COST-BENEFIT ANALYSIS OF FOUR TYPES OF POLICIES by Zcc38aCl

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									        COST-BENEFIT ANALYSIS OF FOUR TYPES OF POLICIES

I. Cost: any burden (monetary or non-monetary, real, or perceived), that a group
      must bear, e.g.:
      a. Federal child-care programs (taxes)
      b. Busing to achieve school desegregation (taxes, psychological stress).
      c. Tariffs (higher prices for goods)

II. Benefit: any satisfaction (monetary or non-monetary, real or perceived) that a
       group will enjoy from a policy, e.g.:
       a. Federal child-care programs (lower child care costs for parents)
       b. Busing to achieve school desegregation (improvement in opportunity,
           greater racial harmony)
       c. Tariffs (more jobs for workers, more profits for businesses)

III. Costs and benefits can be either widely-distributed (to many, most, or all citizens)
        or narrowly-concentrated (for a relatively small number of citizens or groups).
        Examples:
        a. Widely-distributed costs: income tax, Social Security tax, farm subsidies
        b. Narrowly-concentrated costs: factory air emission standards, higher capital
            gains taxes for the wealthy, gun control regulations
        c. Widely-distributed benefits: Social Security benefits, strong national
            security, clean air, federal highways.
        d. Narrowly-concentrated benefits: farm subsidies, tariffs, exemption from
            antitrust legislation

IV. Four types of policies
       a. Majoritarian policies
                i. Involve widely distributed costs and widely distributed benefits
               ii. Examples: Social Security, national defense
              iii. Analysis:
                       1. Usually not dominated by interest groups: virtually
                           everyone benefits from these, so why should an interest
                           group use scarce resources to lobby for policies that
                           everyone will benefit from? Interest groups will benefit
                           whether or not they devote resources to lobbying  lack of
                           incentive to participate
                       2. When a policy is adopted and people are convinced that
                           benefits are worth the cost, debate ends and the program
                           tends to steadily grow, and perhaps even becomes a “sacred
                           cow” that government dare not touch (e.g., Social Security)
       b. Interest group policies
                i. Involve narrowly concentrated costs and narrowly concentrated
                   benefits
               ii. Examples: tariffs, antitrust exemptions
      iii. Analysis: these tend to be fought over by interest groups: the
           affected parties are small enough, and the potential costs and
           benefits are great enough, to warrant interest group participation

c. Client policies
        i. Involve widely distributed costs and narrowly concentrated
           benefits
       ii. Examples: farm subsidies, airline or trucking regulation, pork
           barrel bills
      iii. Analysis:
               1. Strong incentive for interest groups to participate. Groups
                   will receive the benefits, but the costs will be spread out to
                   everyone.
               2. Since costs are so widely distributed and therefore
                   relatively small to each consumer, cost payers are
                   sometimes unaware that they are even paying the costs
                   (e.g., dairy subsidies)
               3. Since interest groups benefit so much from these, they are
                   said to be a “client” of the related federal agency – client
                   groups.

d. Entrepreneurial policies.
       i. Involve narrowly concentrated costs and widely distributed
          benefits.
      ii. Examples: consumer product safety legislation, ending farm
          subsidies, deregulation
     iii. Analysis:
             1. Strong incentive for potential cost-paying group to
                  participate.
             2. Prospective beneficiaries may find widely distributed
                  benefits too small to work hard for.
             3. Because of a and b, policies of this category are often
                  defeated by the concerted efforts of cost-paying groups.
             4. Despite this, such policies are from time to time passed
                  through the strong efforts of people who act on behalf of
                  the unconcerned or unaware  these are called policy
                  entrepreneurs (e.g., Ralph Nader).
                          TAXING AND SPENDING

I. Sources of federal revenue
      a. In the past:
               i. Tariffs and excise taxes were the major source of federal revenue.
              ii. Income tax of 2% passed in 1894 was ruled unconstitutional by
                  Supreme Court since it was not proportional to state populations 
                  passage of 16th Amendment in 1913 struck down the
                  proportionality clause
      b. Presently (2006 figures):
               i. Individual income taxes (progressive taxes): 38% of all federal
                  revenue.
              ii. Social insurance (payroll) taxes (regressive taxes): 32% of all
                  federal revenue.
             iii. Corporate taxes: 8% of all federal revenue
             iv. Excise taxes: 3% of all federal revenue
              v. Borrowing: 15% this has risen due to resumption of deficit
                  spending during the Bush Administration
             vi. Other: 4%

