The United States is a democratic, federal republic. It is one of the oldest functioning democracies in the world. Government in the United States is divided into 3 levels: federal, state, and local. In addition to the national government, there are 50 state governments, and over 80,000 local governments, including counties, towns, and cities.
The chief executive and head of state is a president who is elected for a 4-year term, and who may not be elected more than twice. The nation's legislature is known as the Congress and is bicameral (it has 2 chambers). The upper chamber is the Senate. There are 2 senators from each state, and they are elected for 6-year terms. The lower house is the House of Representatives, which has 435 members who serve 2-year terms. The number of representatives a state has depends on its population. For example California has 52 representatives, while states such as North Dakota, South Dakota, and Wyoming only have 1 representative because of their small populations.
Both federal and state governments have only limited impact on the economy. There are laws that establish worker safety conditions and the minimum wage as well as restrictions on hazardous products and the manner in which companies do business. Most economic policies and laws are designed to protect consumers and workers and to promote economic development. The main impact of the government, besides taxation, is the operation of such agencies as the Post Office and regulatory agencies that oversee various aspects of the economy, including the Federal Trade Commission, the Securities and Exchange Commission, and the Nuclear Regulatory Commission.
In the United States, Congress and the president control fiscal policy while a semi-independent body, the Federal Reserve Board, controls monetary policy . The members of the Federal Reserve Board are appointed by the president and confirmed by the Senate, but once in office they have almost complete freedom of action to set interest rates and take action to control the amount of money in circulation.
There are 2 main political parties in the United States. The Democratic Party is liberal and generally supports government action to address economic or social problems. The Republican Party is conservative and advocates limited government and a strong national defense. Both parties support the free market system , but Republicans tend to be more supportive of free trade at the international level. Meanwhile the Democrats tend to emphasize workers' rights and increased social spending. Republicans controlled the presidency and the House of Representatives after the 2000 elections (in which George W. Bush was elected president) while the Democrats had a slim majority in the Senate.
The United States has an independent judiciary and a dual court system in which there are both federal and state courts. The highest court is the federal Supreme Court, whose 9 judges are appointed for life by the president. Each state also has a supreme court for state matters. The American court system is often the final arbiter for economic disputes. Consumers use the court system to get compensation for faulty products or service and to stop unfair business practices. Businesses and governments use the courts to settle disputes and enforce laws. For instance, the courts have been used to break up monopolies .
The nation's tax rate is low when compared with other industrialized nations. However, there are wide variations in taxation since the individual states also tax citizens. For instance, Arkansas, Florida, New Hampshire, South Dakota, Washington, and Wyoming do not have state income taxes , while other states, such as Ohio or California, have income taxes as high as 10 percent of earnings.
In 2000, the federal government's revenues were about $1.9 trillion and it spent about $1.75 trillion. The result was a $115 billion budget surplus . In the same year, state governments collected $500 billion in revenues and spent $800 billion (most of the $300 billion in excess spending was provided by the federal government). On the federal level, 47.8 percent of revenues came from individual income taxes. The tax rates ranged from 15 percent to 39.6 percent of income. Other sources of revenue were corporate taxes at 10.1 percent, social security taxes at 33.8 percent, and excise taxes (in the United States, these are taxes on goods such as gasoline and cigarettes) at 3.7 percent. There were also small amounts from gift and estate taxes and customs duties . The main government expenditures were social security ($408.6 billion), welfare programs ($274.6 billion), national defense ($274.1 billion), Medicare ($216.6 billion), and interest on the national debt ($215.2 billion). In 2000, the national debt was $5.7 trillion, or 67 percent of GDP. This is higher than the average for industrialized nations and payments on the large debt take an enormous amount of money out of the economy.
The American military influences the economy in an indirect way. The size of the nation's military and its needs for equipment and supplies have created a military-industrial complex (a series of deep relationships between the military and companies that provide services and equipment for national defense). This military-industrial complex has resulted in a number of multi-billion dollar companies that develop and sell expensive equipment to the military including naval ships and submarines, fighter aircraft, missiles, tanks, and other equipment. In 1999 alone, the federal government spent $48.9 billion to acquire new weapons.