Data Analysis Chapter on "Public Policy Analysis"

Data Analysis Chapter 3 pages (1425 words) Sources: 3

[EXCERPT] . . . .

Public Policy

The recent financial crisis has highlighted the demise of the middle class in terms of earning power, savings, retirement, and cost of living. The once vaunted middle class in the 1960's earned "17.5% of total income," however; now that figure resides at "just 14.6% of all income, while, the top 5% captured a growing share, going from 17% in the late 1960s to 22% today" (Nutting, R. July 8, 2011). Perhaps even more disturbing is the loss of real wealth for middle class Americans, a reduction of 7.38 trillion dollars primarily in housing value, according to the Federal Reserve since the recession began in 2007 (Nutting, R. July 8, 2011.). Without the middle class the American economy has sputtered in an uneven and malaise blanketed recovery. While public policy at the federal and state level is hamstrung by deficit and debt issues, the stark reality is that some measure of relief must be implemented to middle class America if the overall economy is to gain momentum in growth. To rectify at least in part this decline of middle class America, a new policy proposal will call for subsidized retirement accounts for individuals earning under $120,000 a year and married couples under $176,000 (Your Roth IRA Guide.com. May 4, 2010).

The savings proposal identifies the critical importance of long-term saving for all earners across the economic spectrum. The intriguing aspect of this policy proposal is its targeting of subsidy for the individuals who most need assistance in growing their wealth over time but are constrained by earning power. In developing this policy the proposal utilizes the existing Roth Individual Retirement Account Model, but provides a $2,500 addition to the account by the federal government for those individual earners under $120,000 and married couples under $176,000 (Your Roth IRA Guide.com. May 4, 2010).

Briefly, the Roth IRA allows individuals to save after tax income in a designated account which at retirement can be tapped with no tax consequences on withdrawals. There are several restrictions in place which govern the Roth IRA, the first being an income limit. "Currently, it is $120,000 for individuals and $176,000 for couples. If you earn beyond those limits or your salary increases beyond those limits, you will no longer be able to contribute to a Roth" (Your Roth IRA Guide.com. May 4, 2010). Secondly, the annual contribution limit for the Roth is set at $5,000 (Your Roth IRA Guide.com. May 4, 2010).

Under the new proposal the annual cap on contributions would be unlimited allowing savers to dramatically improve their total dollars allocated for retirement. While the income caps would remain under the new proposal; the federal government would provide a $2,500 subsidy to the account on an annual basis. This subsidy though would be in the form of Treasury Inflation Protected Securities. The advantage here is that treasury debt would be held by domestic savers, government borrowing costs would be lower, and savers would have a secure investment guaranteed by the full faith and credit of the U.S. government. The ultimate question is how this policy would play in the policy arena which is currently littered with considerable high tension obturations to action?

Explicating the specifics of this proposal using the institutional model of public policy requires an understanding that decisions are not made in a vacuum. "The institutional model is based on the premise that public policy is the product of public institutions which are also responsible for its implementation" (Fox, W., Bayat, S. & Ferreira, N. 2006). The current political climate is charged with electricity from both sides of the aisle on issues from deficits, entitlements, spending, and revenues. That said policy makers in the legislative and executive branches agree that the middle class is vital to the long-run health and stability of the economy. The proposal in question allows actors from both parties to acknowledge the difficulties for middle class Americans and provides a solid remedy to ameliorate their condition.

One of the significant hurdles in drafting and subsequently implementing this legislation is the question of revenue to pay for it. In this regard the bifurcation cannot be more perspicuous; Democrats would prefer raising taxes while Republicans are starkly opposed. The solution according to the institutional model is a compromise based on closing… READ MORE

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