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Welcome back, everyone, and a special welcome to you, the learner, to another crucial study session.
We're walking chronologically right through Chapter 14, Domestic Policy of We the People,
Essentials, the 15th edition,
and we are going to get you perfectly prepped for your exams today.
Absolutely.
We've got a lot of ground to cover, but it's really fascinating stuff.
It is.
And, you know, to kick things off, I want to start with a story.
So picture this.
It's 2022,
and Evita Bass, who is a full -time child care provider in North Carolina, she suddenly has to have emergency surgery.
Oh, wow.
Yeah.
And her employer didn't offer health insurance.
And because her state had at the time not expanded Medicaid, she wakes up to $36 ,000 in medical debt.
$36 ,000.
Just, I mean, crippling.
Exactly.
And it just makes you ask, how does an invisible state boundary literally dictate someone's financial ruin?
Yeah.
And that's exactly why this anecdote kicks off the chapter,
because it highlights just how deeply political domestic policy really is.
I mean, it took 10 years of intense debate for North Carolina to finally become the 40th state to expand Medicaid in 2023.
Right.
Because initially, conservative lawmakers there were calling it an unwarranted entitlement program.
Exactly.
But eventually, they supported it.
And the shift is interesting.
Proponents basically proved that the expansion would save rural hospitals from just, you know, shutting their doors.
Ah, okay.
Yeah.
And then the North Carolina Sheriff's Association actually stepped in.
They pointed out that county jails were bearing this massive cost of, like, untreated mental health issues.
Oh, wow.
So treating people in medical facilities was actually saving local taxpayers money.
Right.
And, you know, the final push was just the funding.
The federal government agreed to cover 90 % of the bill for newly eligible residents.
That's a huge chunk.
Yeah.
And the state's 10 % share, that was funded by a tax on hospitals.
So lawmakers didn't even have to raise income taxes on voters.
Okay.
Let's unpack this because Evita's story is just the perfect lens for this whole chapter.
Today's deep dive mission is to trace the tools of economic policy, the politics behind those tools, the history of the welfare state, and how these policies try to advance equality.
So starting at the very beginning, where does the federal government even get the authority to mess with the economy?
Well, you have to look at Article 1, Section 8 of the Constitution.
It explicitly gives Congress the power to tax, to borrow, to coin money, and to provide for the general welfare.
But wait, if the Constitution just says Congress can collect taxes and borrow money, but it doesn't give, like, an actual playbook, does that mean the entire modern economic system is basically just a century -long improvisation?
I mean, that's a very valid question.
And yeah, essentially, it is an ongoing adaptation.
The Constitution gives the authority, sure, but the actual tools we use, like fiscal policy, which is taxing and spending, those have evolved over time.
Right, taxing and spending.
So let's look at Figure 14 .1 in the text because it really paints a picture of how federal revenues have, like, totally shifted.
Back in 1966,
corporate income tax made up 23 % of federal revenue.
Which is pretty significant.
Very.
But by 2024, that plummeted to just 13%.
And meanwhile, individual income taxes shot up to fill the gap, rising to 48%, and social insurance receipts went up to 35%.
Right.
And, you know, the structure of those taxes is really what determines who actually feels the burden.
So we have to define progressive versus regressive taxes, the federal individual income tax.
That is progressive.
Because it's bracketed, right?
Like, the rates go up as you earn more, capping at 37 % for income over $605 ,351.
Exactly.
Higher earners pay higher percentage.
But social security is the opposite.
It's a regressive tax.
It's a flat 6 .2%.
But, and here's the kicker, it only applies to the first $168 ,800 you make.
Okay, so let me do the math on that.
If someone earns exactly that cap, $168 ,800, they pay about $10 ,466.
Right.
But a CEO who earns like
$5 million,
they also only pay that exact same $10 ,466.
Which for the CEO is just 0 .21 % of their income.
It's basically a rounding error for them.
That is the textbook definition of a regressive tax.
It hits lower income earners much harder proportionally.
And so that's the taxing side.
The other side of fiscal policy is spending.
Right.
And when they spend more than they take in, we get a budget deficit and eventually the national debt.
Exactly.
But it's not just paying the bills.
They use subsidies to like shape behavior.
In the 1800s, it was giving away land grants to expand west.
Today, it's massive subsidies for agriculture.
They also use federal contracting for that, don't they?
