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President Barack Obama has established a broad policy of engagement as a central feature of his administration’s foreign policy agenda. From the earliest days of his presidency, the president has reached out to Iran, Russia and other nations around the world, marking not only a turning of the page but possibly a whole new chapter in U.S. foreign policy. While Europeans have advocated for increased bi-lateral and multi-lateral dialogue for some time, several important questions remain. With which nations or groups should the United States and Europe engage and should there be limits to dialogue in some cases? What are the consequences if dialogue fails? Do Europeans and Americans now have the same agenda and goals for engagement?

On May 29, the Center on the United States and Europe at Brookings (CUSE) will host experts and officials from both sides of the Atlantic for the 2009 CUSE Annual Conference to address these issues. Panelists will examine the prospect of engagement with Iran and Russia, and how to deal with groups such as Hamas and the Taliban. After each panel, participants will take audience questions.

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With a U.S. Administration still popular across Europe and a new Lisbon Treaty designed to enhance the diplomatic reach of the European Union, transatlantic relations should now be at their best in years. But this is clearly not the case, with the strategic partners often looking in opposite directions. While the United States channels its foreign policy attention on the war in Afghanistan, counterterrorism and nuclear non-proliferation, Europe is turning inward. Despite its ambitions, the European Union has yet to achieve the great global role to which it aspires, or to be the global partner that Washington seeks. Moreover, the Greek financial crisis has raised questions about the very survival of the European project.

On June 2, the Center on the United States and Europe (CUSE) at Brookings and the Heinrich Böll Foundation hosted experts and top officials from both sides of the Atlantic for the 2010 CUSE Annual Conference. Panelists explored critical issues shaping the future of transatlantic relations in the post-Lisbon Treaty era, including Europe’s Eastern neighborhood and the role Russia plays, and the impact of the Eurozone crisis.

After each panel, participants took audience questions.

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• From the Lisbon Treaty to the Eurozone Crisis: A New Beginning or the Unraveling of Europe?
• From the Lisbon Treaty to the Eurozone Crisis: A New Beginning or the Unraveling of Europe?
• From the Lisbon Treaty to the Eurozone Crisis: A New Beginning or the Unraveling of Europe?

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Gary Burtless, a senior fellow in Economic Studies, explains new research on the growing longevity gap between high-income and low-income Americans, especially among the aged.

“Life expectancy difference of low income workers, middle income workers, and high income workers has been increasing over time,” Burtless says. “For people born in 1920 their life expectancy was not as long typically as the life expectancy of people who were born in 1940. But those gains between those two birth years were very unequally distributed if we compare people with low mid-career earnings and people with high mid-career earnings.” Burtless also discusses retirement trends among the educated and non-educated, income inequality among different age groups, and how these trends affect early or late retirement rates.

Also stay tuned for our regular economic update with David Wessel, who also looks at the new research and offers his thoughts on what it means for Social Security.

Show Notes

Later retirement, inequality and old age, and the growing gap in longevity between rich and poor

Disparity in Life Spans of the Rich and the Poor Is Growing

Subscribe to the Brookings Cafeteria on iTunes, listen on Stitcher, and send feedback email to BCP@Brookings.edu.

       

MEDIA RELEASE

Low-Income Boys in Higher Inequality Areas Drop Out of School More Often than Low-Income Boys in Lower Inequality Areas, Limiting Social Mobility, New Brookings Paper Finds
“Economic despair” may contribute if those at the bottom do not believe they have the ability to achieve middle class status

Greater income gaps between those at the bottom and middle of the income distribution lead low-income boys to drop out of high school more often than their counterparts in lower inequality areas, suggesting that there is an important link between income inequality and reduced rates of upward mobility, according to a new paper presented today at the Brookings Panel on Activity. The finding has implications for social policy, implying a need for interventions that focus on bolstering low-income adolescents' perceptions of what they could achieve in life.

In “Income Inequality, Social Mobility, and the Decision to Drop Out Of High School,” Brookings Nonresident Senior Fellow and University of Maryland economics professor Melissa S. Kearney and Wellesley economics professor Phillip B. Levine propose a channel through which income inequality might lead to less upward mobility—often assumed to be the case but not yet fully proven. The conventional thinking among economists is that income inequality provides incentives for individuals to invest more in order to achieve the higher income position in society, but Kearney and Levine observe that if low-income youth view middle-class life as out of reach, they might decide to invest less in their own economic future.

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See an interactive map of inequality by state, plus more findings »

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The authors focus on income inequality in the lower half of the income distribution, as measured by income gaps between the 10th and 50th percentiles of the income distribution rather than income gaps between the the top and bottom of the income distribution, which has been more of a focus in popular culture. They show this "lower-tail" inequality is more relevant to the lives of poor youth because the middle is a more realistic ambition. Furthermore, their research could reconcile a puzzle: social mobility does not appear to be falling, despite the rise in income inequality. But, as Kearney and Levine point out, U.S. income inequality has been rising because the top of the distribution has been pulling away from the middle, not because the bottom is falling farther behind the middle.

The authors look specifically at high school drop-out rates through a geographic lens, noting the link between highly variable rates of high school completion and income inequality across the country. One-quarter or more of those who start high school in the higher inequality states of Louisiana, Mississippi, Georgia, and the District Columbia fail to graduate in a four-year period, as compared to only around 10 percent in Vermont, Wisconsin, North Dakota, and Nebraska—lower inequality states. Their econometric analysis goes on to show that low-income youth—boys in particular—are 4.1 percentage points more likely to drop out of high school by age 20 if they live in a high-inequality location relative to those who live in a low-inequality location.

Kearney and Levine examine a number of potential explanations for this link, including differences in educational inputs, poverty rates, demographic composition, and other factors. Ultimately, the evidence suggests that there is something specific about areas with greater income gaps that lead low-income boys there to drop out of school at higher rates than low-income boys elsewhere. The authors' research suggests that adolescents make educational decisions based on their perceived returns to investing in their educational development: a greater distance to climb to get to the middle of the income distribution could lead to a sense that economic success is unlikely—what they term “economic despair.”

"Income inequality can negatively affect the perceived returns to investment in education from the perspective of an economically disadvantaged adolescent,” they write. “Perceptions beget perceptions."

Digging into reasons students themselves give for dropping out, they find that low-income students from more unequal places are more likely to give up on their educational pursuits. Surprisingly, survey evidence shows that academic performance does not have as large an impact on low-income students in high inequality states: 51 percent of dropouts in the least unequal states reported that they dropped out because they were performing poorly, as compared to only 21 percent of students who dropped out in the most unequal states.

The finding suggests that economic despair could play an important role: if a student perceives a lower benefit to remaining in school, then he or she will choose to drop out at a lower threshold of academic difficulty. They also note that while the wage premium of completing high school should reduce the dropout rate, household income inequality has an offsetting negative effect.

The choice between staying in school and dropping out may reflect actual or perceived differences from the benefits of graduating. For instance, the authors note their past research showing that youth from low-income households who grow up in high lower-tail inequality states face lifetime incomes that are over 30 percent lower than similar children in lower inequality states. They also highlight other research showing that the overwhelming majority of 9th graders aspire to go to college, but by 11th grade, low-SES students are substantially less likely to expect they will enroll in college, even among those students with high test scores.

"There are important policy implications for what types of programs are needed to improve the economic trajectory of children from low-SES backgrounds," they write. "Successful interventions would focus on giving low income youth reasons to believe they have the opportunity to succeed. Such interventions could focus on expanded opportunities that would improve the actual return to staying in school, but they could also focus on improving perceptions by giving low-income students a reason to believe they can be the "college-going type." For example, interventions might take the form of mentoring programs that connect youth with successful adult mentors and school and community programs that focus on establishing high expectations and providing pathways to graduation. They could also take the form of early-childhood parenting programs that work with parents to create more nurturing home environments to build self-esteem and engender positive behaviors."

Read the full paper from Kearney and Levine here »

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• How “economic despair” affects high school graduation rates for America’s poorest students

       

There is a lively debate today over whether or not campaign finance reforms have weakened the role of political parties in campaigns. This seems an odd argument in an era of historically high levels of party loyalty — on roll calls in Congress and voting in the electorate. Are parties too strong and unified or too weak and fragmented? Have they been marginalized in the financing of elections or is their role at least as strong as it has ever been? Does the party role in campaign finance (weak or strong) materially shape the capacity to govern?

In addition, the increasing involvement in presidential and congressional campaigns of large donors – especially through Super PACs and politically-active nonprofit organizations – has raised serious concerns about whether the super-wealthy are buying American democracy. Ideologically-based outside groups financed by wealthy donors appear to be sharpening partisan differences and resisting efforts to forge agreement across parties. Many reformers have advocated steps to increase the number of small donors to balance the influence of the wealthy. But some scholars have found evidence suggesting that small donors are more polarizing than large donors. Can that be true? If so, are there channels other than the ideological positioning of the parties through which small donors might play a more constructive role in our democracy?

In this paper, Thomas Mann and Anthony Corrado attempt to shed light on both of these disputed features of our campaign finance system and then assess whether campaign finance reform offers promise for reducing polarization and strengthening American democracy. They conclude that not only is campaign finance reform a weak tool for depolarizing American political parties, but some break in the party wars is probably a prerequisite to any serious pushback to the broader deregulation of campaign finance now underway.

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The Supreme Court’s recent McCutcheon decision has reinvigorated the discussion on how campaign finance affects American democracy. Seeking to dissect the complex relationship between political parties, partisan polarization, and campaign finance, Tom Mann and Anthony Corrado’s new paper on Party Polarization and Campaign Finance reviews the landscape of hard and soft money in federal elections and asks whether campaign finance reform can abate polarization and strengthen governing capacity in the United States. The paper tackles two popular contentions within the campaign finance debate: First, has campaign finance reform altered the role of political parties as election financiers and therefore undermined deal making and pragmatism? Second, would a change in the composition of small and large individual donors decrease polarization in the parties?

The Role of Political Parties in Campaign Finance

Political parties have witnessed a number of shifts in their campaign finance role, including McCain-Feingold’s ban on party soft money in 2002. This has led many to ask if the breakdown in compromise and governance and the rise of polarization has come about because parties have lost the power to finance elections. To assess that claim, the authors track the amount of money crossing national and state party books as an indicator of party strength. The empirical evidence shows no significant decrease in party strength post 2002 and holds that “both parties have compensated for the loss of soft money with hard money receipts.” In fact, the parties have upped their spending on congressional candidates more than six-fold since 1980. Despite the ban on soft money, the parties remain major players in federal elections.

Large and Small Donors in National Campaigns

Mann and Corrado turn to non-party money and survey the universe of individual donors to evaluate “whether small, large or mega-donors are most likely to fuel or diminish the polarization that increasingly defines the political landscape.” The authors map the size and shape of individual giving and confront the concern that Super PACs, politically active nonprofits, and the super-wealthy are buying out American democracy. They ask: would a healthier mix of small and large donors reduce radicalization and balance out asymmetric polarization between the parties? The evidence suggests that increasing the role of small donors would have little effect on partisan polarization in either direction because small donors tend to be highly polarized. Although Mann and Corrado note that a healthier mix would champion democratic ideals like civic participation and equality of voice.