II. Where the money is spent (2008 figures): federal spending is $3 trillion
      a. Direct benefit payments to individuals – also known as transfer payments
          (Social Security, Medicare, Medicaid, etc): 54%
          Nondiscretionary/mandatory
      b. National defense: 21%. Discretionary
      c. Net interest: 9%. Nondiscretionary/mandatory
      d. Nondefense discretionary (grants to states, federal operations, etc.): 16%

III. Entitlements (“uncontrollable”): federal money that is 1) provided to those
        who meet eligibility requirements and 2) is automatically spent each year
        without congressional review
        a. Some have a built in COLA, also without annual review. This in turn
            creates additional budget pressures.
        b. Examples: Social Security, Medicare, federal pensions, interest on
            national debt.
        c. These account for more than 2/3 of the federal budget  difficulties of
            bringing the budget into balance.

IV. The budget process
       a. Executive branch
               i. Agencies prepare their estimates of budget needs and present
                  them to OMB. Amount requested is typically based upon the
                  amount granted in the previous year (plus inflation and any
                  additional needs).
              ii. OMB reviews these requests and makes recommendations to the
                  President.
             iii. President reviews OMB recommendations and then submits a
                  budget to Congress.
       b. Congress
               i. CBO provides an independent analysis of the President’s budget –
                  a check on OMB
              ii. Roles of Budget, Ways and Means, Finance, and Appropriations
                  Committees.
             iii. Input and lobbying from agencies
             iv. Majority vote needed in both houses
              v. Government Accountability Office (GAO) is a congressional
                  watchdog agency that ensures money is spent as prescribed by law.
       c. Political influences
               i. Political party differences
              ii. Interest group/PAC influence
             iii. Iron triangles
             iv. Public opinion
       d. Presidential action
               i. President signs or vetoes entire taxing and spending bills – no line
                  item veto.
              ii. Congress can override a veto with 2/3 vote in both houses

V. Deficit-spending
      a. Budget deficit: incurred when government expenditures exceed income in
           one year period.
      b. National debt: amount owed by federal government – accumulation of past
           budget deficits.
      c. Huge budget deficits during the 1980s (>$200 billion per year)  national
           debt tripled from $1 trillion to $3 trillion during the 1980s. Tax cuts and
           increases in defense spending were among the main causes.
      d. Failure of Congress to pass the Balanced Budget Amendment.
      e. In 1990, Congress and Bush 41 agreed on a pay-as-you-go (“paygo”)
           proposal that would allow Congress to increase spending ONLY if that
           increase was offset by higher taxes and/or spending cuts elsewhere. The
           “paygo” agreement, however, expired in 2002. Its expiration helps to
           explain the rising deficits since then.
      f. Government shutdown in mid-90s as a result of budgetary politics
      g. Current national debt (2008): > $9 trillion. This amounts to ~$30,000 for
           every person in the US. However, as a percentage of GDP (define?), the
           national debt is less than it was in the early 1950s.
      h. Reduction of deficits under Clinton and development of SURPLUSES 
           political differences over what to do with these surpluses: Republicans
           favored tax cuts, Democrats wanted to apply the surpluses to the Social
           Security System to bolster it.
      i. Bush $1.36 trillion tax cut in 2001 + recession + 9/11 terrorist attacks +
           wars in Afghanistan and Iraq + end of “paygo” ended budget surpluses +
           2008 recession = resumption of record-high budget deficits
                         MANAGING THE ECONOMY

I. 2 types of economic policies
       a. Fiscal: taxing and spending considerations – budget matters. Fiscal policy
           is conducted by Congress and the President.
       b. Monetary: regulation of money supply by Federal Reserve Board (“the
           Fed”) adjusting interest rates to increase or decrease inflation.

II. Developments in economic policy
       a. Constitution gave Congress power to regulate interstate and foreign
          commerce.
       b. Industrial Revolution’s excesses led to Congress making greater use of
          economic regulatory powers, e.g., breaking up trusts, regulating meat and
          drugs, regulating railroads.
       c. Great Depression of 1930s led to even greater regulation of economy by
          Congress. Unemployment rate of 25%, bank failures, farm crisis, and
          deflation demanded aggressive actions

       d. Keynesian economics
              i. During Depression, New Deal was influenced by British economist
                 John Maynard Keynes
             ii. Keynes suggested that government could manipulate the economic
                 health of the economy through its level of spending. In hard times,
                 government should increase spending (even if it means running
                 large deficits) to stimulate economic health. In inflationary “boom”
                 times, government should decrease spending to “cool down” the
                 economy.
            iii. Keynes influenced passage of Employment Act of 1946, which
                 made government responsible for maintaining high employment
                 rates.
            iv. Difficulty posed by Keynesian economics: once government
                 spending rises, it is politically difficult to cut it (consider the fights
                 in recent years over entitlement reform). This helps to explain why
                 we have had such high budget deficits.

