Monetary and fiscal policy are the main tools the federal government uses to maintain and sustain American capitalism, the former being carried out by the Federal Reserve. Meanwhile, fiscal tax-and-spend policy includes discretionary and mandatory spending on programs designed to tackle a number of challenges. Various analysts have characterized the federal government as “an insurance company with an army” because of the nature of government spending priorities. That is, most mandatory spending goes to large social insurance programs like Social Security and Medicare, while the lion’s share of discretionary spending goes to the military.
On the tax side of things, considerable debate has focused on the reduction of taxes on the wealthy and corporations over the last few decades. Whereas the top tax bracket never dropped below a 70 percent tax on the highest incomes (and sometimes reached above 90 percent) during the three decades following WWII, taxes on top earners have been cut to around half that rate during the last thirty years, with the resulting loss in revenue leading to growing public debt and higher state and local taxes.
Social Security and Medicare—benefiting mostly the elderly—stand as the largest social welfare programs, which is not what most think when they consider welfare spending. Aid to the poor actually represents substantially less than many assume. Also, a sizable amount of welfare gets funneled through the system in the form of tax breaks, mostly benefiting middle- and upper-class Americans, who may not register that they are receiving significant help through breaks such as the home mortgage interest deduction.
The Affordable Care Act—also known as “Obamacare”—is the latest addition to the social safety net. While the reach of the law has been blunted by the Supreme Court, evidence thus far suggests that Obamacare has rapidly increased the percentage of Americans with access to health insurance while slowing the rise in medical costs— two major policy successes.
There are numerous economic challenges that face the nation, but the national debt is not one of them—despite considerable media attention on the issue. Instead, putting people back to work in the wake of the Great Recession and addressing rising inequality and its consequences remain the most serious challenges.
In the foreign policy arena, America’s interaction with the rest of the world is driven by a multitude of interests. As a great power, the nation’s foreign policy does not always align well with professed ideals.
Lastly, environmental challenges have emerged as perhaps the largest and most serious issue facing the nation during the first decades of the twenty-first century, with climate change representing the most pressing of policy issues moving forward.