Taking both points together, Mann and Corrado find that campaign finance reform is insufficient for depolarizing the parties and improving governing capacity. They argue forcefully that polarization emerges from a broader political and partisan problem. Ultimately, they assert that, “some break in the party wars is probably a prerequisite to any serious pushback to the broader deregulation of campaign finance now underway.”

Click to read Mann and Corrado’s full paper, Party Polarization and Campaign Finance.

      

Tom Mann and Anthony Corrado recently argued that campaign finance reform will likely have little effect on political polarization. Their new paper has sparked a host of debate over campaign finance, the strength of parties, and the ideological motivations of donors. Today, the Monkey Cage blog hosted Mann and Corrado’s response to a critique from Ray LaRaja and Brian Schaffner.

LaRaja and Schaffner argue that pumping more funding to parties and changing the rules to facilitate that practice will provide a respite from polarization; to argue their point, they examine polarization at the state legislative level. In their response, Mann and Corrado argue that the critique is off point, noting that “no causal link to campaign finance laws (and polarization) is demonstrated.” Ultimately, Mann and Corrado explain: “The link between party financial practices and regulatory regimes is often a matter of strategy than law, and the evidence offered in their (LaRaja and Schaffner) response certainly falls well short of making a case that greater party resources would reduce the polarization that undermines the capacity to govern.”

For more on this debate:

Read Mann and Corrado’s paper, “Party Polarization and Campaign Finance”

Read LaRaja and Schaffner’s critique, “Want to reduce polarization? Give Parties Money”

Read Mann and Corrado’s response, “Don’t expect campaign finance reform to reduce polarization”

And check out some other great research on Washington Post’s Monkey Cage Blog

      

Editor's Note: As part of the 2014 Midterm Elections Series, Brookings scholars and outside experts will weigh in on issues that are central to this year's campaigns, how the candidates are engaging those topics, and what will shape policy for the next two years.

Since the Citizens United decision, political spending by outside groups has been shaping voters’ opinions before Election Day and public policy afterwards.  Spending patterns that began after the 2010 decision will continue during the upcoming midterms: nonparty, outside spending will flow through two distinct pipelines—super PACs and politically active nonprofits. This time around there seems to be a partisan split to the spending, with Democrats leaning towards super PACs and Republicans relying more on dark money nonprofits. But whichever tool is used to funnel money into competitive races, imperfect or non-existent disclosure rules leave voters unable to determine whether access and influence is being sold to highest bidder.

Shining a brighter light on super PAC and nonprofit campaign spending would not cleanse the system of all of its corrupting influences, but it would help to restore citizens’ trust in government by eliminating the secrecy that makes voters believe their elected officials have something to hide. More disclosure would also result in the equally important outcome of demonstrating that government trusts us, its citizens, with information about how the influence industry works.   

When Thomas Jefferson wrote, “Whenever the people are well-informed, they can be trusted with their own government...whenever things get so far wrong as to attract their notice, they may be relied on to set them to rights,” he certainly could not have conceived of secret money’s impact on elections and policy-making. But every year that goes by with Congress failing to address secret campaign spending challenges the founding father’s time-tested wisdom.

When the Supreme Court decided Citizens United, it was either willfully blind or sorely naïve about the state of political finance disclosure. Justice Kennedy swept aside concerns about the corrupting influence of unlimited political spending by claiming that, “With the advent of the Internet, prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions. . . This transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages.”

Unfortunately, no such prompt disclosure existed at the time, nor has Congress been able to pass any improvements to the transparency regime since then. In the case of super PACs, while information about donors must eventually be disclosed to the Federal Election Commission (FEC), disclosures can be delayed by up to three months.  This is not an inconsequential delay, especially when contributions come are in the multi-million dollar range.

There is even less disclosure by politically active nonprofits.  Their overall expenditures are only disclosed after the election in annual reports filed with the Internal Revenue Service (IRS). The donors to dark money groups may never be known, as the law does not require the names of donors to such groups to be disclosed. Yet more than 55 percent of advertising has been paid for by dark money groups, and 80 percent advertising benefitting Republican candidates has been paid for with undisclosed funds according to the New York Times. 

Congress and the executive branch have no shortage of methods to make money in politics more transparent, but have so far failed to demonstrate they respect voters enough to entrust us with that information.  The Real Time Transparency Act (S. 2207, H.R. 4442) would ensure that contributions of $1000 or more to candidates, parties and PACs, including super PACs, are disclosed within 48 hours. It would also require electronic filing of campaign finance reports.  The DISCLOSE Act, S. 2516, would disclose contributors to political nonprofits entrusting voters with information that currently is only known to the candidates who may benefit from dark money contributions. 

Affirmative congressional action would be the strongest signal that government trusts its citizens, but executive branch agencies can also take important steps to make political finance information more transparent. The IRS is in the process of reforming rules to better clarify when a nonprofit is a political organization and thus must disclose its donors.  The Securities and Exchange Commission can likewise modify its rules to require publicly traded companies to disclose their political activities.

Many large donors have gone to great lengths to take their political activities underground, claiming they fear attacks in the form of criticism or boycotts of their companies.  But just as participating in the political process through contributing to election efforts is an expression of free speech, so is criticizing such efforts.  Yet until campaign finance information is fully and quickly made public, the first amendment rights of voters and their ability to participate fully in our democracy are drastically shortchanged.

      

It is no secret that American elections are getting wildly expensive. If you are unlucky enough to live in a swing state or a state with a competitive race for US House, US Senate or Governor, you know that every even numbered year means frequent phone calls, a barrage of campaign mail, and endless television ads. Candidates want your vote, and sometimes it seems their strategy is to annoy the average voter into turning out to the polls.

However, beyond direct candidate appeals, outside groups are now spending heavily on competitive races of all types. Many statewide campaigns now cost tens of millions of dollars, and interest groups, PACs, and other organizations are ponying up with substantial sums to try to reach voters and do one of two things. They either try to convince you one candidate deserves your vote or dissuade you from voting for the other candidate.

How much money is flowing into races beyond what candidates themselves spend? The answer is staggering. Below we profile the 20 most expensive Senate races since 2010 in terms of independent expenditures. The chart shows not only how expensive races are, but the extent to which outside groups seek to influence electoral outcomes.  

This chart shows that races are getting more expensive. Among these races, only two (Colorado and Pennsylvania) are from 2010. Half (10) of the races are being waged this cycle, and even though data are updated through Sunday, the totals are certain to rise. Those ten races alone have totaled over $435 million in spending in those states.

The totals provide a small picture into the magnitude of money in American politics. The totals exclude direct candidate spending and spending by other, outside groups not subject to as rigorous FEC disclosure requirements.

As campaigns continue to become more expensive and outside groups see participation in elections as a path toward influencing outcomes of both races and policy, there is one political certainty: over the next two to four years, many of the campaigns on this list will be displaced by future, more expensive campaigns for the Senate.

      

One of the fundamental arguments in the “Political Realism” debate is whether or not strong political parties could make government work better. One way to assess party strength is to look at how much money parties can raise and spend.

In this vein, political scientists Ray LaRaja and Brian Schaffner have claimed that removing limits on party funding activity would make politics less polarized. I’ve been skeptical of this claim. In fact, in a short analysis, I found that the opposite is more likely the case—that states with limits on party fundraising appear to be less polarized, though I cautioned against inferring too much from this pattern.

LaRaja and Schaffner have now responded and previewed their forthcoming book, Campaign Finance and Political Polarization: When Purists Prevail, which will be out this fall from the University of Michigan Press. So, a response to their response is now in order.

I’ll start by granting a point of agreement: LaRaja and Schaffner note that I didn’t re-produce their analysis. I didn’t do this because, based on what they’ve written, it’s not clear exactly which states they consider to be “Parties Unlimited” and “Parties Limited” states. So, until they make their list public, it will be impossible to conduct a precise replication of their analysis.

The good news is they’ve promised to make their data public in the future. As they write in their recent post, “we will be posting all the data necessary to replicate (and challenge) our results upon publication of our book this fall, and we look forward to seeing what others find when they dig into the data.” They also note in their analysis that “11 states changed their laws on party limits during the period of our study (1993-2012).” Assembling this list, they note, was “possibly the most painstaking work we did on this book.” For now, their list of changes remains a well-kept secret, though the changes appear to be driving their analysis. So it will be good when all the relevant data and categorization choices are clear and on the table.

A lot depends on which states fall into which categories. But, there is a more fundamental question: does it make sense to dichotomize states into “Parties Unlimited” and “Parties Limited” states? States with limits vary considerably. Some states limit the money into parties, but allow unlimited flows to candidates; some states allow unlimited money into parties, but limit money from parties to candidates. Some limits are high, some are low. Some have exceptions for party-building activities. Rules vary between primary and general elections, as well.

Consider California. There are limits on how much parties can raise from individuals, but those limits are quite high (they are now at $35,200), and also only cover the party accounts that go to state candidates (so, for example, ballot measures are exempt or general party activities are exempted). California also has no limits on how much parties can transfer to candidates. So should California be a “limits” or “no limits” state? California also has the most polarized legislature, as measured by the distance between party medians. Depending on how you choose to classify states, you can get very different results, especially when you are only working with 20 states (LaRaja and Schaffner limit their claims to the 20 states with the most professionalized legislatures, as per the Squire Index).

LaRaja and Schaffner’s response presents a time series regression model to “calculate the predicted level of polarization over time in a state that limited party fundraising … and spending to on where those limits were removed.” But if states that removed limits became less polarized following the removal of those limits, why not tell us what those states were, and report the actual polarization trends in the states? Put another way: Why rely on model predictions when there are real world data? Grounding this debate in the trajectories of actual states would lend some realism to the claims. Then we could debate examples.

For example, as Thomas Mann and E.J. Dionne note in a recent Brookings paper, two of the states with no limits are Texas and North Carolina. As Mann and Dionne write, “The behavior of their legislatures in recent years cannot, on any plausible definition, be described as 'moderate.'” However, neither Texas nor North Carolina shows up as excessively polarized when polarization is merely a measure of voting patterns. Moreover, if parties are so pragmatic, why did the North Carolina Republican Party (which could raise and spend unlimited sums of money) fail to stop a takeover by multi-millionaire right-wing extremist Art Pope?

This takes us to questions of how party leaders actually behave. LaRaja and Shaffner show evidence in their response that parties give more money to moderate incumbents than to extreme incumbents. This should not be surprising. Presumably, moderate incumbents are more likely to be in competitive races, since moderates are more likely to represent competitive districts.

The more relevant question is what types of candidates parties recruit. Thankfully, we have answers to this courtesy of excellent work by David Broockman, Nicholas Carnes, Melody Crowder-Meyer, and Christopher Skovron, who surveyed 6,000 county-level political party leaders. They found that, “party leaders…use their influence to discourage moderates from seeking office: they strongly prefer candidates at least as ideologically polarized as their median party member. Republican party leaders show this preference especially.”

