Transcript Economic Policy and National Securityx

• Revenue: the income gov’t collects
• Taxes: charges laid on individuals and
business to raise revenue
• Federal Taxes
– Individual Income Tax
• Makes up the largest source of the federal
gov’ts source of revenue
• Levied on taxable income (wages & salaries),
business profits, tips, & interest
– Taxable income is the sum of all sources of a
person’s income minus exemptions (amount of
income government does not levy at tax on) and
deductions ( amounts of that gov’t allows taxpayers
to subtract form their taxable income)
• April 15th : Tax Day, file taxes to IRS
• Federal Taxes continued
– Corporate Income Tax
• Based on a corporation’s net income (all
income earned above the cost of maintaining
the business
• Third largest source of federal gov’t revenue
• Corporations allowed certain deductions to
help achieve national goals like increasing the
number of manufacturing jobs
– Excise Taxes
• Levied on the manufacture, sale, and
consumption of certain goods or services
– I.E. the tax on tobacco products
• Federal Taxes continued
– Social Insurance Taxes
• Taxes collect to fund two social welfare
programs:
– Social Security, which provides money to retirees
– Medicare, which provides healthcare to the elderly
• The taxes for these two programs are
collected by the Federal Insurance
Contributions Act (FICA), in most cases an
employee pays half the tax and their employer
pays the other half
• Federal Taxes continued
– Estate and Gift Taxes
• Estate tax: tax placed on a deceased person’s
assets when they are transferred to someone
else
– The tax is in place for all estates worth over 3.5
million dollars
• Gift taxes: a tax placed on the transfer of
certain gifts of value to individuals
– Custom duties
• Known as tariffs or import duties
• Taxes levied by the federal gov’t on goods
brought into the United States from other
countries
– These tariffs not only raise revenue but protect
American businesses
• Nontax Revenue
– Earnings by the Federal Reserve
– Fees and fines collected by gov’t
agencies
• Ex: purchasing a passport or filing a patent
or copyright
• Politics of Making Tax Policy
– Higher taxes, more money for
government programs
– Lower taxes, more money in the hands of
individuals and businesses
• Tax Policy and the Public Good
– Tax policy affects
• The Standard of Living, how well people in
general are doing
• The distribution of economic benefits
– Supporters of the redistribution of wealth argue
that natural distribution of income and wealth in
the US economy is unfair
» Therefore the gov’t should attempt to
equalize wealth
– Opponents of the redistribution of wealth argue
that people earn their income through hard work
and redistribution punishes hard work and taking
money away from more well of people, who are
more than likely businesses owners harms job
creation
• Organization of the US Economy
– The US has a free-enterprise economy, where
business can be conducted freely, with little gov’t
intervention
• Goods and services are exchanged freely and openly
– Free-Enterprise System
• Based on 5 main individual rights
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Owning property and entering into contracts
Making individual choices
Engaging in economic competition
Making decisions based on self-interest
Participating in the economy w/ limited gov’t involvement
and regulation
• This type of system produces the products consumers
want
• Organization of the US Economy
continued
– Gov’t and the Economy
• Some believe that gov’t should get more
involved in the economy to redistribute wealth
& reduce the pain of economic disruptions
– The pain can be reduced if the gov’t attempts to
manage the business cycle and the times of boom
(economy doing well) & recession (economy doing
poorly)
• Democrats have favored greater gov’t
involvement in the economy, where
Republicans want to allow the free-enterprise
systems the time its needs to correct
downward slides in the business cycle
• Stabilization Goals
– Economic growth determines whether a
country will achieve more wealth or
remain poverty-ridden
– Economic stability involves changes in
unemployment and inflation (the general
rise in prices that often accompanies
economic booms)
• The gov’t attempts to fulfill 2 main goals with
a stabilization policy: full employment and low
inflation
• Stabilization Goals continued
– Full employment
• During economic downturns, employment
levels drop
– Unemployment hurts the general public because
it lowers the total output of the economy
– Low inflation
• During economic upswings, harmful
inflationary pressures can develop