       e. Supply-side economics
              i. Definition: cuts in taxes will produce business investment that will
                 compensate for the loss of money due to the lower tax rates. Tax
                 rates will be lower, but business will boom, unemployment will go
                 down, incomes will go up, and more money will come into the
                 Treasury.
             ii. Most associated with the Reagan Administration (1981-1989)
            iii. Unfortunately, the Reagan tax cuts were not accompanied by
                 spending cuts, and the national debt tripled from $1 trillion to $3
                 trillion.
              iv. Tax cuts under Bush 43 prompted concern that they have
                  contributed to a rising national debt.

       f. Monetarism
             i. Whereas Keynesians suggest that the level of government spending
                (i.e. fiscal policy) is most important for determining the economic
                health of the nation, monetarists believe that the money supply
                (monetary policy) is the most important factor.
            ii. Thus “the Fed” can tighten up money supply (through adjusting
                interest rates) to reduce inflation, or it can loosen up money supply
                to stimulate the economy

III. Modern developments
       a. The push for a balanced budget amendment
                i. High deficits have led some to believe that Congress needs to be
                   “tied down” to a constitutional amendment that would require that
                   spending not exceed income.
               ii. Supporters say that this is the only way to end the “spending bias”
                   of Congress, and that it is the only way to overcome the political
                   difficulties of cutting spending
              iii. Opponents say that such an amendment would be “tinkering” with
                   the Constitution, that it would decrease needed flexibility in times
                   of crisis, and that Congress would figure out a way of evading the
                   amendment anyway
              iv. This amendment was proposed in Congress, but was voted down
                   by the House in 1992.
               v. The line-item veto could have precluded the need for such an
                   amendment, i.e., the president could have deleted wasteful
                   spending with “the stroke of a pen.”
       b. “Paygo” was passed in the early 1990s  coupled with an expanding
           economy, the budget was balanced in the late 1990s.
       c. Expiration of paygo and war on terrorism and in Iraq/Afghanistan led to
           resumption of huge budget deficits.
       d. Trade policy
                i. Increasing trade deficits (where imports exceed exports) caused by:
                       1. Expanding economy in China
                       2. Rising oil prices from our overseas suppliers
               ii. Trade deficits (explain) have led to calls for protectionism
                   (explain)
              iii. Offshoring  loss of American jobs
              iv. However, there has been more of a push for free trade rather than
                   for tariffs
                       1. GATT
                       2. WTO
                       3. NAFTA
                       4. CAFTA
                GOVERNMENT REGULATION OF BUSINESS