Their findings also reinforce something that should be apparent to students of polarization—that polarization is asymmetric. Republicans have moved far to the right. Democrats have mostly stayed in place. Let me quote Broockman et al.’s paper at further length, because the findings are extremely relevant to this debate:

“Republicans are much more likely to, unprompted, mention ideology as an important factor for candidates. Our evidence suggests that not only do Republicans care more about ideology, it is also readily accessible when they think of candidate recruitment. It seems likely, then, that Republicans are much more active in recruiting ideologically polarized candidates than Democrats are.”

“Democratic chairs are most inclined to support candidates who are middle-of-the-road or slightly left with respect to the party, while Republicans prefer candidates who espouse an ideology matching or more conservative than their party. In fact, while Democratic chairs are less likely to support very liberal candidates than those nearer to their party average, Republican chairs seem to give very conservative primary candidates the same boost that Democrats give to moderates.”

This does suggest that perhaps giving parties more money and therefore more control over candidates would produce moderation in blue states, but exacerbate polarization in red states. Unfortunately, there is nothing in LaRaja and Schaffner’s analysis that addresses this possibility.

The importance of recruitment also suggests that what we really want to know is who controls the actual recruitment mechanisms in the first place. It’s possible that states with limits might have strong party recruitment mechanisms. If what we really care about is the strength of party machines, why not try to measure that more directly?

LaRaja and Schaffner seem to envision parties being run by hard-headed pragmatists who can determine outcomes with money alone. They seem to assume that if parties can get billionaires to fund them, this will enable party leaders to support more moderate candidates. They seem to ignore that the billionaires may have a few ideas of their own about how they think government should be run (see, e.g. North Carolina).

This gets to a final point, about whether we ought to care if parties rely on small or large donors. LaRaja and Schaffner dismiss the case for small donors, noting that: “the endless romanticizing of small donors as being emblematic of American voters has no empirical grounding.” They go on to note that the ideological distribution of small donors and the ideological distribution of large donors “are nearly identical,” and therefore, “[p]utting more emphasis on ideological small donors may even make our politics worse as politicians streamline their messages to cater to this minority of individuals with more extreme views.”

Let’s grant that large and small donors have the same ideological distribution. If there is no difference, then there’s no reason to think that relying more on small donors would make politics any more extreme. However, since there are many more small donors than there are large donors, a small-donor matching system would allow less extreme candidates the ability to seek out less extreme donors from a larger population of potential donors. We know large donors are polarized, so relying more heavily on them doesn’t give parties much room to moderate. Of course, this presumes that large donors want to shape party positions. But that seems a safe bet.

There are also good (small-d) democratic reasons to support small-donor programs: they bring more participants into the political process; they orient politicians to think differently about whom they represent, and they probably make politics an attractive profession for a broader set of potential candidates. I’d even trade off some polarization for a small donor system. Fortunately, based on their data, it doesn’t appear that I’d even have to.

Finally, and perhaps most importantly, polarization is a function of many, many things, and it’s hard to imagine how changing limits on what parties can raise and spend would have much of an influence given the many other factors. Consider this thoughtful systems map developed by the Hewlett Foundation to analyze American politics as a system: it describes multiple factors that might influence levels of polarization. Systems thinking warns us to be careful of putting too much focus on a single point of leverage without thinking about the larger systems dynamics. This is why many reform skeptics are cautious about unintended consequences—thinking about a single variable in the absence of a larger context usually has unexpected results.

Moreover, as Mann and Dionne explain, we need to be cautious of applying lessons from the states to Washington:

"The gridlock in Washington is a consequence of the ideological polarization of the parties buttressed by vast party networks, their strategic opposition to one another throughout the legislative process fueled by the intense competition for control of the White House and Congress, the prevalence of divided party government, and the asymmetry between the parties that leads Republicans to eschew negotiation and compromise."

"The situation in the states is dramatically different. Most now have unified party governments, and gridlock is the exception, not the rule. There is little evidence of moderation in the Republican- controlled states, whatever their campaign finance laws."

I’m sure we will continue this debate for many months to come, especially after the publication of Campaign Finance and Political Polarization: When Purists Prevail this fall. I’m glad that LaRaja and Schaffner are bringing valuable data to this important question. It’s certainly far from settled.

       

The use of economic resources to support election campaigns is an essential ingredient of democratic competition. Often viewed as a malady of democracy, campaign finance is actually part of the normal workings of democratic life. However, it is indisputable that money is capable of inflicting significant distortions on politics and policymaking. When there is a failure to regulate money in the political process or existing regulation is ineffectual, the legitimacy of democratic processes can be jeopardized.

These concerns are particularly relevant to Latin America, a region plagued by a highly unequal income distribution, and where organized crime has a major presence, transacts billions of dollars each year in illicit business, and has the potential to corrupt democratic institutions. In this policy brief, Kevin Casas-Zamora and Daniel Zovatto offer practical guidance for making campaign finance regulation feasible and increasing its likelihood of success. In undertaking reform, countries should prioritize the most urgently needed changes with the broadest political consensus. Proposals for reform include:

• Establish greater control over private funding of parties and election campaigns;

• Create a public subsidy system to ensure fair access for parties and candidates to adequate funding to finance both regular day-to-day operations and election campaigns;

• Adopt mechanisms to keep campaign spending from skyrocketing;

• Craft party and candidate reporting systems to increase accountability, transparency, and disclosure; and

• Establish a graduated and credible system of sanctions for the chief financial officers of political parties in the event of violations of the rules in force.

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• The cost of democracy: Campaign finance in Latin America

       

Editor’s Note: This post was originally published by the Institute of Governmental Studies. Thomas Mann is also Resident Scholar at IGS.

Donald Trump and the Amen chorus of Republican presidential aspirants may have appeared to monopolize the capacity to make fantastical claims about what’s wrong with America and how to fix it. But a rival has appeared on the scene, outlining a very different fantasy plan to run for president on the Democratic side of the aisle.

Harvard law professor Lawrence Lessig looks meek—a dead ringer for Mr. Peepers—yet is anything but. Lessig built an impressive career in legal scholarship on the regulation of cyberspace, and the mild-mannered, soft-spoken academic became a cult hero among libertarians fearful of increasing legal restrictions on copyright, trademark and the electromagnetic spectrum. But Lessig’s transformation into a political activist was spurred by his personal revelation that money in politics is the root of all our governing problems. Eliminate the dependence of elected officials on private donors and the formidable obstacles to constructive policymaking will crumble. Simple but searing truth, or a caricature of a complex governing system shaped by institutions, ideas/ideologies, and interests?

Lessig became a whirlwind of energy and organization to promote his new values and beliefs, leading efforts to “Change Congress,” convene a second constitutional convention, raise awareness of corruption in politics through the “New Hampshire Rebellion,” and start the “Mayday PAC,” a super PAC designed to end all super PACs. He wrote the bestselling book Republic, Lost: How Money Corrupts Congress—and A Plan to Stop It, delivered a series of popular TED talks, and tirelessly traveled the country with his PowerPoint.

With none of these enterprises yet bearing fruit, Lessig has decided to raise the stakes. He has announced that if he receives $1 million from small donors by September, he will seek the Democratic presidential nomination, running as a “referendum candidate.” His single-issue platform, built around the concept of “Citizen Equality,” consists of “true” campaign finance reform supplemented by electoral reform (to weaken the influence of gerrymandering) and voting rights. His goal is to use the election to build a mandate for political reform that will cure our democratic ills. Lessig will apparently have nothing to say about anything other than political reform, insisting that his issue should be and can be the number one priority of voters in the 2016 elections. If nominated and elected, President Lessig will serve in office only long enough to enact the Citizen Equality Act and then resign, turning over the powers and responsibilities of the office to the vice president. Recently he generously informed the Vice President that he would happily enable a third Joe Biden term by selecting him as his running mate.

The hubris of the Harvard Professor is breathtaking. In virtually every respect, his strategy is absurd. Lessig’s political reform agenda is stymied by Republicans, not Democrats. Why not direct his energies where the opposition resides? All of the current Democratic presidential candidates support the thrust of these reforms. But saying that this is their highest priority is likely to harm, not boost, their candidacies. Why would even the most ardent supporter of the three pillars of Lessig’s reform agenda cast a ballot solely on this basis? Big and important issues divide the two parties today and the stakes of public action or inaction are huge. We don’t have the luxury of using the election to try to build a mandate for a set of political reforms that would have no chance of passing in the face of GOP opposition and would be of only incremental utility if they did.

Campaign finance does play a corrosive role in our democracy and I have invested much of my career grappling with it. There is no doubt that money in elections facilitates the transfer of economic inequality into political inequality, and the spectacle of several hundred plutocrats dominating the finance of our elections should be a target of serious reform efforts in the courts and the Congress. At the same time it is foolish to imagine that campaign finance is the only route for private wealth to influence public policy or that its reform will dramatically transform the policy process. Money did not prevent the major legislative enactments of 2009-2010—including the stimulus, student loans, the Affordable Care Act, and financial services reform. Nor is it likely to be the critical factor on climate change, immigration, infrastructure or jobs and wages; which party wins the White House and whether control with Congress is unified or divided is key. If anything, the Lessig campaign is likely to weaken the forces for political reform by demonstrating just how small the relative priority for this action is.

Trump offers the country his outsider status, success in building his personal wealth, an outsized personality, a brashness in asserting how easily he can solve the country’s problems, and a hearty appetite for and skill in stoking the anger and fears of a segment of the country. He feeds the notion that a strong, fearless, wily leader, inexperienced and mostly uninformed in politics and governing, can be the man on a white horse saving a great country losing its exceptional status. His claim that all politicians are bought by private interests—a claim Lessig eagerly embraces—fits well with his grandiose claims that he alone can fix what ails the country. A significant segment of Republican voters, presumably not well versed in the American constitutional system are attracted to him, at least enough for him to be a factor in this election campaign.

Lessig is a far less commanding presence but his ambition burns no less than that of Trump. The notoriety, celebrity, and adoring audiences are heady stuff, even if on a much smaller scale. Lessig told Bloomberg that Trump’s candidacy is evidence that his reform message is taking hold. Lessig said, Trump “strikes people as credible when he says all these people (politicians) are bought—I used to buy them …Trump is saying the truth.” Lessig will be a minor figure in this election and the causes for which he fights are unlikely to advance from it. Both Lessig and Trump, despite their differences in visibility and importance in the election, will have contributed to the dumbing down of American politics, a reality that will bring tears to the eyes of civics teachers and political science professors across the country.

       

Hillary Clinton’s release of her campaign finance proposals on Tuesday confirms there will be no significant substantive differences on political reform among the aspirants for the Democratic presidential nomination but a huge gulf between the two parties, whoever the nominees.

