Midterm Flashcards
What is the difference between a confederation and a federation?
The difference between a confederation and a federation is to be found in where power resides. In a confederal system all sovereignty, authority, and responsible basically resides with the states or provinces. Thus, undervalued a confederal system like the Articles of Confederation, the states had practically all sovereignty. In contrast, federal states divide sovereignty or delegate sovereignty between different powers or different levels of government. Thus, the federal system created by the Constitutions delegates some powers exclusively to the federal government (e.g. Immigration and regulating interstate commerce) and some powers exclusively to the state governments (i.e. Whatever powers the Constitution does not reserve for the federal government and does not prohibit the states from exercising.)
What is the difference between a federal and a unitary system?
The difference between a federal system and a unitary system is that under unitary system the national government holds all the power, whereas under a federal system power (or sovereignty) is reserved to both the national government and sub-national governments. Example of Unitary system: UK. Example of federal system: US.
Constitutional arrangements for Federal and State governments
Federal governments have some exclusive powers (coining money, regulating interstate commerce, declaring war. State governments also have some exclusive powers (regulating intrastate commerce, conducting local elections, issuing licenses, education, directly taxing people (until the later amendment of this). There are also concurrent powers which state and federal governments share. These concurrent powers include setting up courts, making and enforcing laws, issuing debt, spending money).
Federal government under Articles of Confederation
Weak. Had no power to tax. No power to draft soldiers or regulate interstate or international commerce. No court system. Any ammendment required unanimous consent
What is the difference between monetary policy and fiscal policy?
Fiscal policy involves the use of taxation and government spending to influence aggregate demand in the economy. Monetary policy involves the use of interest rates, reserve requirements, etc. to influence the money supply in the economy.
The role of the President in Fiscal Policy and Monetary Policy
In Fiscal Policy: the President can informally propose legislation related to taxing and spending. the president can veto legislation with regard to taxing and spending. The president can sign legislation related to taxing and spending (if passed by both houses of Congress) into law. The president executes fiscal policy.
In Monetary policy: The President nominates the members of the Federal Reserve Board, who are confirmed by the Senate. Outside of this and applying political pressure upon the Federal Reserve, the President does not have much of a role in Monetary Policy.
The role of Congress in Fiscal Policy and Monetary Policy
Congress legislates Fiscal Policy. In order to become law, Fiscal Policies must first be introduced in Congress (tax policy must be introduced in the House) and must be passed by Congress.
Congress has relatively little power over monetary policy. That said, it is the power of the Senate to confirm members of the Federal Reserve Board. Likewise, Congress can require members of the Federal Reserve board to testify.
Reason for Government
“Makes the markets”, safeguard private property, rule of law, courts to adjudicate, legal tender w/ stable value, and stabilize the economy
Two types of government services or goods or policies
Direct: gov provides good or service itself (ie nat parks or postal service)
Indirect: government provides good or service or implements policy indirectly through things like grants to incentivize certain behaviors, tax expenditures, regulation,
Definition of Tax expenditures
Tax expenditures are reductions in a taxpayer’s tax liability that are the result of special exemptions and exclusions from taxation deductions, credits, deferrals of tax liability, or preferential tax rates… often aimed at policy goals similar to those of federal spending
What are the 6 types of tax expenditures?
Exclusions. Exemptions. Deductions. Credits. Deferrals. Preferential tax rates.
Exclusion
Excludes income that would otherwise constitute part of a taxpayer’s gross income (e.g. Employees don’t have to pay income taxes on health insurance benefits)
Exemption
Reduces the gross income for taxpayers because of their status or circumstances. E.g. Taxpayers with children who are college-aged college students may reduce their tax liability
Deduction
Reduces gross income due to expenses taxpayers incur. E.g. Deduct mortgage interest off of home or deduct some state and local taxes
Tax credit
Reduces tax liability dollar-for-dollar. Some are refundable. I.e, if you owe $500 in taxes and you have a $499 tax credit. You only have to pay $1 in taxes. Example of tax credit is the Child tax credit.
Preferential tax rate
Reduces tax rates on some forms of income (i.e. Capital gains is taxed at a lower rate than regular income)
Deferral
Delays recognition of income or accelerates some deductions otherwise attributable to future years (ex: defer paying tax on interest of certain US bonds until the bonds are redeemed)
Purpose of taxation
Raise money to fund government and/or to discourage activity
Broadbased taxes
Income tax, property tax, sales tax
Formula for calculating tax liability
Income - exemptions - exclusions - deductions= taxable income - tax credits
Problems with Tax Expenditures
The cost a lot (in terms of foregone revenue). There is relatively little oversight in terms of how effective or ineffective they are.
What kind of tax expenditure is the reduction in liability for income from s/l bonds?
Exclusion. Income from sl bonds is excluded.
Definition of excise taxes
Excise taxes are taxes paid when purchases are made on a specific good, such as gasoline.
Reasons states use excise taxes
- Consumption taxes are economically efficient … avoid economic distortions
- Income tax revenue is very volatile (consumption taxes are less cyclical, states cant borrow like feds)
- Sales taxes let you collect from no residents
- Sales and property taxes let you collect from no residents (makes tax dodging harder)
- Easy to pass
Problems with sin taxes
- Often they don’t actually discourage unhealthy behaviors (as the price of a sinful good increases, consumers often substitute an equally bad good in its place).