Like President Biden requiring a $15 an hour minimum wage for federal contractors.
Even though the national minimum wage is still frozen at like $7 .25, they just use their massive purchasing power to force a change.
Right.
And because there's so much money moving around, you have this built -in institutional clash over the budget.
The executive branch uses the OMB, the Office of Management and Budget to draft proposals.
And then Congress uses the CBO, the Congressional Budget Office,
to basically check the president's math.
Exactly.
Created in 1974.
So that's fiscal policy, but there's also monetary policy.
Right.
Shifting gears from fiscal to monetary tools.
So this is the Federal Reserve system, the Fed, right?
Yeah, the Fed.
And they have a dual mandate,
price stability and maximum employment.
And they achieve this by controlling the availability of money and credit in the economy.
So if they want to boost employment, they lower interest rates, making it cheap to borrow money to buy a house or start a business.
But if inflation spikes, they raise rates to cool things down.
Exactly.
They manipulate the money supply.
Okay.
Here's where it gets really interesting.
Regulation.
Because historically regulation is kind of like the brakes on a car, right?
That's a great way to put it.
In the 1800s, businesses had total market power.
There were literally no brakes.
Right.
Monopolies everywhere.
And that led to public outrage, which gave us the Interstate Commerce Commission in 1887 and the Sherman Antitrust Act in 1890 to finally bust up those monopolies.
Right.
And then the pendulum swings even further toward regulation in the 20th century.
In the 1930s, after the crash, you get the SEC to regulate Wall Street.
And then the 1970s bring like the EPA for the environment and OSHA for workplace safety.
Exactly.
But of course, every action has a reaction.
By the late 70s and 80s, businesses pushed back hard.
They said there was too much regulation.
The era of deregulation.
I mean, President Reagan shrank the federal register, which is where they print all the rules, from 74 ,000 pages down to 49 ,600.
And then decades later, President Trump had that executive order where agencies had to cut two old regulations for every new one they added.
Right.
And this constant push and pull over regulation and taxes, it really defines the ideological divide between the political parties.
Yeah.
Let's talk about that ideological shift.
So before the Great Depression, the prevailing belief was laissez faire capitalism.
The idea that markets just naturally self -regulate.
But the Depression totally destroyed that belief, right?
Like the market was absolutely not fixing itself.
Exactly.
So FDR's new deal brings in Keynesian economics.
This is the idea that the government should intervene.
During a recession, they should actually run deficits to stimulate demand and put people to work.
But by the 1980s, you have Republicans, led by Reagan, reviving those old laissez faire ideals.
He famously said, government is the problem, and pushed for supply side economics, lowering taxes to spur investment.
Right.
Meanwhile, Democrats generally maintain that Keynesian view, advocating for more regulation and redistribution.
And, you know, we should note here, we are taking no sides in this.
We are strictly reflecting the historical analysis from the textbook about how these party platforms evolved.
Oh, for sure.
We're just looking at the source material.
And speaking of the material, there's this incredible chart in the book called Who Are Americans that looks at tax burdens.
Oh, yeah, that chart is eye -opening.
It really is.
Because we just talked about how federal taxes are progressive.
But state and local taxes, they are heavily regressive.
Things like sales tax hit poor families much harder.
And when you combine them, the bottom 20 % of earners pay 7 .6 % in federal taxes, but a whopping 12 .8 % in state and local taxes.
Wow.
Yeah.
And the top 1%.
They pay 24 .5 % federally, but only 9 .9 % in state and local.
It really flattens the whole system out.
If we connect this to the bigger picture,
it highlights the ultimate political irony of domestic policy.
Oh, the spending dilemma.
Exactly.
Polling consistently shows that Americans abstractly say they want smaller government.
But when you ask them what to cut, they refuse to touch the massive programs.
Don't touch my Medicare.
Don't touch my Social Security.
Right.
So deficits keep growing.
And any spending cuts just end up falling on non -defense discretionary spending, which is stuff like education and infrastructure.
And that category is now at its lowest share of the economy since 1962.
Which brings us to the history of the welfare state itself, because local charity completely collapsed during the Depression, which forced the creation of the 1935 Social Security Act.
And the text breaks this down into three pillars.
Right.
Pillar one is contributory programs.
This is social insurance.
You pay into it to get a benefit out later.
Like Social Security and Medicare.