Harvard law professor and activist Larry Lessig announced his candidacy for the Democratic nomination this past weekend based on the single issue of political reform, but his quixotic and gimmicky campaign is akin to carrying coals to Newcastle. His only difference with the other Democratic candidates is his insistence that political reform (primarily on campaign finance) should be of the highest priority and other concerns (immigration, wages, climate change, economic inequality, infrastructure, national security) should play second fiddle. Lessig apparently believes that Republican and independent voters will rally to his call and create a broad base of public support for bipartisan cooperation on changing the rules of the electoral game.

If only it were that simple. The gaping differences between the parties on campaign reform are both ideological and strategic. Republicans are more philosophically disposed to elevate free speech over political equality. They also realize that as presently constituted, their party is advantaged by fewer or no restrictions on money in politics, lower turnout among minorities and youth, and single-member districts. Democrats instinctively reject the argument that money is speech and are comfortable with using public authority to set and enforce the rules of democracy. But they also know that they would benefit from restrictions on big money in elections, guaranteed voting rights for all citizens, and a more proportional translation of votes into seats.

The Clinton campaign finance proposals generally follow the thrust of liberal reformers: building a counterforce to big money through multiple matching funds for small donors, increasing transparency by requiring timely disclosure of mega-contributions and transfers that now evade public scrutiny, and overturning Citizens United, which set the stage for a Wild West of outsized contributions and spending. Her support for a constitutional amendment to accomplish the latter is a pipedream and probably wouldn’t work if it were adopted. As she acknowledges, appointing Supreme Court justices to change the current 5-4 majority is the more promising route to the desired change.

Lessig’s dream notwithstanding, this particular agenda will be achieved only if and when Democrats manage to control both ends of Pennsylvania long enough to put the policies and a sympathetic Supreme Court in place. It’s an important choice for voters to consider in the 2016 elections but by no means the only or most pressing one.

       

I was honored today to speak at the kick off meeting of the new ReFormers Caucus. This group of over 100 former members of the U.S. Senate, the House, and governors of both parties, has come together to fight for meaningful campaign finance reform. In the bipartisan spirit of the caucus, I shared speaking duties with Professor Richard Painter, who was the Bush administration ethics czar and my predecessor before I had a similar role in the Obama White House. 

As I told the distinguished audience of ReFormers (get the pun?) gathered over lunch on Capitol Hill, I wish they had existed when in my Obama administration role I was working for the passage of the Disclose Act. That bill would have brought true transparency to the post-Citizens United campaign finance system, yet it failed by just one vote in Congress.  But it is not too late for Americans, working together, to secure enhanced transparency and other campaign finance changes that are desperately needed.  Momentum is building, with increasing levels of public outrage, as reflected in state and local referenda passing in Maine, Seattle and San Francisco just this week, and much more to come at the federal, state and local level.

       

The rise of SuperPACs, the decision in Citizens United, and intensified polarization in Congress has ignited a flame under the already robust academic debate over the role of money in elections. Last week, Lee Drutman wrote an article for Vox outlining the recent contribution of Raymond J. La Raja and Brian Schaffner made to the debate with their book, Campaign Finance and Political Polarization: When Purists Prevail.

The crux of the book argues that allowing political parties to control more money, not less, is the key to reducing polarization. This runs counter to many pro-reform writings, focused chiefly on empowering small donors in order to counter big-money politics. La Raja and Schaffner counter this narrative, suggesting parties channel money to create moderation, rather than small donors, which are polarizing.

Drutman pushes back on both accounts by taking issue with some of the underlying assumptions in When Purists Prevail, including the weight they place on median voter theory and the extent parties will spend money on moderate candidates in primary elections. He marshals a host of recent research to support the critique, including: a recent Brookings paper on the strength of political parties, data on the power of outside money in congressional elections, and research showing moderate districts do not necessarily produce moderate candidates.

Click here to read the full article on Vox.

       

Event Information

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As the sixth anniversary of Citizens United v. FEC approaches on January 21, both experts and ordinary citizens believe the United States is confronting a campaign finance crisis. Citizens United and related court cases have unleashed a flood of dark money that many believe could drown our democracy. It is estimated that over $5 billion will be spent on the 2016 presidential race—more than 3 times the amount spent in 2008 (already the most expensive election cycle in history). A comprehensive poll conducted by the New York Times and CBS News in the spring of 2015 showed that 84 percent of adults—including 90 percent of Democrats and 80 percent of Republicans—believe that money has too much influence in American political campaigns. Even the richest Americans agreed: 85 percent of adults making $100,000 or more share that same belief.

There has been much handwringing about this state of affairs. But there has been too little public attention paid to finding solutions. On the sixth anniversary of Citizens United, the Governance Studies program at Brookings hosted current and former government officials, lobbyists, donors, advocates, and other experts to discuss how to resolve the campaign finance crisis. They focused on innovative reform efforts at the federal, state, and local levels which offer the hope of addressing the problem of big money in politics.

Panelists will included:

Cheri Beasley, Associate Justice, North Carolina Supreme Court
Daniel Berger, Partner, Berger & Montague, P.C.
John Bonifaz, Co-Founder and President, Free Speech for People
Norman L. Eisen, U.S. Ambassador to the Czech Republic (2011-2014); Special Assistant and Special Counsel to the President (2009-2011); Visiting Fellow, The Brookings Institution
Bruce Freed, Founder and President, Center for Political Accountability
Steve Israel, Member, U.S. House of Representatives (D-NY)
Roger Katz, Chair, Government Oversight Committee, Maine State Senate (R)
Allen Loughry, Justice, Supreme Court of Appeals of West Virginia
Chuck Merin, Executive Vice President, Prime Policy Group; Lobbyist
Connie Morella, Ambassador to OECD (2003-2007); Member, U.S. House of Representatives (R-Md., 1987-2003)
Jeffrey Peck, Principal, Peck Madigan Jones; Lobbyist
Nick Penniman, Executive Director, Issue One
Trevor Potter, Commissioner, Federal Election Commission (1991-1995; Chairman,1994)
John Pudner, Executive Director, Take Back Our Republic
Ann Ravel, Commissioner, Federal Election Commission (Chairwoman, 2015)
Timothy Roemer, Ambassador to India (2009-2011); Member, U.S. House of Representatives (D-Ind., 1991-2003); member 9/11 Commission; Senior Strategic Advisor to Issue One
John Sarbanes, Member, U.S. House of Representatives (D-Md.)
Claudine Schneider, Member, U.S. House of Representatives (R-R.I.,1981-1991)
Peter Schweizer, President, Government Accountability Institute
Zephyr Teachout, CEO, Mayday PAC
Lucas Welch, Executive Director, The Pluribus Project
Fred Wertheimer, Founder and President, Democracy 21
Tim Wirth, Member, U.S. Senate (D-Colo.,1987-1993); Member, U.S. House of Representatives (D-Colo.,1975-1987)
Dan Wolf, Chair, Committee on Steering and Policy, Massachusetts State Senate (D)

Click here for a full agenda.

Video

• The campaign finance crisis in America and how to fix it - Part 1
• The campaign finance crisis in America and how to fix it - Part 2
• The campaign finance crisis in America and how to fix it - Part 3
• The campaign finance crisis in America and how to fix it - Part 4

Audio

• The campaign finance crisis in America and how to fix it: A solutions summit (Part 1)
• The campaign finance crisis in America and how to fix it: A solutions summit (Part 2)
• The campaign finance crisis in America and how to fix it: A solutions summit (Part 3)
• The campaign finance crisis in America and how to fix it: A solutions summit (Part 4)

Transcript

• Uncorrected Transcript (.pdf)

Event Materials

• Solution Summits Agenda120
• 20160121_campaign_finance_summit_transcript

       

We have received many emails and calls in response to our blog last week about our campaign finance reform “Solutions Summit," so we thought we would share some pictures and quotes from the event. Also, Issue One’s Nick Penniman and I just co-authored an op-ed highlighting the themes of the event, which you can find here.

Ann Ravel, Commissioner of the Federal Election Commission and the outgoing Chairwoman kicked us off as our luncheon speaker. She noted that, “campaign finance issues [will] only be addressed when there is a scandal. The truth is, that campaign finance today is a scandal.”

    

(L-R, Ann Ravel, Trevor Potter, Peter Schweizer, Timothy Roemer)

Commenting on Ann’s remarks from a conservative perspective, Peter Schweizer, the President of the Government Accountability Institute, noted that, “increasingly today the problem is more one of extortion, that the challenge not so much from businesses that are trying to influence politicians, although that certainly happens, but that businesses feel and are targeted by politicians in the search for cash.” That’s Trevor Potter, who introduced Ann, to Peter’s left.

Kicking off the first panel, a deep dive into the elements of the campaign finance crisis, was Tim Roemer, former Ambassador to India (2009-2011), Member of the U.S. House of Representatives, (D-IN, 1991-2003) Member of the 9/11 Commission and Senior Strategic Advisor to Issue One. He explained that “This is not a red state problem. It’s not a blue state problem. Across the heartland, across America, the Left, the Right, the Democrats, the Republicans, Independents, we all need to work together to fix this.”

(L-R, Fred Wertheimer, John Bonifaz, Dan Wolf, Roger Katz, Allen Loughry, Cheri Beasley, Norman Eisen)

Our second panel addressed solutions at the federal and state level.  Here, Fred Wertheimer, the founder and President of Democracy 21 is saying that, “We are going to have major scandals again and we are going to have opportunities for major reforms. With this corrupt campaign finance system it is only a matter of time before the scandals really break out. The American people are clearly ready for a change. The largest national reform movement in decades now exists and it’s growing rapidly.”

Our third and final panel explained why the time for reform is now. John Sarbanes, Member of the U.S. House of Representatives (D-MD) argued that fixes are in political reach. He explains, “If we can build on the way people feel about [what] they’re passionate on and lead them that way to this need for reform, then we’re going to build the kind of broad, deep coalition that will achieve success ultimately.”

 

(L-R in each photo, John Sarbanes, Claudine Schneider, Zephyr Teachout)

Reinforcing John’s remarks, Claudine Schneider, Member of the U.S. House of Representatives (R-RI, 1981-1991) pointed out that “we need to keep pounding the media with letters to the editor, with editorial press conferences, with broad spectrum of media strategies where we can get the attention of the masses. Because once the masses rise up, I believe that’s when were really going to get the change, from the bottom up and the top down.”

Grace Abiera contributed to this post.

       

Campaign finance is a key issue for the quality of democracy. As we noted in a recently-published book of which we are co-authors, and which we had the honor to present in the Hall of Former Presidents of the Legislative Assembly last February 11 (El costo de la Democracia: Ensayos sobre el financiamiento político en América Latina, UNAM, Mexico City, 2015), it is important because of an inescapable fact: While democracy has no price, it does have an operating cost. The use of economic resources is an essential element for democratic competition. More than a pathology of democracy, political financing, when well-regulated, is a normal part of democratic life.

