1. POLI 101: June 30, 2016 Lecture #8: Policies of the State

2. Policies of the State Tax & Spend National Defense Roads and Infrastructure Food Safety Environmental Regulation Public goods Externalities Economic Regulation Health and Welfare Medicare Medicaid Social Security Affordable Care Act

3. US Federal Budget (Revenue)

4. Federal Income Taxes - USA MTRSingleMarried 10%$0 – $8,925$0 – $17,850 15%$8,926 – $36,250$17,851 – $72,500 25%$36,251 – $87,850$72,501 – $146,400 28%$87,851 – $183,250$146,401 – $223,050 33%$183,251 – $398,350$223,051 – $398,350 35%$398,351 – $400,000$398,351 – $450,000 39.6%$400,001+$450,001+

5. What is your tax rate? Abe is a 35 year old, single man w/o kids makes $40,000. What does he pay in Federal income tax? $40,000-($6,100+$3,900) for standard deduction and personal exemption = $30k taxable income $8,925 × 10% = $892.50 (taxation of the first income bracket) $21,075 × 15% = $3,161.25 (taxation of the amount in the second income bracket) Total income tax paid = $892.50 + $3.161.25 = $4,053.75 (10.13% effective rate)

6. What is your tax rate? Bert is a 35 year old, single man w/ a kid making $40k $40,000-($6,100+3,900+$3,900)=$26,100 taxable income $8,925 × 10% = $892.50 (taxation of the first income bracket) $17,175 × 15% = $2576.25 (taxation of the amount in the second income bracket) $3,468.75-($1,000 child credit +$1,877 EITC)=$591.75 (1.5% effective tax rate)

7. Payroll tax Both men pay the same payroll taxes $40k * 6.2% = $2,480 (social security) $40k * 1.45% = $580 (medicare) Both men pay $3,060 in payroll taxes Abe pays $4,053.75 + $3,060 = $7,113.75 Bert pays $591.75 + $3,060 = $3,651.75

8. In addition… California income tax Capital gains tax (either 0%, 15%, 20%) Sales tax = 8.00% in San Diego (food and services exempted) (Prop30 expires in 2016, then 7.75%) Property tax = 1.0% of real property value (Prop13) Assorted fees Car licensing Gas taxes Cigarette and alcohol taxes

9. Government Revenue

10. Government Budget Balance

11. Gov’t also borrows money When spending is higher than revenue, the government borrows the difference, i.e. it takes on debt. Mostly commonly sells bonds in the market place Investors buy bonds in return for interest payments US Federal government currently owes $17.75 trillion

12. Who Owns America’s Debt? Roughly a third held by the government itself (weird I know, e.g. Social Security Trust Fund, Federal Reserve, etc…) Roughly a third held by American citizens and institutions (insurance companies, mutual funds, individuals) Roughly a third held by Foreign citizens and institutions (foreigners looking to diversify, foreign corporations, but also foreign governments)

13. Is that sustainable? Perhaps for a long time, but not necessarily forever. Interest rates are really low right now, and the economy continues to grow. But we expect expenditures to rise in the future as people get older. Interest Rates: 1 month: 0.01% 3 month: 0.02% 1 year:.11% 5 year: 1.83% 10 year: 2.59% 30 year: 3.29%

14. Federal Debt Owed to Public

16. US Federal Budget (Spending)

18. Why has Govt Spending Grown? 1. As we get richer, we demand more government services 2. Governments have become more clever at raising revenue. The state grows when it can. 3. Parties try to outbid one another for votes in democracies 4. Once a government program is established, you can’t get rid of it. Interest groups are formed and ratchet up spending 5. World economy is more volatile today, so citizens benefit from government stabilization of their lives. 1, 5 emphasize choice. 2, 4 emphasize power. 3 is neutral. These are only proposals and are not conclusive. But, they’re reasonable.

19. Health and Welfare Medicare Medicaid Social Security Affordable Care Act Rules for insurance companies “pre-existing” conditions Caps on lifetime payouts Mandatory preventive care provided You must buy insurance Low-income subsidies Public marketplace

20. Social Security Act of 1936

21. Social Security Trust Fund

22. Healthcare in America Combination of private and public system Private insurance for most people, except The old (Medicare) The poor (Medicaid) Veterans (VA system) Children whose parents can’t afford health care, but couldn’t get medicaid (SCHIP) But this left many people uninsured Too expensive Job didn’t provide it Pre-existing condition

23. Uninsured Rate by State (2010)

25. Uninsured Rate by County (2012)

26. Uninsured Rate over Time

27. Affordable Care Act Sought to improve access to healthcare by expanding both private and public sources of insurance and mandate level of covered care. Prohibited different rates for pre-existing conditions or gender (Community rating) Required everyone to get insurance (Individual Mandate) Established health care exchanges (healthcare.gov) Tax credits for low-middle income families Expanded medicaid (not every state agreed) Allowed young people to stay on parents’ insurance until 26 Reforms to medicare to attempt to save money Additional taxes fall mostly on upper income families

28. Economic Regulation Contract enforcement Inspections Business standards Licensing Limits to risk-taking Back up banks Regulate money supply Control tax and spending rates

29. Uhhhh, the end for now. See you later