• Inflation pushes up interest rates because
higher interest rates mean an increase3d
cost of borrowing money, they discouraged
investment in new plants and equipment
• Tools for Economic Stabilization
– Fiscal Policy
• A set of gov’t spending, taxing, and borrowing policies
used to achieve desired levels of economic
performance
• By increasing spending or lowering taxes, the gov’t
can increase the overall level of demand for products
putting more money into the slow-moving economy
– The gov’t may decide to decrease spending to prevent
inflation
• If unemployment is high, the gov’t may cut taxes to
increase a people’s disposable income (money left
over after bills and taxes are paid)
– If inflation is high taxes may be raised as a reduction in
personal or corporate income means less goods can
be purchased forcing prices to lower
• Tools for Economic Stabilization
continued
– Monetary Policy
• A set of procedures designed to regulate the
economy by controlling the amount of money
in circulation as well as the level of interests
• Monetary policy is controlled by the Federal
Reserve (the Fed), the central banking system
of the US
– The Fed is a central bank that controls how much
money is in circulation
– The Fed has 12 geographic districts, which house a
Federal Reserve bank, wghich does business with
private banks
• Making Monetary Policy
– The Fed implements monetary policy in
three ways: reserve requirements,
discount rates, and open-market
operations
– Reserve Requirements
• Determine the minimum amount of money
that a bank must keep on hand at all times
and thus not to lend to patrons
• Raising requirements reduces the amount of
money banks can loan and lowering them has
the opposite effect
• Changes in these requirements are done
sparingly
• Making Monetary Policy continued
– Discount rate
• The interest rate that the Fed charges to banks
– The lower the rate, the easier it is for private banks to
borrow money from the Fed increasing the money
supply; the higher the rate, the less inclined they are
decreasing the money supply
– Open-market Operations
• The purchase or sale of bonds (securities) in order to
finance the operations of government
– Bonds are certificates issued by a government to a
lender from whom it has borrowed money
– By buying or selling these bonds, the Fed is able to
increase or decrease the money supply in the economy
– When the Fed buys gov’t bonds from private investors,
the money supply increases; when the Fed sells bonds it
tightens the supply by accepting funds that were in
circulation
• Monetary vs. Fiscal Policy
– Monetary policy can result in increased growth
in the economy and higher employment
– Fiscal policy can result in low inflation rates and
stable growth in the economy
– The country can be guided most effectively
when both policies are used together
• Economic Policy & the Public Good
– Keynesianism: an economic stability practice
that calls for the government to run a deficit
(expenses exceed revenue) and ensure low
interest rates to stimulate the economy
– Monetarism: economic stability practice that
calls for as little gov’t intervention in the free
market as possible; the gov’t should only keep
the money supply expanding
• Changes in the Budget Process
– The federal budget: the US national spending
program
– Budget and Accounting Act of 1921
• Gave a newly established Bureau of the Budget the
power to raise or lower agencies’ spending requests
before they were sent to Congress
– Office of Management and Budget (OMB)
• An agency in the executive branch that aides the
president to influence the budget
– Congressional Budget and Impoundment Control
Act of 1974
• Created budget committees in the House and Senate to
review the president’s budget proposals
• The Congressional Budget Office (CBO) to provide
economic analysis to the Congress
• Federal Deficit
– If the gov’t spends more than it takes in,
both tax and nontax revenue, the budget
is in deficit
• Gross Domestic Product (GDP), the dollar
value or price of all finished goods and
services produced within a country during
one year
• Budget Deficits and Politics
– Political Disagreements
• Democrats may wish to cut military spending
and raise taxes especially on the wealthy to
decrease the deficit
• Republicans may wish to cut social spending
programs to reduce the deficit
• Budget Deficits and Politics continued
– Uncontrollable Spending
• A term that refers to spending based on the
gov’ts prior legal commitments
• Major example of uncontrollable spending
– Payments on the national debt
– Entitlements (benefits that federal law requires be
given to all persons who legally qualify for them