I. Background
      a. Regulations: rules imposed by government on business to achieve some
         desired goal (e.g., clean air regulations on factories, protection of wetlands
         and fragile environments, safety regulations in coal mines)
      b. History of government regulation of business
              i. Industrial era of late-19th/early 20th century had produced a number
                 of “ill side effects of capitalism”
                     1. Growth of abusive monopolies and oligopolies that unfairly
                          drove out competition.
                     2. Atrocious working conditions
                     3. Unsafe and unhealthy products: The Jungle, Silent Spring
                          (1962: unsafe pesticides), Unsafe at any Speed (1965:
                          unsafe automobiles)
                     4. Business bribery of politicians
             ii. Growth of such abusive practices by monopolies led to an antitrust
                 policy:
                     1. Such policy did not necessarily mean that all monopolies
                          were bad. The policy was merely to regulate or break up
                          the abusive ones and restore competition.
                     2. Examples of such antitrust policy:
                              a. Sherman Antitrust Act, 1890
                              b. Clayton Act, 1914
                              c. Federal Trade Commission Act, 1914: FTC to be
                                  “traffic cop” to ensure competition. Issues cease and
                                  desist orders and negotiates consent decrees with
                                  businesses to end unfair practices.
            iii. Development of other regulatory commissions (e.g., FCC, SEC)
      c. Developments in recent years
              i. FTC and Antitrust Division intentionally understaffed by Reagan
                 and Bush to discourage excessive antitrust policy.
             ii. Corporate mergers have exploded in recent years (e.g., GE and
                 RCA, Time and Warner (then Time Warner/AOL), RJ Reynolds
                 and Nabisco, with little response from the federal government
            iii. Antitrust lawsuit against Microsoft was an exception to this trend
            iv. Business claims that with such strong foreign competition, it needs
                 to consolidate in order to be competitive.
             v. Energy crisis in early 00s led to pressure for Bush 43 to tighten
                 regulation of energy markets. Bush claimed that California’s
                 problems were the result of its own deregulation policy, and was
                 therefore reluctant to have FERC (Federal Energy Regulatory
                 Commission) impose price caps.
            vi. Collapse of subprime mortgage market has led to call for re-
                 regulation of banking
II. The debate over regulation
       a. Arguments in favor of regulation
                i. Prevents unhealthy monopolies and oligopolies as existed in
                   Industrial Revolution
               ii. Protects consumers from unsafe and unhealthy products
             iii. Protects consumers from unsafe practices, e.g., airline regulations
                   that prevent pilots from flying excessive hours, federal airline
                   inspections, etc.
              iv. Protects working people from unsafe working conditions
               v. Protects those (e.g., poor, consumers) who lack strong voice in
                   government. “Levels the playing field” with giant corporations
       b. Arguments against regulation
                i. Not needed – Market forces will compel businesses to work for the
                   benefit of consumers. If businesses don’t, consumers will simply
                   buy elsewhere.
               ii. Regulation is inefficient. Businesses have to hire hordes of people
                   to comply with the endless regulations imposed by Washington.
                   This makes U.S. business less competitive with the rest of the
                   world, which is not overburdened by such regulations.
             iii. Regulation kills jobs. Because it lessens our competitiveness with
                   the rest of the world, we lose business (and the jobs that come with
                   it) to other nations.
              iv. Regulation increases prices. Complying with regulations costs
                   money; these costs are then passed on to the consumers in the form
                   of higher prices
               v. Regulations have become increasingly unreasonable, e.g., farmers
                   are denied the use of their lands because a rodent on the
                   endangered species list lives there, loggers lose their jobs because
                   the spotted owl nests in forests that would otherwise be open to
                   logging, property owners are prevented from developing property
                   because it includes some federally-protected “wetlands.”
                         ENVIRONMENTAL POLICY

I. Context of American environmental policy
      a. Environmental policy is affected by federalism:
         Centralization/decentralization tension between national and state
         governments. Latter have incentive to reduce regulations for fear that
         businesses will relocate to other states, while former may want uniform
         policy.
      b. Key issue has not been whether or not the environment should be
         protected, but the extent to which it should be protected and the costs of
         doing so. Involves a delicate balance because environmental regulation
         involves so many competing interests:
               i. The public wants a clean environment
              ii. Business is concerned about the extent and the costs of regulations.
             iii. Workers are concerned that excessive regulation may lead to loss
                  of jobs, e.g., logging restrictions to protect the spotted owl could
                  lead to loss of jobs for loggers.

II. Key legislation
       a. National Environmental Policy Act of 1969: required environmental
           impact reports (EIRs) before major construction projects began
       b. Air Quality Act of 1967 and the various Clean Air Acts from 1960s-
           1990s: established emission standards for cars and factories. Clean Air Act
           of 1990 has especially tough standards with which states must comply.
           This is another example of federal encroachment upon states.
       c. Various Clean Water Acts of 1970s and 1980s.
       d. Creation of Environmental Protection Agency (EPA), 1970
       e. CAFÉ (Corporate Average Fuel Economy) standards established in 1975:
           set standards for average mpg of a manufacturer’s automobiles
       f. Creation of the Superfund, 1980, to fund the cleanup of toxic waste dumps

