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Chapters 16, 17: Economic and Social Policy
Terms in this set (38)
Government's attempt to promote stable markets, economic prosperity, business development, and the protection of employees and consumers. Economic policy consists of monetary policies and fiscal policies.
An economic system in which the means of production and distribution are privately owned and operated for profit with minimal or no government interference.
Efforts to regulate the economy through the manipulation of the supply of money and credit; America's most powerful institution in this area is the Federal Reserve Board.
Federal Reserve System
A system of 12 Federal Reserve banks, led by the Federal Reserve Board, that facilitates the availability of credit and cash to regular banks. The Federal Reserve System also regulates the banking industry and uses monetary policies to fight inflation and deflation.
The government's use of taxing and spending powers to manipulate the economy. Congress and the President make fiscal policy.
Keynesianism (fiscal policy)
Fiscal approach that focuses on demand levels as a means to economic growth. Keynesians argue that the government should stimulate (increase or maintain demand levels) by increasing public spending or cutting taxes. Keynesianism dominated the industrialized world from the 1930s to the 1970s and is still used today. Keynesians say "put money in the hands of consumers and the economy will grow."
Supply-side (fiscal policy)
Fiscal approach that focuses on supply levels as a means to economic growth. Supply-siders argue that the government should cut tax rates on businesses and individuals in order to promote levels of work and investment that would otherwise be discouraged. Supply-side (trickle-down economics, "voodoo" economics) became influential in the 1970s and 1980s and is still used today. Supply-siders say "create an environment that enables and incentivizes business expansion and the economy will grow."
Taxation that hits upper-incomes more heavily. The federal income tax is a progressive tax ranging from 10% to 39.6%. The tax rate that income is subject to is higher than the effective (actual) rate paid. In other words, an individual who makes $450,000 annually would be subject to the 39.6% rate, but their effective rate would be lower.
Taxation that hits lower-incomes more heavily. The sales tax and payroll taxes are regressive because lower-income individuals pay a larger share of their income in both taxes because they are subject to the same rate as wealthier individuals.
A policy whose objective is to tax or spend in such a way as to reduce the disparities of wealth between the lowest and the highest income brackets.
Office of Management and Budget (OMB)
Agency within the Executive Office of the President that is responsible for preparing the President's annual budget proposal. The document is considered the starting point for the annual budget process.
Congressional Budget Office (CBO)
Agency created by Congress to provide reliable, non-partisan evaluations about the costs and economic impact of proposed policies. The CBO is an important actor within the budget process.
The amount by which government expenditures (spending) exceeds government revenue (taxes) in a fiscal year. The U.S. typically has a budget deficit each year. The last time the U.S. had budget surpluses was the late 1990s.
The national debt is the accumulation of all the annual budget deficits. The national debt is currently $19 trillion.
Federal spending that is made up of "uncontrollable," budget items that cannot be controlled through the regular budget process.
Budget items or programs that must be paid for regardless of their cost. Congress does not have the discretion to increase or decrease spending on such items. Examples include: interest on the national debt, Social Security benefits, and Medicare benefits. Social Security and Medicare are uncontrollable expenditures because they are entitlement programs. Citizens are legally entitled to the benefits and the government is legally obligated to provide them.
Federal spending on programs that are controlled through the regular budget process. Congress has the power to determine spending levels of national defense, infrastructure, scientific research, etc. The concern about the long-term growth of mandatory spending is that as it takes up a larger share of the budget there is less money left over for discretionary purposes.
1) A board game. 2) A single firm in a market that controls all the goods and services of that market; an absence of competition.
Government regulation of large businesses that have established monopolies. Such regulation may include forcing the company to break up into smaller companies. In reality, the government typically gives exemptions from existing antitrust laws to corporations that want to merge with other corporations. For example, entertainment, energy, internet, banking, and cell phone markets have only become more consolidated in recent decades.
A policy of reducing or eliminating regulatory restraints on the conduct of individuals or private institutions.
The power of government to set conditions on companies seeking to sell goods or services to government agencies. For example, Medicare could use its contracting power to negotiate down the price of prescription drugs, but so far it has not done so.
Social welfare programs financed in whole or in part by taxation or other mandatory contributions by their present and future recipients. A contributory program is one where most people pay into it and most people benefit from it. For example, most people pay taxes to fund Social Security and most people are eligible for Social Security; it is characterized by universal eligibility for benefits.
Payroll taxes are taken out an individual's wages and put into Social Security and Medicare. The Social Security tax is 6.2% on wages up to $118,000. So, if you make $150,000 each year, the last $32,000 you make will not be taxed by Social Security. The Medicare tax is 1.45% on all earnings.
A contributory social welfare program into which working Americans contribute a percentage of their wages and from which they receive cash benefits after retirement or if they become disabled. Social Security was passed in 1935 to provide unemployment insurance, disability and survivors' benefits, and old-age pensions (wage insurance).
A contributory social welfare program that provides health insurance to everybody over the age of 65. It is national health insurance for the elderly. It was passed in 1965.
Social welfare programs that provide assistance to people on the basis of demonstrated need rather than any contribution they have made. In other words, noncontributory program benefits are only available to those who qualify, and to qualify your income is usually low enough to also be exempted from the federal income taxes that are used to pay for the program. Ex: Supplemental Nutrition Assistance Program (SNAP).
