220 American Government and Politics
Spring, 2000

Kenneth Janda, Instructor

Lecture 2: Spending Policies

May 23

Yesterday's Proposed House Vote on PNTR with China:

  • Was rescheduled for Wednesday
  • See today's New York Times article and analysis on the China Trade Bill

A little budgetary history

  • In the early 1990s:
    • There were deficits ahead as far as the eye could see.
    • Despairing of cutting the deficits, Congress passed the ill-considered Gramm Rudman deficit reduction act.
    • When that failed, Congress tried two schemes to change the government to reduce the defict:
      • A balanced budget amendment
      • The line-item veto was defended in this context.
    • No one wanted to raise taxes and cut spending to do it.
      • Bush broke his 1988 pledge of "no new taxes" and raised them in 1990, producing a revolt within his party and perhaps leading to his defeat.
      • Clinton raised taxes in 1993, but only by the barest of margins in both the House and the Senate.
  • The great problem in controlling spending lies in the uncontrollables, which account for 67% of the budget:
    • Interest on the federal debt.
    • Social security, medicare, and other mandatory expenditures.

Explaining Taxing and Spending Policies

  • Are taxes too high in America--how would you answer that question?
    • Compared with what?--against time?
    • Compared with what?--against other countries?
  • Tax policy has three purposes: to meet budgetary outlays, to make the tax burden more equitable, or to control the economy.
    • The tax reform bill passed in 1986 represented one of the more sweeping changes in tax history.
    • Public opinion studies show that in 1984 only a small minority of the American public considered the federal income tax system a major economic problem.
    • The tax burden has increased over time in the United States but is still low compared to the tax rate of major industrialized democratic nations.
    • But in seeking electoral advantage, politicians have led Americans to believe that taxes are too high.
  • How have government spending and tax policies affected economic inequality in America?
    • TRANSFER PAYMENTS - government payments to individuals - reduced income inequality until 1980.
    • While the tax burden of the federal income tax is now somewhat progressive, the burden of state, local and social security taxes is highly regressive.
    • The tax code contained many policies which only favor the rich, such as lower tax rates on "capital gains," no withholding on unearned income and no federal tax for certain securities.
    • Despite billions of dollars in social spending from 1966 to 1988, the gap in income between rich and poor remains practically unchanged.

      Share of income held by income group
      Lowest 20%
      Highest 20%

    • Moreover, studies recently released show that the 1% of the nation with the highest income gained most of the after-tax family income during the late 1970s and the 1980s.
    • In 1989, the richest 1% of families held 37% of the total net worth in the US; the next richest held 31%; and the remaining 90% held 32%. (New York Times 4/21/92, p. 1)
  • The highly unequal distribution of wealth in American society can be understood from the perspective of two models of democracy.
    • Scholars argue that tax and spending policies are dominated by pluralist politics which favor well funded and well organized interest groups.
    • Public opinion studies show that Americans are unlikely to seek redistribution of income through the tax system as prescribed by the majoritarian principles of democracy.