» Ex: Medicare and Social Security
– Reluctant Public
• The public wants lower taxes and opposes
overspending from the gov’t, but wants more
and more entitlements
• The National Debt
– The sum of all money the US gov’t owes as a
result of borrowing
– The Size of the Nation Debt
• Over $13.5 trillion
– Interest Payments on the Debt
• The higher the debt, the greater amounts of money the
gov’t has to pay on interest to the money borrowed to
pay the national debt
– The Debt and the Economy
• The higher the debt and the deficit, the less foreign
investors and nations want to loan us money to pay
them off or they may charge higher interest rates to the
US to borrow loans for the debt
• Balancing the Budget
– Gramm-Rudman-Hollings Act
• Legislation designed to force Congress and
the president to reduce the growing budget
deficits
– Balanced Budget Amendment
• Many want a federal amendment added to the
Constitution requiring the gov’t to always
maintain a balanced budget
– President Clinton and a Republican
Congress balanced the budget in 1997
• Foreign Policy Goals
– Maintaining National Security
• Protect the rights freedom, and property of the US
and its people
– Supporting Democracy
• Aiding emerging democratic countries
• Promoting democracy around the world
– Promoting World Peace
– Providing Aid to People in Need
• Providing humanitarian aide (money, food, military
assistance) to foreign nations
– Establishing Free & Open Trade
• The US promotes the exchange of goods & services
across national borders w/out restrictions
• Trade embargos are a stoppage of commerce and
trade that can occur when conflicts occur
• Principles of Foreign Policy
– Isolationism
• A nation should tend to its domestic affairs rather than
to international affairs
– US should focus on domestic problems
– As most nations think of their own interests so should
the US
– The US should stay out of the affairs of other nations
– Staying out of other countries affairs will avoid war
– Realism
• Realists believe in internationalism, an approach that
has a nation taking an active role in foreign affairs
– Isolations ignore the reality of world affairs according to
realists
• Principles of Foreign Policy continued
– Neo-isolationism
• Think that the US should keep its foreign
investments to a minimum not only for the
good of the USA but also b/c such
involvement is likely to be bad for other
nations in whose affairs the US would
intervene
– Idealism
• Argues for an internationalist foreign policy,
but unlike realists, this policy is based on the
good of other nations not just the USA
• Role of the President
– The President, the nation’s chief
diplomat and commander in chief of its
armed forces, has traditionally carried
the major responsibility for both the
making and conduct of foreign policy
• Presidential doctrines
– Intended to set the direction of foreign policy
» Ex: Truman Doctrine
– Summit Conferences
» Meetings between the heads of state of two
or more nations to discuss international
issues and disputes
• Role of the State Department
– The State Department is headed by the secretary
of state, who ranks first among the members of
the President’s Cabinet.
– Embassies diplomatic centers from a nation
located in a foreign nation
• An ambassador is a personal representative appointed
by the President to represent the nation in matters of
diplomacy.
– Consulates deal with US commercial interests and are
located in foreign nations of US commercial interest
• Each consulate is headed by a consul appointed by the
president
– The State Department issues passports, certificates
issued to citizens who travel or live abroad.
– Diplomatic immunity is usually applied to
ambassadors and means that they are not subject to
the laws of state to which they are accredited.
• Role of the Department of Defense (DOD)
– The DOD is headed by a secretary of defense with
individual secretaries supervising the Army, Navy,
and Air Force
– The DOD is headquartered at the Pentagon
– The Joint Chiefs of Staff
• Recommendations about military actions come from
military advisors
• The group includes only 5 people: the chairman, the
Army and Navy, Chiefs of Staff, chief of naval
operations, and the Marine Corps commandant
This chart shows the chain of command of the
American military services.
• The Central Intelligence Agency (CIA)
– The Central Intelligence Agency (CIA) is a
key part of the foreign policy
establishment.
– The CIA is responsible for collecting,
analyzing, and reporting information for
the President and the NSC.
– A full range of espionage, or spying,
activities are undertaken by the CIA.