A procedure by which potential beneficiaries of a public-assistance program establish their eligibility by demonstrating a need for the assistance. Means testing typically uses income level to determine eligibility.
A noncontributory social welfare program that provides health insurance to low-income and disabled people. Medicaid was passed in 1965 with Medicare. The program is operated by the states, but funded by both the federal government and states. Many elderly people who receive Medicare also qualify for Medicaid due to their income and Medicaid is often used to help for nursing home care.
Non-cash goods and services provided to needy individuals and families by the federal government. Such goods and services would otherwise be paid for in cash by the beneficiary. Ex: SNAP benefits and Medicaid health insurance.
A legal obligation of the federal government to provide payments or services according to eligibility criteria established by law. Social Security and Medicare are entitlements not in the sense that "greedy people feel entitled to things they didn't earn" but in the sense that individuals who paid into those programs are legally entitled to receive benefits when they become eligible. This is why entitlement programs are "uncontrollable expenditures" within the budget process. Means-tested programs such as SNAP ("food stamps") and Temporary Assistance for Needy Families (cash payment to help with living expenses; "welfare checks") are also entitlements if the individual qualified for them. It is the means-tested welfare programs that some deride as "entitlements" that people don't earn (or, according to critics, deserve). It is also important to remember that not everyone is critical of such programs and believe that they are an important and beneficial component of the welfare state's "safety set."
Personal Responsibility and Work Opportunity Act
Bi-partisan welfare reform passed in 1996 that embraced devolution and block grants to convert "welfare" from a federal entitlement program to a state-run program. It created Temporary Assistance for Needy Families (TANF), which provides temporary cash assistance to those in need.
Earned Income Tax Credit (EITC)
The EITC is a tax credit available to working parents and low-income individuals that is considered an incentive to work. Those eligible for the EITC will receive an income tax return on average of $2,500. The EITC has had bi-partisan support and is considered a means to reducing income inequality without increasing taxes or regulating the economy in other ways. It is, however, a textbook redistribution program in that it is used to increase the wages of some by taxing the income of others. Still, the EITC is favored by Republicans as a means to incentivize work and reduce the number of welfare recipients. Some argue that the EITC should be increased instead of dramatically increasing the minimum wage.
equality of opportunity
A widely shared American ideal that all people should have the freedom to use whatever talents and wealth they have to reach their fullest potential. Like the concept of liberty or equality in general, the idea of "equal opportunity" means different things to different people and many of our political debates about what is necessary to equality of opportunity to exist. Some say all young people have equal opportunity to attend college because the government doesn't legally prevent anyone from going. Others say that unless everyone has access to K-12 schools that prepare them for college and the financial means to pay for it then equal opportunity doesn't really exist. Politics is the dialogue about what we need to do collectively as a society to make equal opportunity a reality in specific contexts or situations.
No Child Left Behind (2001)
Bi-partisan education reform that significantly expanded the federal government's role in public education. NCLB aimed to improve curriculum standards and increase school accountability by mandating standardized testing and annual yearly progress. Many state governments quickly resented the new law as an "unfunded mandate" because the states had to spend money coming into compliance with federal rules. NCLB became very unpopular with both Republicans and Democrats.
Every Student Succeeds Act (2015)
Bi-partisan education reform that replaced NCLB. ESSA still requires some standardized testing but it returned much of the decision-making about standards, teacher evaluation, and school accountability to the states.
State Children's Health Insurance Program
After Hillary Clinton's health care reform proposal failed to pass, Congress agreed to expand health insurance coverage for low-income children not already covered by Medicaid. SCHIP is an important program that helps close gaps and holes in the accessibility and affordability of health care insurance.
Patient Protection and Affordable Care Act (2010)
Health care reform legislation that aimed to increase access to health care insurance and decrease its cost. The ACA (Obamacare) did this by expanding eligibility for Medicaid and creating new state health insurance marketplaces ("Obamacare exchanges"). The exchanges were supposed to increase consumer choice and lower costs because for-profit health insurance companies would compete for customers within the exchange. To brings costs down the ACA provided subsidies for low-income families and mandated that everyone who didn't already have insurance purchase it on the exchange (which reduces risk within the insurance pool allowing for prices to come down). Problems occurred because less healthy people than expected purchased insurance on the exchanges (which increased risk within the insurance pool requiring prices to go up). As the risk pools became sicker, for-profit health insurance companies either raised prices or stopped offering insurance altogether (because it wasn't profitable enough). The result was less consumer choice and plans that were more expensive than anticipated. Fixing the private marketplace for those who don't get insurance from Medicare, Medicaid, or their employer (about 15% of the population) is at the center of current health care debates.
Government subsidies provided through tax deductions for amounts spent on things such as health insurance and home mortgage interest. The home mortgage interest deduction is the most expensive and the total cost of tax expenditures is roughly $1 trillion annually. Tax expenditures are a form of social spending even if the beneficiaries don't consider themselves recipients of government assistance. Many upper-middle class critics of means-tested welfare programs take for granted benefits like the home mortgage interest deduction.