Polarized America: Chapters 6 and 7 The Public Policy Consequences of Political Polarization

1. Generally speaking, the higher polarization the less likely it is that significant legislation can be passed in Congress. 2. For example, the Minimum Wage (Fair Labor Standards Act of 1938) peaked in 1968 in real dollars. 3. An attempt to index the Minimum Wage against inflation failed in the House of Representatives in 1977.

1. The Estate Tax has always been a battle between Democrats and Republicans. 2. The Estate Tax was instituted under unified Democratic Government during WW1. It was then lowered by a unified Republican Government in 1926. 3. Democratic Governments kept raising the Estate Tax until it peaked at 77% in 1941. It then was locked into that rate until 1976. 4. This long period steadily reduced the threshold for the tax to estates worth $250,000. This just increased the size of the anti-tax coalition.

From Wikipedia

1. The top Marginal Income Tax Rate is a bone of contention between Democrats and Republicans. 2. The tax peaked during World War II above 90%. 3. Beginning with President Kennedy’s tax cuts in 1962 the top rate decline to 28% under the 1986 simplification Act (now completely undone). 4. The Bush tax cuts enacted in 2001 technically expired 10 years later but were extended one year. 5. During the “Fiscal Cliff” negotiations that top marginal rate was set at 39.6%.

1. Social Security is the “Untouchable” Entitlement. 2. It is funded by a regressive tax but the tax is not enough to cover the obligations made to the Baby Boom generation. 3. In general, benefits have gone up faster than the FICA tax which funds the program.

1. Polarization affects Legislative Production 1. Polarization affects Legislative Production. The more polarized the parties are the less significant legislation passes. 2. Before the current increase in polarization Congress enacted just over 13 pieces of legislation per Congress. After 1977 the number fell to 10.5. 3. The number of significant legislative acts after 1977 would be even lower except for a surge after the 11 September 2001 terror attacks on New York and the Pentagon.

The ACA, passed with no Republican Support in the House or Senate, has been a highly divisive issue. The cost controls are breaking down and the ACA will have to been adjusted in 2017.

1. The Dodd-Frank Financial Reform Bill passed with a few Republicans supporting it in both Chambers. 2. It is still controversial because the number of “Too Big to Fail” Banks & Financial Institutions could lead to trouble in the future. 3. The Bill is so complex that it advantages the regulated over the regulators. 4. The Consumer Finance Protection Bureau was placed inside the Federal Reserve so that its budget was outside the control of Congress. This was highly controversial.