Yet it is undeniable that money is capable of introducing distortions in the democratic process. Its unequal distribution impacts, first, on the real possibilities enjoyed by the parties and the candidates to take their message to the voters. Second, having money gives individuals and social groups a differentiated possibility of participating in elections and exercizing their influence over the candidates through their contributions. This is vital for democracy. When political power is simply a reflection of economic power, the principle of “one person, one vote” loses meaning. Third, fundraising efforts offer obvious opportunities for the articulation of exchanges between donors and those who make decisions on public affairs, or at least for the continual appearance of conflicts of interest. This can be very problematic in the case of Latin America, where there is a risk of money from organized crime penetrating the campaigns.

And so it is not surprising that the issue is on the political agenda in many countries of the region, just as it has been for a long time in Costa Rica. Costa Rica introduced public financing for political parties in 1956, making it the second country in the world to do so, after Uruguay. Nonetheless, the generosity of the government contribution did not avoid a long succession of scandals associated with the issue, a history that includes figures ranging from Robert Vesco and Manuel Antonio Noriega to Carlos Hank González and the illegal donations from the government of Taiwan. 

The wounds left by each of these episodes gave way to worthy yet incomplete regulatory efforts. Most important has been the reform of the Electoral Code approved in 2009, which among many necessary changes prohibited corporate contributions to the political parties. And not only legislative action has made a difference. The Constitutional Chamber of the Supreme Court has also made a difference by lifting bank secrecy on financing, a very important decision that has been pointed to internationally.

Each of these steps has been moving the country in the right direction. This is worth underscoring: At a time when it is so easy to revile the Costa Rican political system, it should be recognized that in terms of political financing the country is, in general, better situated than it was 20 or 30 years ago. All the evidence we have indicates that private contributions today are less important in our campaigns than one generation ago. We can state with great certainty that our parties are financing more than 80% of the cost of their campaigns with the state contribution. That is good news.

However, the current regulatory framework presents problems such as:

a) It continues to be a regulatory system that is somehow upside down: It meticulously keeps tabs on the use of the state contribution by the parties, which does not give rise to conflicts of interest, while it is much less effective when it comes to verifying the truth of the information the parties provide about their private sources of financing, which do have the potential to compromise the autonomy of the political system. Correcting this imbalance, getting the Supreme Electoral Tribunal to prioritize monitoring private financing and to devote more resources to it, would not only be a way to straighten out its priorities, but frankly, all the parties would also breathe a sigh of relief.

b) The system of advances on the state contribution continues to be very limited (only 15% of the subsidy is disbursed before the presidential election and nothing in the case of municipal elections). It is time to admit that eliminating the system whereby the contributions were distributed in advance payments, which existed from 1971 to 1991 (when 50% was disbursed in advances), caused grave prejudice to the political system. The weakness of the advanced disbursement has ended up leaving the parties at the mercy of banks and lenders during the campaigns. Worse still, today the possibility of a party receiving loans during the campaign against its electoral expectations depends entirely on the fickle behavior of the opinion polls. This is unfair and risky, as the OAS electoral observation missions have noted.

c) The legal framework does little to limit parties’ spending on advertising, one of the most effective ways to reduce outlays during campaigns and to bring about fairness in electoral competition, which is one of the most important objectives in improving the current system. One must evaluate the advisability of adopting a system of advertising slots (provided free of charge by those holding concessions for the radio spectrum or purchased by the Supreme Electoral Tribunal and then made available to the parties) as has been done, with a positive outcome, by other democracies in the region such as Argentina, Brazil, Chile, Ecuador, and Mexico.

d) The current regulatory framework has serious vulnerabilities at the local level. Requiring the parties to file a single financial report with the contribution they receive nationwide (the same system that exists for the presidential election) is insufficient when in practice there are 81 local elections in which each candidate raises and spends money autonomously. Let’s be clear: Relatively little is known about who finances the campaigns at the local level in Costa Rica. This would not matter much except that the experience of other countries – from Mexico to Colombia – shows that local campaigns are the preferred point of entry for organized crime to penetrate the electoral structures. Reinforcing the financial controls on municipal elections is one of the country’s most urgent tasks in relation to campaign finance.

Costa Rica has made major strides in regulating political financing. Yet there is an urgent need to address the weaknesses in the current regulatory framework. There are bills in the legislative pipeline, such as No. 18,739, introduced by the Supreme Electoral Tribunal in April 2013, that incorporate almost all the reforms suggested here and that provide an excellent basis for moving this inevitable discussion forward. 

We will have to address the problems in the current regulatory framework sooner or later. The question is whether we will do so before or after the next scandal. Let’s hope that, for once, we act on time.

This piece was originally published by International IDEA. 

       

Super PACs and other lightly regulated political organizations are dumping hundreds of millions of dollars into American elections. What should be done about it? Unlike many candidates for federal or state office, so-called independent expenditure groups face no restrictions on how much individuals and groups can give to them. And thanks to several federal court decisions, including Citizens United v. Federal Election Commission, independent groups can spend unlimited amounts to influence elections. The public understandably worries about the political clout of wealthy groups—especially since donors often can hide their identities.

Reformers have proposed various remedies: disclosure rules, the appointment of a liberal Supreme Court justice to reverse Citizens United, even a constitutional amendment to overturn that decision. Those long-shot strategies, however, are unlikely to create the kind of small-donor democracy that many reformers seek. Money, like water, will inevitably flow into the political system. Laws can’t do much to reduce the amount of money in politics; what they can change is where the money goes.

An easier path to improving politics

In our new Brookings paper, The State of State Parties, we suggest an easier path to improving politics—one that is right under our nose. Strengthening state political parties can help offset the clout of super PACs.

Our study, based on a survey of 56 state-party organizations plus detailed interviews with 15 of their leaders, points to the distinctive and constructive role that state parties play in American politics. In an era when politics seems to be spinning out of control, party organizations are among the few actors that seek to integrate and balance interests—for instance, by recruiting candidates with broad appeal, by playing honest broker among contending partisan factions, and by building coherent strategies among campaigns up and down the ticket. Party organizations also generate a lot of grassroots activity to mobilize volunteers and voters.

How regulations on parties increase super PAC spending

State parties are among the most heavily regulated entities in American politics, a situation that diminishes their influence relative to non-party groups. For instance, the vast majority of state parties face restrictions on the source and size of donations, and some contribution limits are unrealistically low. In Massachusetts, no donor can give more than annual aggregate of $5,000 to all local and state parties. That’s a paltry sum in statewide elections that can easily cost $55 million, including $20 million in independent expenditures.

Super PACs and other groups naturally fill the vacuum because they do not have to contend with limits on raising and spending money. Often, outside groups effectively drown out the parties. In our survey, only half the parties said they advertise on TV and radio sometimes or often, usually because they lack the resources to do more.

The figure below shows that parties’ independent spending is miniscule compared to the growing expenditures of non-party groups over the past five election cycles. In the 2014 election cycle, the parties accounted for just six percent of total independent spending in the states for which we had good data.

An especially significant finding is that restraints on political parties seem to amplify the activities and influence of outside groups. As illustrated in the table below, 65 percent of respondents in states with contribution limits to parties said that independent groups sponsor more than half or almost all political ads, compared to only 23 percent in states without contribution limits. 

In other words, independent spending is significantly lower when parties are not limited. These differences translate into electoral clout. In states with contribution limits, 65 percent of respondents said independent spending is often a key factor in gubernatorial elections, while fewer than half said the same in states with no limits.

Correlation does not prove causality, but our findings provide strong circumstantial evidence that when you restrict the parties, you get more independent expenditures by non-party groups.

It’s not hard to strengthen state parties

We recommend changes to strengthen state parties and restore them to a place of prominence in campaigns. First, state governments should raise or eliminate contribution limits so the parties can acquire sufficient resources to compete with outside actors. This would allow state parties to serve as clearinghouses for campaign money, which would bring more “dark money” toward accountability and transparency.

Second, parties should be allowed full freedom to coordinate their activities with their candidates and allied groups. This would make them more valuable to candidates and would allow the parties to perform their irreplaceable role of supporting candidates across the party ticket.

We also suggest giving parties favorable tax treatment so that donors are more likely to give to parties than candidate-sponsored super PACs or interest groups. We also recommend other regulatory changes that would encourage parties to do more grassroots work with voters.

Loosening the constraints on state parties would not stop the flow of money into politics (nothing can do that), but would channel more of the money to accountable actors. That’s why we think of this solution as building canals, not dams. And the incremental steps we propose require no sea-changes in public opinion or heroic legislation. In fact, they command support in both parties’ establishments, making them a good starting point for reform. That’s why we conclude that strengthening state parties is a realistic path toward a better balanced, more effective, and more accountable political system.

       

       

       

       

       

       

       

       

       

The Earned Income Tax Credit (EITC) provides a refundable tax credit to lower-income working families. In 2011, the EITC reached 27.9 million tax filers at a total cost of $62.9 billion. Almost 20 percent of tax filers receive the EITC, and the average credit amount is $2,254 (IRS 2013). After expansions to the EITC in the late 1980s through the late 1990s—under Democrat and Republican administrations—the EITC now occupies a central place in the U.S. safety net. Based on the Census Bureau’s 2012 Supplemental Poverty Measure (SPM), the EITC keeps 6.5 million people, including 3.3 million children, out of poverty (Center on Budget and Policy Priorities [CBPP] 2014a). No other tax or transfer program prevents more children from living a life of poverty, and only Social Security keeps more people above poverty.

Since the EITC is only eligible to tax filers who work, the credit’s impact on poverty takes place through encouraging employment by ensuring greater pay after taxes. The empirical research shows that the tax credit translates into sizable and robust increases in employment (Eissa and Liebman 1996; Meyer and Rosenbaum 2000, 2001). Thus, the credit reduces poverty through two channels: the actual credit, and increases in family earnings. This dual feature gives the EITC a unique place in the U.S. safety net; in contrast, many other programs redistribute income while, at least to some degree, discouraging work. Importantly, transferring income while encouraging work makes the EITC an efficient and cost-effective policy for increasing the after-tax income of low-earning Americans. Yet a program of this size and impact could be more equitable in its reach. Under the current design of the EITC, childless earners and families with only one child, for instance, receive disproportionately lower refunds. 

In 2014, families with two children (three or more children) are eligible for a maximum credit of $5,460 ($6,143) compared to $3,305 for families with one child. Married couples, despite their larger family sizes, receive only modestly more-generous EITC benefits compared to single filers. Childless earners benefit little from the EITC, and have a maximum credit of only $496—less than 10 percent of the two-child credit. 

Prominent proposals seek to mitigate these inequalities. President Obama’s fiscal year 2015 budget includes an expansion of the childless EITC, a concept outlined by John Karl Scholz in 2007 in a proposal for The Hamilton Project. Notably, MDRC is currently evaluating Paycheck Plus, a pilot program for an expanded EITC for workers without dependent children, for the New York City Center for Economic Opportunity (MDRC 2014). The recent Hamilton Project proposal for a secondary-earner tax credit addresses the so-called EITC penalty for married couples (Kearney and Turner 2013). And the more generous EITC credit for three or more children was recently enacted as part of the American Recovery and Reinvestment Act of 2009, and is currently scheduled to sunset in 2017. 

