and Spending Progressive taxes: a tax where the tax rate increases with increased wealth Proportional Taxes: a tax in which the rate is the same regardless of wealth (flat tax) Regressive taxes: a tax that places a higher burden on those with lower income

Taxing and Spending Sources of Federal Revenue: o Individual Income taxes: 49% o Social Insurance (payroll) taxes: 33% o Corporate taxes: 10% o Excise taxes: 3% o Borrowing: varies depending upon deficit o 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 o Direct benefit payments to individuals (Social Security, Medicare, Medicaid) 55% o National Defense 20% o Interest on National Debt 6% o Nondefense discretionary Spending 19%

Taxing and Spending Entitlements o Automatically spent (without annual review of other programs) o Ex: Social Security, Medicare, Federal Pensions, Interest on National Debt o 2/3 of federal budget. Problem becomes that Congress and the President cannot control much of spending.

Managing the Economy 2 types of Economic Policies o Fiscal Policy: taxing and spending (budget). Handled by Congress and the President o Monetary policy: regulation of the money supply by the Federal Reserve Board (the Fed). Adjustments of Interest rates

Managing the Economy Economic Theories: o 1. Keynesian economics: Government can manipulate the health of an economy through spending. o 2. Supply-side economics: Cuts in taxes will produce business investment that will offset loss of $ due to lower taxes. 3. Monetarism: Money supply is the most important factor for determining the health of the economy