Chapter 2: The Public Sector

Republican Actions on IRS

• 2023: Republican lawmakers cut IRS funding.
• IRS collects taxes and enforces tax laws in the US.
• Historical Republican opposition to IRS due to desire for smaller government and lower taxes.
  • Involvement in Affordable Care Act (2010) and targeting conservative groups (2013) increased tensions.
  • Budget cuts in 2014 led by Republicans, reduction of $1 billion since 2010.
• IRS workforce declined from 90K in 2012 to less than 75K by 2021.
• Operating costs decreased but saw uptick in 2020-2021.

Calls to Abolish IRS

• 2015: Senator Ted Cruz called IRS "fundamentally corrupt," supported by GOP petition.
• 2016: Republican Study Committee proposed "complete elimination of the IRS."
• Trump presidency maintained IRS budget at low levels.
• IRS seen as unpopular due to tax collection and enforcement.

IRS and Revenue Collection

• IRS workforce: 78,000 (down from 116,000 in 1992).
• Each $1 spent on IRS brings in about $7 in revenue.
• IRS struggles with reduced capacity; fewer audits, calls answered, and investigations.
• Example: $50 million recovered from foreign companies in Gulf of Mexico, but program cut due to budget.

Public and Private Sector Distinctions

• Public sector provides essential services, funded by government resources.
• Functions include law enforcement, national security, economic management, social welfare, etc.
• Calls to reduce size of government are common but size hasn't increased proportionally since 1950s.
• Government work often contracted out due to employment caps.

Government Employment

• Federal workforce stable at ~2.9 million civilian employees.
• Whitten Cap (1950) influenced employment limits.
• Private sector contracts and grants help manage increased responsibilities.
• 9 million federal employees when including indirect roles.

Daily Interactions with Government

• Numerous daily interactions with government services, from time setting to postal delivery.
• Infrastructure, health, safety, and education largely handled by government entities.
• Public goods and services funded by taxpayers.

Government Spending and Structure

• US government size in terms of GDP and workforce is smaller compared to other nations.
• Multiple levels of government: federal, state, and local.
• Special purpose governments exist for specific functions (e.g., water management).
• Mixed economy with elements of capitalism and socialism.

Market Failures and Government Role

• Market failures: externalities, market power, asymmetric information.
• Negative externalities like pollution necessitate regulation.
• Positive externalities like defense require public funding due to free-rider problem.
• Mixed economy ensures government intervention in cases of market failure.

Public vs. Private Sector Differences

• Scale: Public sector larger in scope, manages broader societal needs vs. private sector's profit-driven focus.
• Goals: Public sector focuses on public welfare, private sector on profit.
• Governance: Public sector governed by democratic accountability, private sector driven by market dynamics.
• Funding: Public funded by taxes, private by capital investments.
• Management: Public sector follows hierarchical structures, private sector is more flexible and competitive.
• Human Resources: Public focuses on public service, private focuses on profitability and competition.

Summary

• Public sector crucial for governance, maintaining law and order, economic regulation, national security, and democratic governance.
• Public employees central to delivering essential services and ensuring democratic principles.
• Understanding public sector roles and employee contributions vital for effective policy-making.