Considering this broad set of EITC reforms, and recognizing the demonstrated effectiveness of the program as an antipoverty program with numerous benefits, this policy memo proposes an expansion for the largest group of  EITC recipients: families with one child. In particular, I propose to expand the one-child schedule to be on par with the two-child schedule, in equivalence scale-adjusted terms. An equivalence scale captures the cost of living for a household of a given size (and demographic composition) relative to the cost of living for a reference household of a single adult, and is a standard component in defining poverty thresholds. The proposal expands the maximum credit for one-child families to $4,641, from $3,305 under current law, an increase of about 40 percent. The expansion will lead to a roughly $1,000 increase in after-tax income for taxpayers in the bottom 40 percent of the income distribution receiving the higher credit. As this paper outlines, the expansion is justified on equity and efficiency grounds. This expansion is anchored in the equity principle in that the generosity of the credit should be proportional to the needs of families of differing sizes; I use the equivalence scale implicit in the poverty thresholds of the Census SPM as a guide for household needs. This proposal is also supported by efficiency principles given the EITC’s demonstrated success at raising labor supply among single mothers. 

The target population for the proposal is low-income working families with children. Implementing this proposal requires legislative action by the federal government; it is important to note that altering the EITC schedule requires a simple amendment to the tax code, and not a massive overhaul of our nation’s tax system. The revenue cost of the proposal derives from additional federal costs of the EITC, less the additional payroll and ordinary federal income taxes. The private benefits include increases in after-tax income and reductions in poverty. The proposal would also generate social benefits through the spillover effects that the increase in income plays in improving health and children’s cognitive skills (Dahl and Lochner 2012; Evans and Garthwaite 2014; Hoynes, Miller, and Simon forthcoming).

Downloads

• Building on the Success of the Earned Income Tax Credit - Full Text

      

      

In his state of the union and his budget, the President spoke of the stagnation of middle class incomes. Whatever growth we have had has not been broadly shared.  More than 78% of the growth in GDP between 1979 and 2013 has gone to the top one percent. Even Republicans are beginning to worry about this issue although they have yet to develop concrete proposals to address it.

Slow Growth in Incomes

Middle class incomes were growing slowly before the recession and have actually declined over the past decade.   In addition, according to the New York Times, the proportion of the population with incomes between $35,000 and $100,000 in inflation-adjusted terms fell from 53% in 1967 to 43% in 2013.  During the first four decades this was primarily because more people were moving into higher income groups, but more recently it was because they have moved down the ladder, not up.  One can define the middle class in many different ways or torture the data in various ways, but there is plenty of evidence that we have a problem.

What to Do

The most promising approach is what I call “the second earner solution.”  For many decades now, the labor force participation rate of prime age men has been falling while that of women has been rising.  The entry of so many women into the labor force was the major force propelling whatever growth in middle class incomes occurred up until about 2000. That growth in women’s work has now levelled off.  Getting it back on an upward track would do more than any policy I can think of to help the middle class.

Imagine a household with one earner making the average wage of today’s worker and spending full-time in the job market.  That household will have an income of around $34,000. But if he (or she) has a spouse making a similar amount, the household’s income will double to $68,000. That is why the President’s focus on a second-earner credit of $500, a tripling of the child care tax credit, expanding the Earned Income Tax Credit, and providing paid leave are so important. These policies are all pro-work and research shows they would increase employment.

No Marriage = No Second Earner

One problem, of course, is that fewer and fewer households contain two potential workers.  So it would also help to bring back marriage or at least its first cousin, a stable cohabiting relationship.  My ideas on this front are spelled out in my new book, Generation Unbound. In a nutshell, we need to empower women to not have children before they have found a committed partner with whom to raise children in a stable, two-parent family. Whatever the other benefits of two parents, they have twice as much time and potentially twice as much income.    

Other Needed Responses

Shouldn’t we also worry about the wages or the employment of men?  Of course.  But an increase in, say, the minimum wage or a better collective bargaining environment or more job training will have far smaller effects than “the second earner solution.”  In addition, the decline in male employment is related to still more difficult problems such as high rates of incarceration and the failure of men to take advantage of postsecondary education as much as women have. 

Still the two-earner solution should not be pursued in isolation. In the short-term, a stronger recovery from the recession is needed and in the longer-term, more effective investments in education, research, infrastructure, and in labor market institutions that produce more widely-shared growth, as argued by the Commission on Inclusive Prosperity. But do we really expect families to wait for these long-term policies to pay off?  It could be decades. 

In the meantime, the President’s proposals to make work more appealing to existing or potential second earners deserves more attention.  

      

April 15 is tax day, but not many Americans will be lining up at the post office or logging onto TurboTax as midnight approaches. Taxpayers who receive refunds often file well ahead of the April 15 deadline. And according to new research, many of those refund dollars are already spent or spoken for.

Early filing is particularly common among taxpayers who claim the Earned Income Tax Credit (EITC), which supplements earnings for low-income workers and their families. EITC recipients often receive substantial refunds, especially in relation to their income. According to new data available through our EITC Interactive, nationwide 26.8 million taxpayers benefited from the EITC for the 2013 tax year, and they claimed a total of $64.7 billion from the credit. Combined with other credits and over-withholding these families received, the average refund for EITC filers topped $4,100 that year. As the accompanying map shows, that amount approached $4,500 or more in many southern states.

I thought of those large refunds while reading a fascinating new book by sociologist Kathryn Edin and her colleagues, titled, It’s Not Like I’m Poor: How Working Families Make Ends Meet in a Post-Welfare World. The book provides insights from in-depth interviews with 115 families with children in the Boston area who claimed the EITC. It examines their household budgets and how the families view and use the credit. The authors find that these families rely greatly on their tax refunds to close the gap between the wages they earn and the daily costs of living in an expensive region like Greater Boston. For some, a large tax refund also enabled them to purchase something normally confined to middle-class families, such as a special birthday present for a child or dinner out at a restaurant.

One of the authors’ central findings, however, was that EITC recipients bear a considerable amount of debt—95 percent of the families studied had debt of some kind. The most common (66%) was credit card debt, with the typical family owing nearly $2,000. Considerable shares of families also had utility, car, or student loan debt.

Their indebtedness was not surprising given that wages covered on average only about two-thirds of monthly expenditures. The authors classified one-quarter of families’ refund spending as dedicated to debt/bills, but other ways families  spend the money—such as repairing a car or paying ahead on bills—point to the lack of financial cushion EITC recipients endure throughout the year.

For the families Edin and colleagues studied, the average tax refund represented a staggering three months of earnings. Despite that, the authors report that many families expressed that they preferred the "windfall" versus receipt of payments over several months, partly because the lump sum held out the prospect of helping them save. But one has to wonder if the EITC, now routinely referred to as the nation's most effective anti-poverty policy, best supports families' financial security in this form, as its recipients fall further behind each month.

We should experiment with new ways of delivering EITC recipients' tax refunds that preserve some of its windfall aspect while also periodically delivering portions of the credit throughout the year. A small periodic payment pilot is underway in Chicago, and early findings suggest that advance payments of taxpayers' anticipated EITC helped them meet basic needs, pay off debt, and reduce financial stress relative to similar families not receiving such payments. It’s time to try making the EITC more than an annual boom in a bust-filled financial cycle for low-income families. 

       

This originally appeared in “Insight,” a publication of Grantmakers for Children, Youth, and Families.

For many in the United States, American poverty conjures images of urban blight or remote Appalachian hardship that motivated the War on Poverty in the 1960s. But the geography of poverty in the U.S. has shifted well beyond its historical confines (Kneebone and Berube, 2013). During the first decade of the 2000s, the poor population living in suburbs of the nation’s largest metropolitan areas for the first time outstripped the poor population living in central cities, and poverty continues to grow faster today in the suburbs.¹ This trend has been even more pronounced for those living below twice the federal poverty line—equivalent to $48,500 for a family of four in 2015—which roughly mirrors the population eligible to receive the federal Earned Income Tax Credit (EITC).

Although it was not originally billed as an antipoverty program, in its 40 years, the EITC has become one of the nation’s most effective tools for lifting low-income workers and their families above the poverty line. In 2013 alone, Brookings estimates that the EITC lifted 6.2 million people, including 3.1 million children, out of poverty (Kneebone and Holmes, 2014). What follows is a discussion of the EITC’s growing importance to recipients in light of the new geography of poverty, its role in boosting local economies, and how expanding participation in the program and paying the credit differently could enhance its effectiveness as a local economic stabilizer.

The shifting geography of poverty challenges traditional approaches to combat poverty through investments in place.

When President Johnson declared a War on Poverty in 1964, poverty in the U.S. was primarily urban or rural. This was also the case in 1975 when the EITC was created: Nearly a million more low-income individuals at that time lived in rural areas or big cities than in the suburbs of major metropolitan areas.² Place-based antipoverty interventions dating to the War on Poverty were thus designed with these two geographies—especially cities—in mind. Brookings estimates that today, the federal government spends about $82 billion per year across more than 80 place-focused antipoverty programs, spread across 10 agencies (Kneebone and Berube, 2013). Many are not well-suited to suburban contexts, for several reasons.

First, suburban poverty is more geographically diffuse than urban poverty. Suburban communities tend to be less densely populated than cities and larger in size, and cover more total area. Whereas centralized services might be appropriate in an urban context because they are easily accessible to many in need, it is more difficult to achieve those economies of scale in the suburbs, where residents live farther apart and have limited access to transit. Many competitive federal grant programs allocate points based on population served and population density, implicitly favoring large central cities.

Second, suburban municipalities may lack the experience and administrative capacity needed to sustain services for low-income families and communities. Cities have dealt with poverty longer, and have had more time to develop strategies and structures to support their poor populations. Some of this capacity stemmed explicitly from Community Action Agencies, one of the original War on Poverty programs, which was intended to spur local innovation. Small suburban communities by and large did not have this same experience. Because of their relatively small size, suburban governments may not be able to achieve the administrative scale needed to deliver effective safety-net programs.

Third, many suburban communities lack the economic scale and fiscal structure needed to fund services for low-income residents. Because many small municipalities are limited in how they are permitted to raise revenues—typically through a combination of property and sales taxes—they are especially prone to financial instability caused by the very economic conditions that also generate greater need for services. As poverty suburbanizes, small suburban communities simultaneously face rising demand and falling tax revenues to support those services. Moreover, tax “competition” among many small suburbs within a metro area can further erode the fiscal capacity and political will for these jurisdictions to support people in need.

The new geography of poverty makes direct investments in low-income individuals and families—like the EITC—even more important.

The mismatch between existing place-based antipoverty strategies and the places where poverty is growing fastest heightens the importance of investing directly and effectively in low-income individuals and families through programs such as the EITC. Following its expansion in the mid-1990s, the EITC became the most significant cash transfer program available to low-income working families. The Internal Revenue Service (IRS, 2014) estimates that approximately 79 percent of EITC-eligible taxpayers nationally claim the credit each year—a remarkably strong participation rate among federal safety-net programs.

