JANUARY 9, 2014 Economic Policy

Fiscal Policy Spending and taxing decisions made by the government The annual federal budget is the basis of fiscal policy If the U.S. budget was $1.00 how many cents would come from individual income taxes, federal borrowing, corporate income taxes, excise taxes, social security and Medicare taxes, and other sources? How many cents would be spent out of the dollar on health care, social security, national defense, interest, other social aid and other?

Where does money come from ? Out of a dollar this is where money comes from Individual income tax =$0.39 Social Security / Medicare taxes =$0.32 Federal borrowing =$0.13 Corporate Income taxes = $0.10 Excise taxes =$0.03 Other =$0.03

Where does federal tax money go?

Fiscal Policy Problems Low productivity and high unemployment Excess production and high inflation Fiscal Policy Actions Demand Side: increase spending Supply Side: Cut business taxes Decrease spending Increase taxes

Fiscal Terms John M. Keynes- wrote The General Theory of Employment, Interest and Money (1936) Believed in deficit spending – government should spend more than it gets from taxes which is can be accomplished through the borrowing and printing of money Economic depression (severe economic downturn) requires more government programs to hasten spending than economic recession.

Other terms Budget deficit – federal government had spent more than it received in taxes and other revenues (1970s and 1980s) National debt –total cumulative amount the U.S. owes creditors ($4 trillion in 1990 and today over $15 trillion) Balanced budget – revenues are equal to government expenditures (1998) Budget surplus – federal government received more in tax and other revenue than it spent

Types of Taxes Graduated (progressive) tax – tax rate rises as income rises (Ex: Income tax) Regressive tax – tax rate decreases as the income increases, or tax rate increases as the income decreases (Ex: Sales Tax and Social Security Tax)

Monetary Policy Government manipulation of money in circulation can impact the economy Controlled by the FED or Federal Reserve System (created in 1913) –made up of seven members who serve for 14 years (except the chair and vice chair who serve for 4 years). These members are appointed by the President.

Monetary Policy Problem Low productivity and high unemployment Excess productivity and high inflation Monetary Policy Actions by FED Decrease interest rates on loan to member banks Decrease cash reserve that member banks must deposit to the Federal Reserve System Increase interest rate on loans to member banks Increase cash reserve that member banks must deposit

Board of Governors for the FED Changing of Guards in the Federal Reserve Bank

Social Policy Poverty in the U.S poverty line was a family of four living on less than $20,000 per year. 1 in 8 Americans live below the poverty line (35 million people) Concentration of the impoverished are: a. Children 1 in 5 below poverty (10 million) b. Racial minorities (African-Americans and Hispanics 2x more than whites) c. Rural areas 1 in 7 rural residences and Urban 1 in 9.

Is Poverty a choice or a circumstance? Choice Charles Murray suggested that some people prefer to live on welfare and do not encourage education in home. Repeating the cycle of poverty. What do you think? Circumstance Other research suggest that circumstances like job layoff or divorce can lead to poverty that is circumstanial Additionally 10% of full time workers do not make enough to lift family above the poverty line. (Working poor) Should there be a living wage?

Federal Social Welfare Programs Social Insurance Social Security Unemployment Insurance Medicare Public supports Universal in nature Public Assistance Supplemental Security Income – for blind, disabled, and elderly poor TANF Temporary Aid to Needy Families Food Stamps Subsidized Housing Medicaid Less public support, less funding, and restricted to low-income people