These are the section assignments:
Ashleigh-beginning to the Politics of Taxing and spending
Chas- The Politics of Taxing and Spending to Reaganomics
Tim-Reaganomics to Spending Money
Karlee- Spending Money to Reducing Spending
Alex-Reducing Spending to the end of the first paragraph on pg475
Mr. Cooper-the last 5 paragraphs

Economic Policy




In 1999 and 2000 there was no budget deficit. However, in 1996 arguments between liberals and conservatives over how to decrease the deficit meant that many agencies had to briefly shut their doors-the government ran out of money.




-this led to a new debate- what to do with extra money




-a compromise was reached in 2001- some taxcuts, some new programs




-this makes people wonder" is there enough money to do both?" We now know that there wasn't enough money





-economists are known to be wrong

The Politics of Economic Prosperity

-it is said that there is a "pocketbook issue " before elections- people vote based on economics
-the question is " whose pocketbook are voters concerned with?"
-people do vote according to their own situation but not necessarily
-people mostly vote on how the national econnomy- see overall economy as having indirect effects on them



What Politicians Try to Do



-elected officials are tempted to take a short-run view of the economy- produce lower unemployment rates and higher incomes just before an election.



-government has used money to affect elections since the 19th century- Congress votes for Social Security increases in election years



-it is enclear whether the government can or will reduce interest rates, reduce unemployment, and cut inflation just to win an election. These things can have unforseen consequences



-presidents would definitely serve two full terms if it were easy to stimulate the economy just before an election



-ideas about the economy are mostly shaped by ideology- Democrats try to reduce unemployment and Republicans try to reduce inflation



The Politics of Taxing and Spending



-people want prosperity and government programs but also want no tax increases or government deficit



-politicians confront two inconsistent kinds of majoritarian politics



-you can't have low takes and no debt and all of the government programs desired



-so politicians, when trying to fund new programs without a surplus, raise taxes on small amounts of people ( cigarettes, inheritances, etc)



-people like tax cuts but some politicians, who are opposed, only want tax cuts for the middle class or for certain activities
-politicians use funding for popular government programs to get re-elected rather than tax cuts

Economic Theories and Political Needs
-economic health is a very complex and poorly understood matter- this is why nations that try to manage their economies centrally do very poorly( the old Soviet Union).
- there are four theories of economics
Monetarism
- suggests that the proper thing to do is to have a steady, predictable increase in money at the same rate as economic growth - otherwise should leave economy alone -assumes inflation occurs when there is too much money chasing too few goods
Keynesianism
-suggests that the government creates the right level of demand by spending more( if there is low demand) or taxing more (if there is too much demand) -assumes that the market won't automatically operate at full employment and low inflation
Planning
economic planning-an economic philosophy that assumes that the government should plan some part of the economy- this is done through
price and wage controls-setting minimum and maximum prices and wages
industrial policy-the government plans or subsidizes investments in struggling industries
Supply Side Tax Cuts
supply side theory-what is need is not more government planning but less government interference -lower taxes will actually raise revenue
Ideology and Theory
-conservatives favor supply side theory and monetarism because it means less governemt interference
-liberals and socialists like Keynesianism and planning because it requires more government interference
-there are exceptions to this rule, however
Reaganomics

Reaganomics-Reagan's ecomoic policies- monetarist fiscal policy, supply side tax cuts and domestic budget cutting

-Reagan wanted to reduce the size of the federal government

-the economy was stimulated by pumping money into it( through tax cuts) and created large deficits- this was accidental Keynesianism

The Machinery of Economic Policy Making

-the chairman of the Council of Economic Affairs (CEA), the director of the Office of Management and Budget(OMB) and and the secretary of the treasury all make economic decisions in addition to the president

-The CEA has existed since 1946. It is a team of experts who make economic predictions and help the president with the economic report he is to send to Congress each year

-the OMB was originally the Bureau of the Budget -established in 1921- chief function is to prepare estimates of amounts that will be spent by federal agencies and to negotiate budgets and department sizes.

-the secretary of the treasury is supposed to argue the point of view of the financial community. They provide estimates of the revenue the government can expect

-there is some amount of pulling and hauling between the members of the troika but the real problem is that 132 separate government bureaus are engaged in formulating economic policy

The Fed

-the most important of these other agencies is the Federal Reserve System's board of governors-these people are appointed by the president (with the Senate's consent) for 14 year nonrenewable terms - the chairman serves for 4 years

-the Fed is somewhat independent of the president and Congress- major purpose is to regulate the supply of money and the price of money(interest rates)

-the Fed can determine whether a president gets reelected or not(because of high interest rates Carter's reelection bid was not helped) However presidents, by appointing members, can have an effect on monetary policy

Congress

-Congress must approve all taxes an almost all expenditures- must approve wage and price controls also

-the president must have the assistance of many agencies within the executive branch and legislative branch

-mostly, the economic health of the nation affects everyone , however, sometimes just a particular industry suffers-mostly because of foreign competition

-Congress responds to interest group politics when passing laws regarding foreign trade- some countries like free trade, others want tariffs to protect their industry

-Congress passed NAFTA due to free traders, but these same people didn't want free trade with the rest of Latin America

-elections( and states that are important in them) also affect economic interests

Spending Money

-the economic health of the nation is not the only thing that matters

- politicians have to respond to the demands of voters and interest groups

-voters want lower government spending and a balanced budget but also want government programs for things like education, homelessness, childcare, and crime control