The high program participation rate and growth over time in EITC expenditures reflects both increases in the credit’s generosity and growing need. In 2000, according to our analysis of IRS Stakeholder Partnerships, Education and Communities (IRS-SPEC) data, total EITC expenditures topped $42 billion (in 2013 dollars). In 2013, they approached $65 billion, equivalent to approximately 80 percent of the amount spent by the federal government on place-based poverty interventions.³

Analysis of IRS-SPEC data further suggests that the EITC’s geographic incidence closely tracks the shifting geography of need. From 2000 to 2013, the number of suburban filers claiming the EITC rose by 62 percent, compared to 33 percent in cities. Changes in the distribution of EITC claims mirrored changes in the location of poor and near-poor populations, particularly growth in the suburbs.⁴ And because lower-income suburban communities (where at least 40 percent of residents are poor or near-poor) are becoming more diverse, too—60 percent of their residents are non-white or Hispanic—the EITC also effectively reduces growing race-based income gaps in suburbs.⁵

EITC dollars support local economies.

The EITC benefits not only low-income families, but also the wider communities in which they live. Although it is widely regarded today as one of the country’s most successful antipoverty programs, the EITC was originally designed to be a temporary economic stimulus measure, in the Tax Reduction Act of 1975 (Nichols and Rothstein, 2015). During the 2000s, more local and state governments made a concerted push to expand participation in the EITC among eligible filers, in part to inject more federal dollars into their local economies (Berube, 2006a).

There are several mechanisms through which the EITC could benefit local economies. California State University researchers categorize the local economic impact of EITC refunds as the sum of direct effects (EITC recipients spending their refunds), indirect effects (business spending in response to EITC recipient spending), and induced effects (changes in household income and spending patterns caused by direct and indirect effects). Together, these effects represent the local “multiplier” effect (Avalos and Alley, 2010). Their estimates for California counties suggest that, in many cases, the credit creates local economic impacts equivalent to at least twice the amount of EITC dollars received.

Direct economic effects result from EITC recipients spending a portion of their refund locally, supporting local businesses and jobs. Consumer surveys show that low-income families spend a relatively large share of their income on groceries and other necessities, which tend to be purchased locally. Analysis of those surveys links tax refund season to increased likelihood of consumer activity as well as larger purchases (Adams, Einav, and Levin, 2009). People spend more, and more frequently, during tax refund season.

The EITC also supports local communities in less obvious ways. The concept of “tax incidence” reflects that the party being taxed, or receiving a tax credit, may not bear its full costs (or reap its benefits) because others shift their behavior in response to the tax. Along these lines, Jesse Rothstein estimates that as much as 36 cents of every dollar of EITC received flows to employers, because by enabling workers to better make ends meet on low wages, the credit effectively lowers the cost of labor. Those lower labor costs may, in turn, allow local employers to hire more local workers (Nichols and Rothstein, 2015).

Finally, emerging evidence suggests that progressive tax expenditures like the EITC can enhance intergenerational income mobility for local children, possibly by counteracting credit constraints that many low-income families face (Chetty, Hendren, Kline, and Saez, 2015). In areas with larger state EITCs, low-income children are more likely to move up the income ladder over time.

The local impact of the EITC depends on how, and how many, eligible filers claim the credit.

The local impact of the EITC also depends on whether eligible workers and families file tax returns and claim the credit. As noted above, the IRS estimates that 79 percent of those eligible to receive the EITC nationally claim it. Given local variation in characteristics associated with uptake, there is likely also considerable local variation in EITC participation (Berube, 2005). Efforts to increase participation locally can thus increase the level of investment communities receive from the program.

Research has identified several factors associated with EITC participation rates among the eligible population. Eligible filers less likely to claim the credit include those who live in rural areas, are self-employed, do not have qualifying children, do not speak English well, are grandparents, or recently changed their filing status (IRS, 2015). One study suggests that communities with moderately sized immigrant populations may exhibit lower EITC participation rates, due perhaps to less robust social networks or more dispersed/heterogeneous populations that may limit awareness of the credit (Berube, 2006b).

Recent research also suggests that EITC participation is higher in areas with more tax preparers, who may promote greater local awareness of the credit (Chetty, Friedman, and Saez, 2012). While individuals who enlist the help of tax preparers are more likely to receive the EITC, they may face significant fees that blunt the credit’s overall impact (Berube, 2006a). Expanding access to volunteer tax preparation services or simple, free online filing could help preserve more of the credit’s value for low-income families and their communities.

To maximize the EITC’s role as a local economic stabilizer, we should consider periodic payment options.

 The EITC already functions as an important antipoverty tool for low-income workers and families, and a boon to local economic stability. Communities should nonetheless be interested in efforts to connect taxpayers to a portion of their EITC throughout the year, rather than only as a lump-sum refund at tax time.

Debt features significantly on the balance sheets of EITC recipients. Recent research finds that about 95 percent of EITC recipients have debt of some kind, and that large shares of refunds are dedicated to debt payments or deferred expenses (such as car repair). Recipients do not use the majority of EITC refunds to pay for monthly expenses, despite the fact that their wages typically cover only two-thirds of those expenses (Halpern-Meekin, Edin, Tach, and Sykes, 2015).

Paying a portion of filers’ anticipated EITC periodically (and directly, rather than through employers like the defunct Advance EITC program) in smaller amounts over the course of a year could help them cope with these spending constraints and avoid taking on debt (Holt, 2008). By enabling families to better keep up with spending on regular items most often purchased locally—rent, food, vehicle maintenance—periodic payments could also support local economies. And by improving families’ liquidity, such payments could reduce reliance on high-cost financial products such as payday loans.

The EITC continues to gain importance as place-based strategies lag behind poverty’s suburbanization, and communities seek ways to maximize public investment in the face of budget constraints at all levels. The program lifts millions of working individuals and families out of poverty each year regardless of their location, and in doing so also supports community financial stability. An expanded EITC—at the federal, state, or local level—with options for periodic payment and better alternatives to high-cost tax preparation could provide even stronger support to low-income families and the places where they live.

References

Adams, W., Einav, L., and Levin, J. (2009). Liquidity constraints and imperfect information in subprime lending. American Economic Review. 99(1), 49–84. Retrieved from http://web.stanford.edu/~jdlevin/Papers/Liquidity.pdf

Avalos, A., and Alley, S. (2010). The economic impact of the Earned Income Tax Credit (EITC) in California. California Journal of Politics and Policy. 2(1). Retrieved from http://escholarship.org/uc/item/2jj0s1dn

Berube, A. (2005). Earned income credit participation—What we (don’t) know. Washington, DC: Brookings Institution. Retrieved from http://www.brookings.edu/metro/eitcparticipation.pdf

Berube, A. (2006a). Using the Earned Income Tax Credit to stimulate local economies. Washington, DC: Brookings Institution. Retrieved from http://www.brookings.edu/~/media/research/files/reports/2006/11/childrenfamilies-berube/berube20061101eitc.pdf

Berube, A. (2006b). ¿Tienes EITC? A study of the Earned Income Tax Credit in immigrant communities, Washington, DC: Brookings Institution. Retrieved from  http://www.brookings.edu/~/media/research/files/reports/2005/4/childrenfamilies-berube02/20050412_tieneseitc.pdf

Chetty, R., Friedman, J., and Saez, E. (2012). Using differences in knowledge across neighborhoods to uncover the impacts of the EITC on earnings (NBER Working Paper Series no. 18232). Retrieved from http://eml.berkeley.edu/~saez/chetty-friedman-saezNBER13EITC.pdf

Chetty, R., Hendren, N., Kline, P., and Saez, E. (2015). The economic impacts of tax expenditures: Evidence from spatial variation across the U.S. Retrieved from http://www.irs.gov/pub/irs-soi/14rptaxexpenditures.pdf

Halpern-Meekin, S., Edin, K., Tach, L., and Sykes, J. (2015). It’s not like I’m poor: How working families make ends meet in a post-welfare world, Oakland, CA: University of California Press.

Holt, S. D. (2008). Periodic payment of the Earned Income Tax Credit. Washington, DC: Brookings Institution. Retrieved from http://www.brookings.edu/research/papers/2008/06/0505-metroraise-supplement-holt

Internal Revenue Service. (2014). Statistics for tax returns with EITC. Retrieved from http://www.eitc.irs.gov/EITC-Central/eitcstats

Internal Revenue Service. (2015). About EITC. Retrieved from http://www.eitc.irs.gov/EITC-Central/abouteitc

Kneebone, E., and Berube, A. (2013). Confronting suburban poverty in America. Washington, DC: Brookings Institution Press.

Kneebone, E., and Holmes, N. Fighting poverty at tax time through the EITC. Retrieved from http://www.brookings.edu/blogs/the-avenue/posts/2014/12/16-poverty-tax-eitc-kneebone-holmes

Nichols, A., and Rothstein, J. (2015). The Earned Income Tax Credit (EITC) (NBER Working Paper Series no. 21211). Retrieved from http://www.nber.org/papers/w21211.pdf

       

From its modest beginnings in 1975, the Earned Income Tax Credit has grown into one of the nation’s most effective anti-poverty programs. Each year, the EITC supplements low-income workers’ earnings, encouraging work and lifting millions of people out of poverty.¹ It has positive lasting effects for parents, who have shown longer-run earnings increases and better health outcomes. At the same time, their children exhibit a host of benefits, from better school performance and higher rates of college enrollment to more hours worked and higher incomes in adulthood.² 

Moreover, the EITC supports economic stability in communities throughout the country where filers collectively receive millions of dollars in earnings supplements annually.³ These successes stem from a series of targeted expansions—supported by both Republicans and Democrats—over the EITC’s 40-year history, transforming it from a small credit into a significant income supplement for low-income working families.⁴

Yet more can be done to preserve and build on the effectiveness of the EITC, and a growing number of elected officials and policy experts have proposed  strengthening the credit. Three main recommendations have emerged from these proposals.

Preserve two key provisions of the EITC that are set to expire in 2017;

Expand the credit for workers without qualifying children; and

Offer filers options to receive a portion of the credit outside of tax time.

In this brief, we consider the first two recommendations, using our MetroTax model and detailed microdata from the 2014 American Community Survey to estimate the impact of these potential changes on workers and on the metropolitan areas and states where they live.⁵ A new analysis by Steve Holt will take an in-depth look at the issue of periodic payment.

If two key EITC provisions expire in 2017, 7.4 million filers would lose part or all of their EITC.

In 2009, Congress and the Obama administration enacted two targeted, but temporary, expansions to the EITC. The legislation reduced the “penalty” for married couples filing jointly by extending their eligibility for the credit $5,000 beyond that for unmarried filers, and it boosted the credit for families with three or more children (who are more likely to be low-income even when working).

If those provisions expire in 2017, the EITC would shrink for 6.7 million taxpayers, while a little under 700,000 filers would lose eligibility altogether. Two-thirds of filers who would be affected are married couples, 1.8 million of whom are also raising more than two kids (meaning they would be subject to both cuts). The remaining third are unmarried workers with at least three children. Most of these taxpayers (58 percent) have a high school diploma or less, and they are most likely to work in manufacturing, construction, and retail. The typical adjusted gross income of these filers is $28,000 a year, just above the poverty line for a family of four (roughly $24,000 in 2014).