III. Four types of environmental policies
        a. Entrepreneurial environmental policies
                 i. These involve programs that have narrowly-concentrated costs and
                    widely distributed benefits.
                ii. Example: Clean Air Acts: only businesses paid the costs of
                    installing pollution control devices, but everybody benefited from
                    cleaner air. Also: Yucca Mountain nuclear disposal site: only
                    Nevada “pays,” but entire nation benefits.
               iii. Great opposition from cost payers, but less support from the
                    beneficiaries since the benefits may be small, and since they may
                    not even “see” the benefits.
        b. Majoritarian environmental policies
                 i. These involve programs that have widely-distributed costs and
                    widely-distributed benefits
       ii. Example: Raising gasoline taxes to discourage driving in order to
           reduce smog. Virtually everybody would pay these taxes, and
           everyone would benefit from cleaner air. Also: California’s smog
           check program.
c. Interest group environmental policies
        i. These involve programs that have narrowly-concentrated costs and
           narrowly-concentrated benefits.
       ii. Example: The issue of the Elsmere Canyon Dump involves
           competing groups: the company that wants to build the dump and
           citizen groups that oppose it. The cost of having such a dump
           would be borne by a relatively small area (Santa Clarita), and the
           benefits of having such a dump would be enjoyed only by the
           company.
d. Client group environmental policies
        i. These involve programs that have widely-distributed costs and
           narrowly-concentrated benefits.
       ii. Example:
               1. The Superfund: taxpayers pay the costs, but only the
                   affected communities benefit.
               2. Arctic National Wildlife Refuge (ANWR): the people
                   “pay” the cost of losing an environmental treasure, while
                   only the oil companies benefit. (Could ANWR) be
                   considered an entrepreneurial policy?)
- Which type of policy is the Endangered Species Act?
                               DEREGULATION

I. Deregulation or regulatory reform: cutting back on government regulation
II. Areas that have been deregulated
       a. Airlines
                i. Before 1978, the airline industry was regulated, i,e., the Civil
                   Aeronautics Board controlled rates and fares to protect the industry
                   from excessive competition. As a result, all airlines charged the
                   same rates and fares.
               ii. In 1978, Congress passed legislation that 1) led to the phasing out
                   of CAB, and 2) allowed airlines to set whatever rates and fares
                   they wished.
              iii. Effects of airline deregulation:
                       1. Due to competition, some airlines went bankrupt
                       2. Some smaller cities lost airline service as airlines found it
                           unprofitable to provide service to them
                       3. Concern that airlines have “cut corners” in safety and
                           maintenance to keep up with cutthroat competition
                       4. On the up side, rates and fares have come way down, and
                           more people are able to travel by air than before.
       b. Telecommunications: Telecommunications Act of 1996
                i. Phone, cable, and other communication companies were allowed to
                   compete in the others’ core businesses, e.g., local telephone
                   companies could offer cable t.v. services
               ii. Act also provided for regulation of Internet content (later
                   overturned by S.C.)
              iii. Act also required that TV makers install “V-chip” allowing parents
                   to block objectionable programming.

III. Evaluation of deregulation: positives
        a. Restores natural market forces in pricing, efficiency, resources
        b. Encourages competition
        c. Encourages technological innovation
        d. Prevents government agencies from being “captured” by the businesses
            they are supposed to regulate
        e. Lower costs for industry, and lower prices for consumers

IV. Negatives: see previous notes on government regulation of business. In addition:
       due to our federal system, states will continue to regulate business. This
       produces even more confusion: Under national regulation, there was generally
       only one set of regulations; now, with deregulation, companies may have to
       deal with 50 different sets of regulations, e.g., California’s 2009 attempt to
       exceed EPA’s CAFÉ standards
                          GOVERNMENT SUBSIDIES

I. Definition: governmental financial support. Main types of subsidies
      a. Cash, e.g., Temporary Assistance for Needy Families (TANF)
      b. Tax incentives, e.g., home mortgage interest payments are tax deductible.
      c. Credit subsidies, e.g., Veterans’ Administration home loans
      d. Benefit-in-kind subsidies: non-cash benefits, e.g., food stamps, Medicaid,
           Medicare

II. Purpose of subsidies: to encourage a particular type of private sector action
       a. Example: the government has encouraged home ownership by making
          mortgage interest tax deductible. In other words, homeowners have been
          “subsidized” by the government.
       b. Most people associate subsidies with welfare programs for the poor;
          actually, most subsidies go to people in the top half of the nation’s income
          distribution. many subsidies, in fact, go to corporations, leading liberals to
          criticize such “corporate welfare” (e.g., 2008 TARP Act, which gave
          hundreds of billions of dollars to banks to remain in operation, even
          though these banks’ financial troubles were the result of their own
          financial ineptitude; tax breaks for pharmaceutical companies with
          operations in Puerto Rico)

III. The politics of subsidies
        a. Most Americans complain about subsidies; however, most of them also
            receive them in one form or another.
        b. Once subsidies are established, they are extremely difficult to eliminate.
            Iron triangles (review- industry, gov. agency, subcommittee?) or issue
            networks develop and work quite hard to keep the subsidies. Some
            subsidies even become “sacred cows:” woe to the member of Congress
            who votes against these! Social Security, for example is the “3rd rail of
            American politics:” touch it and you die.
        c. Another reason subsidies are hard to eliminate is that they are often
            difficult to “see.” The dairy industry, for example, receives heavy
            subsidies for milk production, et few people seem to be aware of this. If
            consumers are not even aware of the subsidies, how can they even
            complain?

