Government Policy

Ch 20, 21, &22

Taxing and Spending

Ch 20

Taxes as a Source of RevenueIndividual income taxes are the government’s largest source of revenue. The income tax is progressive, that is, it is based on

ability to pay. April 15 each year is the deadline for filing income tax

returns. The Internal Revenue Service (IRS) collects taxes

during the year through its regional centers.

Corporations, too, pay income taxes on income they earn beyond their expenses and deductions.

Taxes as a Source of Revenue

Excise taxes are federal taxes on the manufacture, transportation, sale, and consumption of goods like gasoline, tires, oil, liquor, and cigarettes, and the performance of services.

Customs duties are levied on goods imported into the United States.

The federal government collects an estate tax on the property and money above a set amount when someone dies.

Borrowing for Revenue

In addition to collecting taxes, the federal government borrows to raise money by selling federal securities, such as bonds, notes, and certificates, on which it pays interest.

The accumulated moneys the government borrows is the national debt.

Where the Money GoesMost of the federal government’s annual $2 trillion in spending goes to direct benefits for individuals, national defense, discretionary spending, and interest on the national debt.

Spending for Social Security, social-welfare, and health-care programs is one of the biggest items in the federal budget.

Spending for defense has increased since 2000 after decreasing during the 1990s.

Federal grants to state and local governments help to pay for public housing, road repairs, school lunch programs, flood insurance, and other services.

Fiscal and Monetary PolicyBeginning with the Great Depression of the 1930s, the federal government’s role in managing the nation’s economy has expanded.

The federal government influences the direction of the nation’s economy by its fiscal policy, the governments spending and taxing to influence the economy.

The government also uses monetary policy, the controlling of the money supply and credit, to influence the direction of the economy.

The Federal Reserve System

The Federal Reserve System’s 12 Federal Reserve Districts make up the central banking system of the United States.

A seven-member Board of Governors, which supervises the Fed, is appointed to four-year terms by the president but is independent of both Congress and the president.

The Board of Governors supervises the operations of the Federal Reserve Banks and determines the money and credit policies of the nation.

The Federal Reserve SystemThe Board of Governors controls monetary policy through three ways:1) fixes the discount rate2) raises or lowers the reserve requirement3) puts money into the economy through open

market operations.

Trade

Government promotes or discourages trade by placing tariffs on imports. The North American Free Trade Agreement (NAFTA) – eliminated trade restrictions between the US, Canada, and Mexico.The government also restricts some imports through quotas, limits on the number that can be imported.

Foreign Policy and Defense

Ch 22

Goals of Foreign Policy

Foreign policy guides the nation’s relations with other countries. Principal goals of American foreign policy:1) preserve the security of the United States; 2) maintain trade and preserve access to natural

resources; 3) work for world peace; 4) aid democratic nations and help create democracies; 5) provide help for victims of natural disasters.

Development of Foreign Policy

Isolationism – the idea that the United States should stay out of international entanglements. The US practiced isolationism a great deal

in the past, in the years leading up to World War I

Development of Foreign Policy

After World War II the United States struggled with the Soviet Union in the Cold War, leading to a costly arms race between the two superpowers. The United States adopted a policy known as containment to keep Soviet communism from expanding its power. The United States fought two wars that were the consequence of containment: the Korean War (1950–1953) and the Vietnam War (1964–1973). In 1989 the Soviet Union collapsed, splitting into Russia and 14 other separate nations; this ended the Cold War and changed the political environment of the world.

Development of Foreign Policy

In the years after the Cold War, the United States sent troops to Iraq, Somalia, Haiti, and the former Yugoslavia in order to protect American trade interests, encourage democracy, and advance human rights.

In the Persian Gulf War, the United States defended Kuwait against Iraq, protected American oil interests in the Middle East, and began programs aimed at preventing Iraq from developing weapons of mass destruction.

Development of Foreign Policy

The September 11, 2001, terrorist attacks on the United States led to President George W. Bush’s war on terrorism and the preemptive invasion of Iraq. After the initial military deployment, the United States kept a large number of troops in Iraq and pledged long-term aid toward the development of a stable democratic government there.

The Department of StateThe secretary of state, head of the Department of State, advises the president on foreign policy. The Department of State has four main duties:1) to keep the president informed about

international issues, 2) to maintain diplomatic relations with

foreign governments, 3) to negotiate treaties, and 4) to protect the interests of U.S. citizens

abroad. The United States maintains embassies in the capitals of136 foreign countries where U.S. ambassadors and their staffs reside.

The Department of Defense

The Department of Defense (DOD) supervises the armed forces of the United States and ensures that those forces are strong enough to defend its interests.

The Department of Defense is the largest executive department, with more than 700,000 civilian employees and about 1 million military personnel.

Economic Sanctions

The United States sometimes denies benefits to nations that follow policies it dislikes. Sanctions include withholding loans, arms, or economic aid, or embargos.

Most Favored Nations

Most Favored Nation Status – a status given to nations that allows them special trading privileges with the United States.