1. Chapter 18 Economic Policy

2. WHO GOVERNS? TO WHAT ENDS?
Who in the federal government can make our economy strong?
Who was responsible for the recession?
TO WHAT ENDS?
Why does the federal government ever have a budget deficit?
How do you end a recession?
Copyright © 2011 Cengage

3. The Politics of Economic Prosperity
Majoritarian politics
Pocketbook Issues
National level
Individual level
What Politicians Try to Do
Unemployment
Inflation
Interest rates
Copyright © 2011 Cengage

4. Figure 18.1 Federal Budget Deficit (or Surplus)
Replace with jpeg, p. 487
Source: Budget of the U.S. Government, FY 2009 updated by OMB’s Mid-Session Review, July 2009 © 2003, AAAS. Reprinted with permission
Copyright © 2011 Cengage

5. The Politics of Taxing and Spending
Voters want
Prosperity
Lower taxes
Less debt
New/continued programs
Objectives are
inconsistent
Add caption? P. 488
During the recession, people, including middle class workers, line up at the unemployment office. p. 490 Source: Yellow Dog Productions/ Getty Images
Copyright © 2011 Cengage

6. Copyright © 2011 Cengage

7. Economic Theories and Political Needs
Monetarism
Keynesianism
Economic Planning
Supply-side Tax Cuts
DID THE FEDERAL GOVERNMENT END THE RECESSION?
Copyright © 2011 Cengage

8. Copyright © 2011 Cengage

9. The Machinery of Economic Policy Making
The Fed
Monetary policy – alters the supply of money and interest rates
Congress
Fiscal policy – uses tax and spending laws
Globalization
Ben Bernanke, Chairman of the Federal Reserve, speaks to a congressional committee. p. 495 Source: Mark Wilson/ Getty Images
Copyright © 2011 Cengage

10. John Kenneth Galbraith
Corbis/Corbis Sygma
Bettmann/Corbis
Milton Friedman
Karen Vismara/ Black Star
Arthur B. Laffer
John Maynard Keynes
Bettmann/Corbis
John Kenneth Galbraith
Copyright © 2011 Cengage

11. Copyright © 2011 Cengage

12. Spending Money Conflicting interests Public Opinion
Majoritarian politics
Client politics
Interest group politics
Public Opinion
Politicians’ appeals
Copyright © 2011 Cengage

13. The Budget
Budget
Fiscal Year – October 1 through the following September 30 (federal)
Budget resolution – A congressional decision that states the maximum amount of money the government should spend
Entitlements - A claim for government funds that cannot be changed without violating the rights of the claimant
Copyright © 2011 Cengage

14. Reducing Spending Congressional Budget Act of 1974
Balanced Budget Act of 1985 (Gramm-Rudman Act)
Sequester – automatic spending cuts
Budget Enforcement Act of 1990
Limits on discretionary spending
Copyright © 2011 Cengage

15. Figure 18.2 Federal Outlays in 2008
Source: Office of Management and Budget, Mid-Season Review, 2009.
Copyright © 2011 Cengage

16. Figure 18.2 Federal Revenues in 2008
Source: Office of Management and Budget, Mid-Season Review, 2009.
Copyright © 2011 Cengage

17. Figure 18.3 Social Security and Medicare Cost as a % of GDP
Replace with jpeg, p. 498
p. 498
Source: Trustees’ Report, 2009.
Copyright © 2011 Cengage

18. Levying Taxes Majoritarian politics Client politics
Modest tax burden
Minimize cheating
Client politics
Loopholes
Rise in the Income Tax
Sixteenth Amendment
Tax Reform Act of 1986
Tax increase of 1993
Tax cuts of 2002
Copyright © 2011 Cengage

19. Figure 18.4 Tax Burdens in Democratic Nations (Taxes as a Percentage of Income of a Family with Two Children)
Source: Statistical Abstract of the United States, 2003, Table 1344.
Copyright © 2011 Cengage

20. Figure 18.5 Federal Taxes on Income, Top Percentage Rates 1913-2002
Replace with jpeg, p. 500
Source: Updated from Congressional Quarterly Weekly Report (September 18, 1993), 2488.
Copyright © 2011 Cengage

21. WHAT WOULD YOU DO?
M E M O R A N D U M To: Elizabeth Gilbert, chairperson, Council of Economics From: Edward Larson, White House speechwriter Subject: Flat tax proposal The President would like your advice on whether to endorse a flat tax. His likely opponent is pushing this issue.
Copyright © 2011 Cengage

22. WHAT WOULD YOU DO?
Arguments for: 1. A flat tax is fair because it treats all income groups the same. We could leave the lowest income group with no taxes. 2. With a flat tax, we could eliminate almost all deductions and loopholes from the tax code. 3. Countries with a flat tax, such as Lithuania, have achieved great economic prosperity.
Copyright © 2011 Cengage

23. WHAT WOULD YOU DO?
Arguments against: 1. A flat tax is unfair because it treats all income groups the same. The rich should be taxed more heavily. 2. Many tax deductions, such as the one for home mortgages, are desirable. 3. We could eliminate undesirable tax loopholes without creating a flat tax.
Copyright © 2011 Cengage

24. WHAT WOULD YOU DO? Your decision: Support? Oppose?
Copyright © 2011 Cengage

25. Tribune Media Services, Inc. All rights reserved
Tribune Media Services, Inc. All rights reserved. Reprinted by permission. p. 502
Copyright © 2011 Cengage