IV. Subsidies that promote commerce
       a. Examples of subsidies to business and industry
                i. Oil companies receive tax breaks to encourage oil production and
                   make us less dependent on foreign oil
               ii. Airlines received billions in federal aid after the 9/11 terrorist
                   attacks. A federal agency took over United Airlines pension
                   program in 2005.
       b. Examples of subsidies to agriculture: The federal government today
           provides loans and cash payments to farmers (“price support payments”)
           and in some cases pays farmers to not grow crops to prevent surpluses.
           Criticisms of these subsidies:
                i. Though these are supposed to help farmers, much (30%) of these
                   subsidies go to huge “agribusiness” firms, leading once again to
                   charges of “corporate welfare.”
               ii. Consumers end up paying higher prices for food, yet so much of
                   the subsidies go not to the small farmers, but instead to
                   agribusiness.

V. Social Welfare programs
      a. Major social welfare programs:
               i. Social Security: for elderly, survivors, and disabled (OASDI). No
                  means test, i.e., one does not have to prove that one lacks the
                  means in order to qualify for benefits. In other words, one does not
                  have to have a low level of income to qualify for these benefits.
                  Even upper income people qualify for benefits if they fall into one
                  of the three categories. Financed by FICA (Federal Insurance
                  Contribution Act) payroll tax: 6.2% of first $97,000 of earnings
                  (and same from employer)
              ii. Medicare: Federal medical coverage for the elderly. Financed by
                  payroll tax of 1.45%. No means test.
            iii. Unemployment insurance: Payments to the unemployed. No means
                  test.
             iv. Temporary Assistance to Needy Families (TANF): Payments to
                  poor families with children. The program that most people are
                  talking about when they discuss the “welfare system.” Has a means
                  test.
              v. Supplemental Security Income (SSI): Cash payments to disabled
                  people whose income level is below a certain amount. Has a means
                  test.
             vi. Food stamps: coupons given to the poor in order to buy food. Has a
                  means test.
            vii. Medicaid: Federal medical coverage for the poor on TANF or SSI.
                  Has a means test.
      b. Two kinds of welfare politics
               i. Majoritarian policies: Everybody benefits from these, and
                  everybody pays (e.g., Social Security). Often becomes politically
                  popular; “sacred cows” at times
              ii. Client policies: Relatively few people benefit, but everybody pays
                  (e.g., TANF) (Can you see why there is such widespread
                  resentment?)
      c. The Social Security problem
               i. Demographic problems
                      1. Increasing birth rate during Baby Boom era
                      2. Declining birth rates since then
              3. Increasing life expectancy, especially due to medical
                  improvements
              4. These two factors have created the following situation:
                  When Social Security began in 1935, there were 16 people
                  working for every Social Security recipient. Now there are
                  just 3, and by the year 2020 there are projected to be just 2!
                  What is now a huge surplus in the S.S. Trust Fund will
                  decline to the point at which, unless something is done,
                  more money will be going out than coming in. These
                  realities have led some to propose reforms for Social
                  Security:
                      a. Increasing the age of recipients from 65 to 67 or 70
                      b. Adopting means testing for recipients
                      c. Reducing the annual COLA (cost of living
                           adjustment) for recipients, i.e., reducing the annual
                           benefits increase
                      d. Reducing benefits for recipients
                      e. Increasing the amount of income (currently
                           ~$97,000) that is subject to Social Security tax
                      f. Privatizing part of Social Security deductions, i.e.,
                           allowing citizens to earmark part of their Social
                           Security contributions to their own choices of
                           investments in hopes of earning greater returns.
d. Welfare has become a huge political issue for the two parties:
      i. Republicans linked the “welfare mess” to various social
          pathologies, e.g., a higher illegitimacy rate, a higher rate of single-
          parent families, higher crime rate, drug problems, etc. They
          stressed welfare reform and claimed that the Democrats had
          blocked their efforts at reform.
     ii. Given this political climate, even Democrats stressed the
          importance of welfare reform. President Clinton promised to “end
          welfare as we know it,” and signed a huge welfare reform bill in
          1996 (Personal Responsibility and Work Opportunity
          Reconciliation Act- PRWORA) that was passed by a Republican
          Congress. Some of the bill’s highlights:
              1. Ended the federal entitlement status of various welfare
                  programs. More state authority. Funded by federal block
                  grants and matching state funds. Note the impact of
                  federalism
              2. Limited welfare payments to no more than five years.
              3. Welfare recipients must work within two years of applying
                  for benefits.
              4. Required food stamp recipients to work.
              5. Prohibited legal and undocumented immigrants (“aliens”)
                  from receiving various welfare benefits. (Later changed –
                  legal “aliens” may receive welfare benefits)
       6. Required teen mothers to live with parents and attend
            school in order to receive welfare benefits.
iii. Welfare rolls declined by 60% between 1996-2004
                           HEALTH CARE POLICY