• Role of Congress
– Declaring War
• Congress has the power to declare war, raise and
support armies, and to provide and maintain a navy
– Appropriating Money
• Congress appropriates money to fund the military and
provide aide to foreign nations
– Ratifying Treaties
• The Senate approves all treaties by a 2/3s majority
– Confirming Appointments
• Approves appointments to ambassadorships,
consulships, and the post of secretary of state and
defense
• As stated in George Washington’s
Farewell Address, for the next 150 years
the United States practiced a policy of
isolationism.
• The Monroe Doctrine (1823) warned
Europe to stay out of the affairs of North
and South America and established the
United States as the hegemonic power
of the Western Hemisphere.
• Spanish-American War of 1898
– The US defeated Spain gaining Cuba’s
independence and gained the territories of
Guam, Puerto Rico, and the Philippines
making the nation a world power
• World War I
• The United States entered World War I after continued
disruptions of American commerce due to German
submarine warfare.
• After the defeat of Germany and the Central Powers, the
nation retreated to a policy of isolationism.
• World War II
• The bombing of Pearl Harbor on December 7, 1941
signaled the United States entry in World War II, joining the
Allies (Russia, Great Britain, and China) fighting against the
Axis Powers (Italy, Japan, and Germany).
• World War II led to a historic shift away from isolationism to
an increased role in global affairs by the United States
The cold war was a period of more than 40 years
during which relations between the United States
and the Soviet Union were tense, but did not result
in direct military action between the two.
The Truman Doctrine
The Truman Doctrine established the policy of containment, an effort to
“contain” the spread of communism throughout the nations of the world.
The Berlin Blockade
In 1948, the Soviet Union cut off all
land transit to West Berlin. The
United States responded with an
airlift of goods to the city.
The Cuban Missile Crisis
In 1962, it was discovered that the
Soviet Union was building missiles
on the island of Cuba. A heated
stand-off between the Soviet Union
and America ensued.
The Korean War
The Korean War was fought under
the auspices of the United Nations
after the forces of communist North
Korea invaded South Korea.
The War in Vietnam
The United States dedicated
thousands of troops in an effort to
resist aggression by communist
forces in Vietnam.
• Détente Through the Present
– Following the U.S. withdrawal from Vietnam, the Nixon
administration embarked on a policy of détente.
– Détente is a French term meaning “relaxation of tensions.
– Nixon would become the first U.S. President to visit
mainland China in 1972. He also visited Moscow during
his administration.
• The cold war came to an end with the dissolution of
the Soviet Union in 1991.
• January 1991 brought the Persian Gulf War, with
American forces spear-heading a multinational force
to drive Iraqi forces out of Kuwait.
• Since the attacks of September 11th, 2001 the US
has been involved in a War on Terror that has led to
invasions of Afghanistan and Iraq
• Foreign Aid
– Economic and military assistance to foreign
countries
– The Marshall Plan
• Economic assistance program that poured around
$13 billion into the 16 nations of Western Europe
to restore them to economic health
– USAID
• US Agency for International Development (USAID)
– Part of the State Department has been responsible
for implementing most US foreign aid programs
that promote economic growth, promoting public
health, protecting the environment, supporting
victims of disasters, and advancing democracy
• Alliances & Pacts
– Defense alliances
• Agreements in which nations pledge to come to each
other’s aid
– Collective security, the ensuring of peace through the
guarantee of mutual defense
– The North Atlantic Treaty Organization (NATO)
was formed to promote the collective defense of
Western Europe.
• Today, NATO’s purpose has changed. With the collapse
of the Soviet Union, NATO’s goals have broadened to
include peacekeeping roles, such as in the Balkans,
and establishing a continued relationship with Russia
• Multilateral treaty: an agreement signed by several
countries
• Alliances & Pacts continued
– Other alliances
• The United States is also part of the Rio Pact
with Canada and Latin America, the ANZUS
pact with Australia and New Zealand, as well
as other pacts in the Pacific region.
• The United States has also taken an active
interest in the actions that unfold in the
Middle East, although America is not part of
any formal alliance in the region.
• Bilateral alliances, security agreements
between two nations