- Sin taxes are a bad way to raise revenue (if the goal is to raise revenue then broad based sales taxes are better)
- Primary support for sin taxes comes from those who benefit directly from them
- Sin taxes are regressive
- Sin taxes are not
Sin taxes
Taxes that are designed to reduce specific behaviors thought to be harmful to society
Types of excise taxes
User fees (e.g. Airline taxes or gas. tax) Substitutes tax (e.g. Tax on forest would tax value of land not standing timber) Yield tax (tax on the value of timber when cut down and Recording tax (property sold) Sin taxes
Externality taxes
E.g. Carbon tax… taxes on gas guzzling cars….
Export tax
Tax paid by largely, if not entirely, by non-residents (e.g. Hotel tax)
What makes a “good” tax?
Equity Simplicity Administrative ease Transparency Compliance
Congress under Articles of Confederation
Each state sent one representative
Powers to:
Make peace
Raise an army (at the will of each state)
Collect revenue (at the will of each state)
No direct power to tax
Needed full voluntary compliance of each state
Coin money
Enumerated Powers
The powers of Congress to:
Lay and collect taxes, duties, and customs
Borrow money
Regulate international and interstate commerce
Regulate rules of naturalization (immigration)
Declare war
Raise and support armies
Rules for governing armies
Appropriate money (ie determine how much money the federal government can spend and what it can spend this money on)
What states can’t do under the Constitution?
States cant coin money, make foreign treaties, impose duties
What Congress can’t do under Constitution?
Cant interfere w/ interstate commerce (ie. cant tax NC tobacco but not VA tobacco)
No money shall be draw from the Treasury without an appropriation
Can’t directly tax people (ammended by income tax ammendment)
Can’t violate writ of Habeas Corpus
Can’t pass a Bill of Attained (declaring a person or group guilty of some crime)
Can’t make ex post facto laws
Seperation of Powers in US government
Executive branch has executive power
Legislative branch has power to legislate.
Judicial branch has power to adjudicate
Bicameralism and Presentation
Bill has to pass both houses of congress and be presented to the president who can sign or veto
Examples of Checks and Balances
Bicameralism and Presentation
Congress declares war. President is commander in chief.
President negotiates treaty. Senate ratifies treaty.
Pres. appoints head. Senate approves
Pres. appoints SC judges, Senate approves
Congress passes bills. President can veto bills. Congress can override veto.
SC can adjudicate the constitutionality of federal law (assuming there is standing). Pres. appoints justices. Senate confirms.
House impeach. Senate convicts. Can remove Pres and other officials.
Definition of reserved powers
10th amendment, those powers not delegated to the United States nor prohibited to the states are the powers of the states
Examples of Reserved powers
Education. Regulating intrastate commerce. Who and when voting. Police Licensing Property rights
Definition of Sovereignty
Power that can be exercised and responsibility
Sovereignty of Federal Govt
Fed gov can enact laws derived from the delegate powers of the Constitution (the powers delegated to them by the States)
State sovereignty
States can do what they didn’t give the federal government the power to do
Expansion of Federal Government
Crux of federal power is derived from delegate powers of the constitution. Expansions of power has largely come from the necessary and proper clause (Congress has the power to make all laws which shall be necessary and property for carrying into Excution the delegated powers). At this point, whatever the SC says is ok or says is necessary and proper is Constitutional.
Dual Federalism
Dominant before 1930’s New Deal. Under Dual Federalism, power and sovereignty is very clearly and distinctly divided between the Federal government (which can do what is in the enumerated powers and little else) and State governments (which can do everything other than the enumerated powers). Also known as layer cake federalism.
Cooperative federalism
A concept of federalism, which emerged during the New Deal era, in which national and state governments interact cooperatively and collectively to solve common problems rather than making policies separately. Practically speaking, Cooperative federalism has meant the expansion of the federal government into roles reserved to the states under Dual Federalism. This is evident in federal involvement in major infrastructure, law enforcement (e.g. FBI), safety net programs, etc.
New Federalism
New Federalism is a political philosophy of devolution, or the transfer of certain powers from the federal government back to state governments. In this regard, it is a movement to return many of the federal powers assumed during New Deal and Great Society, back to the states. Rather than repealing these programs altogether, New Federalism generally tries to achieve the ends of the New Deal and the Great Society by providing states with block grants.
Grants
Grants are an expenditure of the federal government (thus, they require Congressional authorization and appropriation). Recognizing the weak fiscal position (relative to the Federal government) that the states find themselves in, the Federal government uses grants (whether categorical or block) incentivize states to abide by federal policy goals or to disincentivize non-compliance with federal policy goals.
Two ways in which Grants are used by fed gov.
Carrots and Stick. Functioning as a metaphorical carrot, grants to states give states money to do something (i.e. If states do x, the federal government will give them y). Functioning as a metaphorical stick, grants punish (in a non-coercive manner) for not doing something (i.e. If states do not do x, the federal government will take away or not give them y).
Limits on ability of Federal Government to use grants
Federal government cannot the “stick” of grants in a manner that is too burdensome on the states. “Stick” cannot be too burdensome or else it coercive and commandeering and, thus, is unconstitutional because it violates state sovereignty. Ex. Of sticks that are too coercive - The ACA’s requirement that states raise levels of Medicaid funding or else all Medicaid funding would be withheld. This was found to be too coercive and be commandeering (i.e. The federal government forcing states to pass certain laws) and thus is unconstitutional because it violates state sovereignty.
Public goods
Public goods are commodities or services provided without profit to citizens by the government. Public goods are financed by taxation and provided by government because they are non-exclusive goods and suffer from free-rider problem.