I. A mostly private health care system
      a. Traditional approach: fee for service. Paid for by insurance (3rd party
         payer)
      b. Rising costs of health care  HMOs: Health Maintenance Organizations

II. Federal involvement with health care
       a. Medicare (a prescription drug benefit for Medicare patients was added
           during the first Bush 43 administration)
       b. Medicaid
       c. Research efforts

III. Problems with health care
        a. Rising costs
        b. Uninsured. Working poor and unemployed unable to afford health
            insurance
        c. High costs of malpractice insurance because of increased litigation
        d. Unnecessary procedures, especially to protect physicians from risk of
            lawsuit, e.g., growing number of caesarian sections
        e. Endless paperwork from federal government and insurance companies
        f. Lack of flexibility and choice with HMOs

IV. Health Care Reform
       a. An early priority of Clinton, who appointed Hillary to head a task force on
           health care
       b. Various proposals
                i. Single payer, i.e., socialized medicine
               ii. “Managed competition.” Use of HMOs to accomplish “cost
                   containment.” Problems of HMOs  desire for “HMO patient’s
                   bill of rights”
              iii. Requiring coverage from employers
              iv. Abolishing employer provided coverage and requiring people to
                   buy health insurance individually

V. Reasons for failure of major health care reform
      a. Reaction against Hillary’s task force
      b. Added expenses imposed upon citizens
      c. Congressional deadlock
      d. Tainted with “socialized medicine”
      e. Interest group pressure
      f. Contributions to members of Congress
                             EDUCATION POLICY

I. Impact of federalism
      a. Education is largely run by state and local governments. Impact of 10th
          Amendment.
      b. However, federal government has also taken some involvement by
          attaching “strings” to federal education grants to the states. States don’t
          have to take the money, but if they do, they must comply with those
          federal requirements

II. Important federal education legislation
       a. Head Start program for disadvantaged preschool-age children, 1964
       b. Elementary and Secondary Education Act, 1965: funding for
           disadvantaged students
       c. Title IX of Education Act of 1972: banned sex discrimination in federally
           funded education programs
       d. Individuals with Disabilities in Education Act, 1975
                i. even though states are not required to participate, the act makes
                   funds available to states that adopt at least the minimum policies
                   and procedures specified in the IDEA regarding the education of
                   children with disabilities
               ii. When passed, federal government was supposed to pay for 40% of
                   the cost of educating students with disabilities. However, Congress
                   has yet to provide all of this 40%. As of 2007, the federal
                   government pays for about 12% of special education costs.
       e. No Child Left Behind Act of 2001: In order to receive federal funds for
           education, states must:
                i. Adopt subject matter standards
               ii. Test all students in grades 3-8 on those standards
              iii. Identify low-performing schools based upon that testing
              iv. Require low-performing schools to develop improvement plans
               v. Allow parents of students in such schools that do not improve to
                   transfer to other public schools
              vi. ALL students must be proficient in state standards by 2014
                        MAKERS OF FOREIGN POLICY