--the voters are not irrational or hypocrites- they are voicing a variety of concerns

-this leads to inconsistent policies-politicians either promise to cut spending or make sure certain programs get more funding

The Budget

- budget-a document that announces how much the government takes in taxes and how these funds are going to be spent

-the federal budget is a list of everything the government is going to spend without regard to how much money there is to be spent

-there was no federal budget before 1921 and after that the committees of Congress acted on it separately

-after the Congressional Budget Act of 1974 the president submits the budget to two budget committees, one in each house, and then the committees submit a budget resolution-a report submitted to their chambers recommending a total budget ceiling and a ceiling for the different areas

-in May Congress is supposed to adopt these resolutions and use them as guidelines during the summer when it takes up appropriations bills

-appropriations bills make little difference most of the time. Over 2/3 of all government spending is mandatory- goes towards entitlements-a claim for federal funds that can't be denied without denying the claimant their rights-Social Security, Medicare, veterans' benefits, food stamps and borrowed money from Treasury bonds.

-nothing requires Congress to tighten the government's financial belt

-Reagan used this to cut federal spending- instead of just ceilings, committees are forced to cut funds for the programs they are responsible for

-this made members vote on acomplete package of cuts before voting on any particular cut

-the procedures used by Congress affedct the policies adopted by Congress-this proocedure kept down spending because it set ceilings from the start- didn't allow the public to pressure for more spending

-However, this only worked once- a stalemate came about between Reagan and those who wanted less spending and those who wanted more spending-this stalemate has continued

Reducing Spending

-people tried to find ways to cap federal spending and reduce the deficit- one was the Balanced Budget Act of 1985, which required that every year between 1986 and 1991 the budget must be cut until there was no federal deficit. There was a provison called a sequester-automatic across the board cuts in certain areas if Congress and the president couldn't agree

-the plan failed and the government actually got new spending that was higher than the targerted amount-by 1990 it was clear that a new strategy was needed to eliminate the deficit

-the strategy had two parts: it raised taxes and the Budget Enforcement Act of 1990 put a cap on discretionary spending. This means that if Congress increases funding to one program it must cut funding to some other program or raise taxes. This actually helped to eliminate the deficit

Levying Taxes

-Tax policy reflects both majoritarian politics and client politics. A fair tax law is viewed as one that keeps the tax burden low, requires everyone to pay something and requires the better-off to pay more than the poor

-The overall tax burden in the United States is less than that in most other democratic nations. Americans also evade their taxes less than the French or Italians, for example

-a low tax burden and and a low rate of cheating are majoritarian policies and loopholes that allow certain special interests to get special tax benefits are client politics

-Tax reform is hardly politically possible, but it was acheived in 1986

The Rise of the Income Tax

-until almost the end of the 19th century there was no income tax except for a brief time during the Civil War. When Congress voted to enact a peacetime income tax in 1895 it was struck down as unconstitutional by the Supreme Court. In 1913 the 16th Amendment, which authorized such a tax was ratified

-rates went up during wartime and down during peacetime- there was a progressive rate

-the income tax allowed majoritarian politics to become class politics. This meant that in theory Americans who earned an average income ( which is most of the population) could vote for legislators that would tax only the rich heavily

-offsetting the high rates were loopholes the rich could use. In the early 20th century a compromise was reached- the rich would put up with high rates if the rest of the people would support loopholes

-the average citizen paid very little in federal income taxes until World War II- tax rates did not fall back to their previous levels

-normal people could also benefit from the loopholes - in fact most people favored smaller tax cuts coupled with larger deductions rather than big tax cuts with smaller deductions

-interest groups organized around each loophole

-there were many other loopholes besides the well known ones

-until 1986 the typical tax fight was less about rates than loopholes- client politics

-many loopholes could be justified by economic growth

-the Tax Reform Act of 1986 made low rates and small deductions-individuals were the big gainers

-soon the old system reasserted itself- taxes were increased but there were few deductions

-Clinton proposed another tax increase, this time even taxing Social Security benefits for upper-income retirees. It was the first time a majority party passed a bill without one vote from the minority party since 1945

-Events, more than personalities will determine economic policy

Web Links

Internal Revenue Service - information on the tax system

Tax Foundation- another tax resource

Economic Policy Institute-an institute dedicated to economic policy

Assigned Reading

The Recovery Act

FRQ

a.) How has economic policy changed, in terms of who makes decisions and what decisions are made?

b.)How does the president affect economic policy? How does Congress?

We were supposed to research a think tank and talk about their position on a Middle East foreign pokicy issue. My think tank was The Cato Institute. They are a conservative think tank devoted to to personal freedom, free markets and peace, according to their website. I was under the impression that we were supposed to find their view on the Israeli-Palestinian conflict. The only article I could find about that on their website was an article talking about how when Israel was established after World War Two, it should have been established as place for both Palestinians and Israelis where they could live peacefully. I must say that I agree with that position.

Well, I didn't follow the guidelines we were supposed to for the web address, so I have to start over. I chose to take AP Government in order to earn college credit. As I'm not going into a Social Studies field I decided I didn't want to waste my time on courses like this in college. I also wanted a challenging class.






P.S. Mrs. Jordan, I'm sorry I sent you the wrong link. That was before I realized I set it up wrong.