POLI 370, Week 3
POLI 370, Week 3 POLI 370 001
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POLI 370 001
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This 6 page Class Notes was uploaded by runnergal on Sunday January 31, 2016. The Class Notes belongs to POLI 370 001 at University of South Carolina taught by Dr. Xuhong Su in Winter 2016. Since its upload, it has received 27 views. For similar materials see Introduction to Public Administration in Political Science at University of South Carolina.
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Date Created: 01/31/16
POLI 370 – Lecture 4 Grants o Federal assistance or loans to individuals, like benefits, entitlement, research grants, and PELL grants. o Federal spending is 19% of state economic activity, but there are wide variations between states because of differences in population, tax effort (if a state taxes its constituents more, then the federal government will give the state more money), and per capita income. o Some types of grants are transportation, education, and healthcare. Conditions on Categorical Grants (used for General/Broad/Block Grants (no Use specific activities; most federal designated use; can create inequality grants are this type) between states) Allocation Formula (based Project (repeated Formula (based on a fact that the Method on a fact that the experience in federal government cannot control, federal this project area like population, age, tax effort, etc.) government helps states cannot control, receive these like population grants) of a state, age, tax effort, etc.) Matching Lump sum (no Matching (state Lump sum (no Revenue Sharing state spending must match a state spending (the amount of required; can certain required) money that the also be a percentage of federal possibility for a the grant cost; government will project grant) can also be a give to a state, possibility for a based on state formula grant) tax effort) Limit on Grant Closeended Openended (no N/A N/A (limited financial limit) Size financial grant) o Intergovernmental Grants (summary of table) 1. Whether the use of the grant is intended for a specific or general service. 2. Whether the grant is automatically allocated by a formula or it requires an application associated with a specific grant. 3. Whether the grant funds must be matched by recipient government funds. 4. Whether the potential size of the grant is limited. Regulations o Regulations are rules administered by a government agency to influence economic activity by determining prices; product standards and types; and the conditions under which new firms can enter an industry. One example of this phenomenon is rent control. o The focus is on the market, efficiency, control, and the allocation of social values. o Unintended externalities, however, often result from regulation. For example, if the government regulates a natural monopoly that can supply the entire market more efficiently than several competing firms under natural conditions, this market will become less efficient. o The government must decide if the benefits, both economic and social, of regulation outweigh the costs. o The government also aims to achieve social and political goals for the public interest through regulation, such as getting socially desirable services and goods, like clean water; protecting individual rights and privacy; achieving the resolution of national and global problems; regulating to benefits special groups, like farmers; and conservation of resources. o Economic Theories of Regulation 1. Public Interest Theory: the idea that regulation seeks an efficient use of resources. This is a positive outlook, like when the government tried to stop payday loans with 700% interest rates. 2. Capture Theory: the idea that regulations helps producers to maximize economic profit. This is a negative outlook, like when Duke lobbied to get the safe IM3 percentage from the scientifically correct 3% to the scientifically incorrect 150%. o Regulatory Rules: APA Procedures Rulemaking: a process used to create regulations. It ensures that the public is informed of proposed rules, can comment on aforementioned rules, and can have access to the rulemaking record. Administrative Procedure Act (1946) Process: 1. Advance notice of proposed rulemaking. 2. Propose the rule. 3. Public comment. 4. Pass final rule, based on public comment and announced on the federal register. Tax Expenditures o Tax expenditure: revenue losses attributed to federal tax law provisions which allow special exclusions, exemptions, or deductions from gross incomes. These provisions offer special tax credits, a preferential tax rate, or a tax deferral liability. 1. Individual tax expenditures: consumption + net wealth change = income. 1. Exclusion: types of income that are not taxed, such as taxexempt bond interest. 2. Exemption: perperson amounts of money that the government cannot tax. For instance, if you have one child, the government cannot tax $4,000 of whatever your income is. 3. Deduction: personal expenditures that can be subtracted before tax is calculated. These deductions may be fixed amounts (standard deduction) or amounts from specific goods and services (itemized deduction). Exemptions and deductions equal 80% of all individual tax expenditures. Largest Tax Expenditures o Exclusion of employers contributions for medical insurance premiums ($196 billion) o Exclusion of net imputed rental income ($76 billion) o Essentially, this exclusion is for people that own a home; the government excludes that part of your income that you would normally use to tax rent. o Deductibility of mortgage interest on owneroccupied housing ($70 billion). This exclusion encourage people to buy homes and not rent them out, thereby avoiding socio economic segregation. o Lower rate for capital gains ($60 billion). The tax rate for stocks, bonds, etc. is 15%, as opposed to 2330%. o Defined contribution employer plans ($59 billion), like 401ks. Defined contribution plans are where you retire with whatever you put into the plan as a lump sum, as opposed to defined benefit plans, where you get $x per month until you die. The government taxes you less if you save more money in defined contribution plans. 2. Nonrefundable tax credits These tax credits cannot reduce your tax balance beyond $0; the government will not give you money if these credits, in addition to other tax expenditures, are greater than your income. Some examples include an adoption tax credit, a child tax credit, a foreign tax credit, and a mortgage tax credit. 3. Refundable tax credits These tax credits can reduce your tax balance beyond $0; the government will give you money if these credits, in addition to other tax expenditures, are greater than your income. One example is an earned income tax credit. Corporate tax expenditures Deferral of income from controlled foreign corporations ($76 billion). These tax expenditure encourages foreign investment. Deductions for United States Production Activities ($10 billion). This deduction encourages industry in the United States. Accelerated depreciation of machinery and equipment ($8 billion). 4. Contracts Contracts are the use of the private and market forces to provide a good or service, the components of which include financing, operations, and quality control. Privatization is not an either/or question; rather, it is a question of how much privatization. For example, the government buys guns from the private market, but it has its own police force. Additionally, the government must consider what should and what should not be privatized. Privatization Forms 1. Sell or loadshedding: For example, the Coast Guard in Miami now makes people pay to be rescued unless you are about to die. 2. Contracting for goods and services: More contracts have been formed over the years. 3. Vouchers.
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