I. Key foreign policy players
      a. Foreign policy is a shared responsibility of the President and Congress.
          System of checks and balances applies, e.g., war (Congress declares, but
          President is Commander in Chief) treaties (President makes them, Senate
          ratifies them), appointments (President makes them, Senate approves
          them)
      b. Despite shared responsibilities, the President is primarily responsible for
          foreign policy (U.S. v. Curtiss-Wright), and has extensive support within
          the executive branch:
                i. Secretary of State: Cabinet official responsible for foreign affairs.
               ii. Other Cabinet officials: Since foreign policy affects domestic
                   policy, other Cabinet officials (e.g., Commerce, Treasury, Defense,
                   Agriculture) also have input
             iii. National Security Council (NSC)
                       1. Coordinates policies that affect national security
                       2. Members include President, VP, Secretary of State,
                           Secretary of Defense, CIA head, National Security Adviser,
                           and others.
                       3. National Security Adviser has emerged as a key player who
                           sometimes has more influence than Secretary of State, e.g.,
                           Henry Kissinger was Nixon’s NSA who had great influence
                           with the President. Presidents may rely more upon the NSA
                           because he is literally “closer” to the Pres (office is in the
                           White House) and his loyalties are not divided between the
                           President and a Cabinet department (as with the Secretary
                           of State)
              iv. Department of Homeland Security: to coordinate anti-terrorism
                   efforts
               v. State Department and its Foreign Service: responsible for day-to-
                   day management of foreign policy
              vi. U.S. Information Agency: propaganda agency that includes Voice
                   of America and Radio Free Europe
             vii. Director of National Intelligence: new position that has
                   responsibilities for overseeing all 15 intelligence agencies
            viii. CIA
                       1. Functions: gather and evaluate intelligence, i.e.,
                           information about other nations
                       2. Created in 1947 to monitor the Soviet threat. Fall of
                           communism since 80s has led the agency to branch out into
                           other areas, e.g., international drug trafficking, terrorism,
                           nuclear proliferation
                       3. Agency’s covert operations (e.g., helped overthrow
                           governments in Iran and Guatemala in 1950s) have led to
                         some concern about government secrecy in a democracy.
                         Can these two co-exist?
                     4. This concern has led to the creation of intelligence
                         oversight committees in both the House and Senate
                     5. 9/11 terrorist attacks have, however, renewed the call for
                         stronger and more effective CIA
              ix. National Security Agency (Different than National Security
                  Council): huge cryptologic and surveillance organization

II. Influences on foreign policy
        a. Public opinion
                i. Mass public (75%) relatively unaware of foreign policy, except
                   during crisis
               ii. Attentive public (20%) aware and interested
              iii. Opinion makers (e.g., journalists, government officials, “think
                   tank” researchers, professors): aware and influence the other two
                   publics
        b. Interest groups
                i. “Think tanks” such as RAND and Council on Foreign Affairs
               ii. Ethnic organizations, e.g., American Arab Anti-Discrimination
                   Committee, American-Israeli PAC (“Jewish Lobby”)
        c. Foreign Nations’ lobbyists
                i. Many nations hire lobbyists to represent their interests in
                   Washington
               ii. This issue led people like Ross Perot to blast the government for
                   listening to lobbyists of foreign nations who obviously do not have
                   the best interests of the U.S. in mind
        d. Political parties
                i. The tradition has been for the U.S. to have a bipartisan foreign
                   policy, i.e., on that is united and not torn apart by party squabbling
                   (“Politics ends at the water’s edge”). For example, both political
                   parties supported containment of communist aggression after
                   WWII, both supported the Vietnam War, both supported the Gulf
                   War, both supported the war on terrorism and (initially) the war in
                   Iraq
        e. Congress
                i. Key congressional “checks” on the President: funding, war
                   declaration, ratification of treaties, approval of appointments. Key
                   role of Senate Foreign Relations Committee for oversight of
                   foreign affairs
               ii. The trend in the 20th century has been to give the President great
                   discretion in the area of foreign affairs; however, there have been
                   some notable instances of Congress asserting its authority in
                   foreign affairs
                        1. Senate blockage of Treaty of Versailles after WWI
2. Neutrality Acts of the 1930s that tried to prevent U.S.
    involvement in foreign conflicts
3. Senator Fulbright’s hearings on the Vietnam War in the
    1960s that raised doubts about U.S. involvement in the war
4. War Powers Act of 1973 (review)
5. Congressional refusal to commit troops to Vietnam after N.
    Vietnam broke the peace accords in 1975.
6. Some opposition to U.S. involvement in the Gulf War of
    1990-1991
7. Senate rejection of Comprehensive Test Ban Treaty in 1999
8. Some criticism of giving Most Favored Status to China
9. Some criticism of Bush’s security measures after 9/11
    terrorist attack
10. Increasing criticism against war in Iraq by 2006 – Congress
    passed bill in April 2007 to set a deadline for withdrawal of
    US forces from Iraq by 2008
11.

								
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