Exactly.
And these feature indexing and QLAs cost to living adjustments.
So inflation doesn't eat away your benefits.
Got it.
And pillar two is non -contributory programs.
These are means tested based on demonstrated needs.
So Medicaid or SNAP, which most people know as food stamps.
Right.
And SNAP provides in -kind benefits, meaning you get a specific good like food rather than just cash.
Okay.
But pillar three.
This one is wild to me.
The shadow welfare state.
I like to think of it like an invisible coupon book that's only handed out to people who already bought the premium membership.
That is a perfect analogy.
The shadow welfare state is made up of tax expenditures.
So deductions for mortgages, medical expenses, or getting tax -free health benefits through your employer.
It's mostly invisible and it heavily benefits the middle to upper class.
And it costs the treasury a staggering $1 .8 trillion in foregone revenue in 2023.
Trillion.
With a T.
That is insane.
Yeah, it's massive.
And all of these pillars, they kind of lead into how policy attempts to advance equality of opportunity.
Right.
Which means looking at education, health, and housing.
Let's start with education.
We've seen a shift from local control to more federal intervention, right?
Up to a point.
The Every Student Succeeds Act in 2015 actually returned a lot of testing accountability back to the states.
But in higher education, the federal impact is huge.
Yeah.
Like the GI Bill of 1944.
Exactly.
Though the text points out a really shocking historical fact there.
Yeah.
The GI Bill structurally excluded black veterans from its best educational and housing provisions.
Wow.
Just completely left them out.
Yeah.
And then you have the Pell Grant program starting in 1972 for low -income students.
And the stat on Pell Grants in the book is just painful.
It used to cover tuition plus room and board.
But by the 2023 to 2024 school year, it covered only 66 % of just the tuition.
Right.
It forces students into massive debt, which of course ties into the Supreme Court blocking President Biden's student debt forgiveness plan in 2023.
It's a huge issue.
And moving to health policy, the federal rule has grown from like the 1798 Surgeon General to today's CDC and NIH.
And Medicaid plus CHIP for kids, which covers what?
95 million people.
That's roughly one in four Americans.
It is.
But that coverage is volatile.
Yeah.
When the pandemic emergency protections ended in 2023,
15 million people lost their coverage.
15 million.
That's just a staggering number.
And then there's housing policy, which there's this striking image in the textbook.
It shows the explosive demolition of the Prudiggo high -rise public housing project in St.
Louis.
Yeah.
That image really symbolizes a huge policy pivot.
The government shifted from building these massive high -density projects to offering housing vouchers instead so people could rent in the private market.
But the legacy of federal housing policy is, well, it's pretty dark.
It really is.
The government actively engaged in redlining, which was refusing to back mortgages in minority neighborhoods.
And they supported restrictive covenants that legally kept minorities from buying in certain areas.
Wait, really?
The federal government officially backed that?
Yes.
And those specific policies directly exacerbated the vast black -white wealth gap that we still see today.
If you can't buy a home, you can't build generational wealth.
Which brings us to the demographics of poverty today.
The text talks about the feminization of poverty.
The data shows that single mothers are more than twice as likely to be poor compared to the average American.
And that demographic reality completely changed the political conversation.
It's what drove the 1996 welfare reform that created TNF, imposing strict work requirements and time limits.
So what does this mean for the most vulnerable group?
Because in 2022,
child poverty was at 15 % overall, but it was 22 .3 % for black children and 21 .7 % for Latino children.
It points to a fundamental power deficit.
Despite having groups lobbying for them, like the Children's Defense Fund, children lack political power simply because they cannot vote.
They can't punish politicians at the ballot box.
Man, that's heavy.
We've covered so much today.
The fiscal levers, the regulatory pendulum, the welfare state.
We have.
And you know, before we wrap up, I want to leave you, the learner, with a thought to mull over.
Go for it.
Think back to Evita Bass and her $36 ,000 in medical debt.
Consider how her personal emergency intersects with everything we just covered.
How does her individual struggle reflect the ongoing real world tension between the ideals of laissez -faire capitalism and Keynesian intervention in your own local community today?
Wow.
Yeah, that really brings the macroeconomics right down to the kitchen table.
Well, on behalf of everyone here, a warm thank you from the Last Minute Lecture Team for joining us on this deep dive.
Good luck studying, and we'll see you next time.