States and metro areas in the Midwest and West would see the steepest cuts if these provisions expire. 

Every state stands to lose millions of dollars if these EITC provisions are not made permanent. States and metro areas with higher-than-average shares of married couples and larger families would be hardest hit. In the Intermountain West, Idaho and Utah could see a 10 percent drop in federal EITC dollars coming into the state (Table 1). The major population centers in those states—including metropolitan Provo and Ogden in Utah and Boise, Idaho—top the list of major metro areas that would experience the biggest cuts if these provisions expire.

While larger states like California and Texas would see their EITC claims drop by smaller percentages, the size of the EITC-eligible population in these states mean that the expiration of these two provisions would translate into a loss of more than half a billion dollars in California ($538 million) and over $400 million in Texas. Taxpayers in the Los Angeles metro area stand to lose an estimated $185 million in EITC receipts, while those in Dallas would forfeit nearly $100 million. (For detailed state and metro data see the appendix.)

Expanding the credit for workers without qualifying children would benefit more than 14.4 million filers. 

The EITC for childless workers is significantly smaller than the credit for families with children. In tax year 2013 (the most recent year for which detailed data are available), workers with qualifying dependents received $2,794 on average through the EITC, compared to the meager $281 claimed by the average childless worker.⁶ In fact, low-wage earning childless adults are the only group of taxpayers actually taxed into (or deeper into) poverty by the federal tax system.⁷

Both President Obama and House Speaker Paul Ryan have proposed expanding the EITC for these workers, as have legislators—including Sen. Patty Murray (D-Wash.), Rep. Richard Neal (D-Mass.), and Rep. Barbara Lee (D-Calif.)—and Republican presidential candidate Jeb Bush.⁸ (Republican presidential candidates Ted Cruz and John Kasich have also called for the EITC to be expanded but have not specified whom that expansion would target.⁹)

The proposals put forward by Obama, Ryan, Lee, and Bush are strikingly similar (although they differ considerably in how they would pay for it). These expansions would double the size of the credit for childless workers and the pace at which the credit phases in and out (Figure 1). They would also lower the minimum age of eligibility from 25 to 21.¹⁰

Together, these changes would boost the value of the credit for 8 million filers and extend eligibility to 6.4 million more taxpayers, increasing EITC dollars for these workers by $6.9 billion.¹¹

The filers who would benefit from these changes are largely unmarried workers (87 percent) who are most likely to be employed in service industries (retail, accommodation and food service, administrative services), health care, and construction. Half of these workers have a high school diploma or less. The typical adjusted gross income for these workers is just $8,300, well below the poverty threshold for individuals and married couples without children (e.g., $12,316 and $15,853, respectively, in 2014).

Several states and large metro areas in the Midwest and Northeast would see the number of childless workers eligible for the EITC more than double if the credit were expanded. 

The District of Columbia and Utah, each of which has above-average shares of the population between 21 and 24, would experience the largest percentage growth in the number of childless workers eligible for the EITC (135 and 134 percent, respectively). However, the bulk of states that would double their pool of eligible filers without qualifying children fall in the Midwest (North Dakota, Iowa, Nebraska, and Wisconsin) and Northeast (Rhode Island, Massachusetts, and Vermont), and tend have higher-than-average shares of one-person households and households without children.

Similarly, while the number of EITC-eligible childless workers in the Provo metro area would more than triple if the credit were expanded, most of the major metro areas that would at least double the number of eligible workers without qualifying children are in the Midwest (e.g., Grand Rapids, Milwaukee, and Toledo) and Northeast (e.g., Bridgeport, Boston, and Springfield) (Map 1).

In this era of partisan gridlock in Washington, it is rare to find a policy with the kind of bipartisan support the EITC has received—a testament to its effectiveness in encouraging work, alleviating poverty, and improving outcomes for workers and their children. By preserving key provisions of the EITC for working families and by making the EITC work better for workers without qualifying children, millions of Americans across the country stand to benefit.

Downloads

• State and Metro Data Appendix

       

Each year, one in five households filing a federal income tax return claims the Earned Income Tax Credit (EITC). Targeted primarily to lower-income workers with children, it is one of many credits and deductions filers take each year on their federal income tax forms. However, unlike typical credits and deductions, the EITC is a refundable credit, meaning that after offsetting what is owed to the government filers receive the remainder of the benefit as a refund.

By supplementing earnings for low- and moderate-income households, the EITC helps bridge the gap between what the labor market provides and what it takes to support a family. It encourages and rewards work and has become one of the nation’s largest and most effective anti-poverty programs. In contrast to other work support and poverty alleviation programs, it achieves this with very little bureaucracy beyond what otherwise exists to administer the tax code.

Although the EITC began in 1975 as a small credit (no more than $400), a number of targeted expansions in subsequent years mean that today the EITC’s assistance can be considerable. In 2015, a single parent with three children working full-time all year at the federal minimum wage ($7.25 an hour) is eligible for a credit of $6,242, a boost of more than 40 percent above her earnings of $15,080 (though combined it still leaves her 12 percent below the federal poverty level).

However, the only way to obtain these substantial benefits is to claim the EITC on the annual federal income tax return. While lump-sum payments have perceived benefits (such as being able to pay off debts, make larger purchases, or force savings), the EITC’s single annual disbursement can present a challenge for the working parent trying to make ends meet throughout the year. It can also be problematic for households wanting to stretch out their refund as an emergency savings reserve.

My 2008 paper, “Periodic Payment of the Earned Income Tax Credit,” proposed an option that would allow a family to receive a portion of the EITC outside of tax time, striking a balance between lump-sum delivery and the need for resources throughout the year. Specifically, half of the credit could be claimed in four payments spread out during the year, while the remaining credit would continue to be paid as part of the tax refund.

Since then, several significant developments have occurred. A little-used option for receiving some of the EITC in each paycheck ended in 2010. In 2014, the federal government initiated a new tax credit advance payment process to subsidize health insurance premiums through monthly disbursement of the Affordable Care Act’s Premium Tax Credit. Other countries providing assistance similar to the EITC have continued to innovate and offer access to benefits during the year. Finally, members of Congress and think tanks have proposed alternatives to a single lump-sum disbursement of the EITC, and others have begun to explore and experiment with alternatives, most notably in Chicago, where a 2014 pilot program made quarterly payments to 343 households.

In light of these developments, this paper reviews the author’s original EITC periodic payment proposal, examines emerging alternatives, and addresses the following key questions:

• What is the demand for periodic payment alternatives?
  
  
• What benefits will accrue from the availability of periodic payment?
  
  
• What risks are associated with periodic payment and how can they be managed?
  
  
• What is the administrative feasibility of periodic payment?

The emerging answers point a way forward for identifying different distribution options that would enhance the EITC’s value to low- and moderate-income working families.

Downloads

• Report

       

The Earned Income Tax Credit (EITC) supports millions of single parents and their children each year. Although the majority of these are single moms, Father’s Day provides a good reminder that single dads are also a significant part of the equation.

Using Brookings’ MetroTax model, we estimate that roughly half (49 percent) of all EITC-eligible tax filers in 2014 filed as head of household—a group that includes many single custodial parents. Of these estimated 13.1 million filers, 8.9 million were women, and 4.2 million were men. These female-headed households included an estimated 14.7 million qualifying children, while their male counterparts included 6 million qualifying children.

Although women head of household filers were more likely to be EITC-eligible (69 percent), male heads of household were not far behind, with an estimated 61 percent eligible to receive the EITC in 2014.

To learn more about the EITC-eligible population, visit Brookings’ EITC data interactive.

       

       

       

Executive Summary

At the invitation of President George W. Bush, the G20 leaders met on November 15, 2008, in Washington, DC, in response to the worldwide financial and economic crisis. With this summit meeting the reality of global governance shifted surprisingly quickly. Previously, major global economic, social and environmental issues were debated in the small, increasingly unrepresentative and often times ineffectual circle of G8 leaders. Now, there is a larger, much more legitimate summit group which can speak for over two-thirds of the world’s population and controls 90% of the world’s economy.

The successful first G20 Summit provides a platform on which President-elect Obama can build in forging an inclusive and cooperative approach for resolving the current financial and economic crisis. Rather than get embroiled in a debate about which country is in and which country is out of the summit, the new U.S. administration should take a lead in accepting the new summit framework for now and focus on the substantive issues. Aside from tackling the current crisis, future G20 summits should also drive the reform of the international financial institutions and address other major global concerns—climate change, poverty and health, and energy among others. With its diverse and representative membership of key countries and with a well-managed process of summit preparation and follow-up the new G20 governance structure would allow for a more inclusive deliberation and more effective response to today’s complex global challenges and opportunities.

Policy Brief #168

A Successful G20 Summit—A Giant Step Forward

Once announced, there was speculation that the G20 Summit would be at best a distraction and at worst a costly failure, with a lame duck U.S. president hobbled by a crisis-wracked economy and a president-elect impotently waiting at the sidelines, with European leaders bickering over seemingly arcane matters, and with the leaders of the emerging economies sitting on the fence, unwilling or unprepared to take responsibility for fixing problems not of their making.

As it turned out, the first G20 Summit was by most standards a success. It served as a platform for heads of state to address the current financial turmoil and the threats of the emerging economic crisis facing not only the U.S. and Europeans, but increasingly also the rest of the world. The communiqué unmistakably attributes blame for the crisis where it belongs—to the advanced countries. It lays out a set of principles and priorities for crisis management and an action plan for the next four months and beyond, and it promises to address the longer-term agenda of reform of the global financial system. Very importantly, it also commits the leaders to meet again in April 2009 under the G20 umbrella. This assures that the November G20 Summit was not a one-off event, but signified the beginning of a new way of managing the world economy. The U.S. Treasury, which apparently drove the decision to hold the G20 rather than a G8 summit and which led the brief preparation process, deserves credit for this outcome.

A Long Debate over Global Governance Reform Short-circuited

With this successful summit a number of unresolved issues in global governance were pushed aside virtually overnight:

• The embarrassing efforts of past G8 summits to reach out to the leaders of emerging market economies with ad hoc invitations to join as part-time guests or through the well-meaning expedient of the “Heiligendamm Process”—under which a G8+5 process was to be institutionalized—were overtaken by the fact of the G20 summit.
• A seemingly endless debate among experts about what is the optimal size and composition for an expanded summit—G13, G14, G16, G20, etc. —was pragmatically resolved by accepting the format of the already existing G20 of finance ministers and central bank presidents, which has functioned well since 1999. With this, the Pandora’s Box of country selection remained mercifully closed. This is a major accomplishment, which is vitally important to preserve at this time.
• The idea of a “League of Democracies” as an alternative to the G8 and G20 summits, which had been debated in the U.S. election, was pushed aside by the hard reality of a financial crisis that made it clear that all the key economic players had to sit at the table, irrespective of political regime.
• Finally, the debate about whether the leaders of the industrial world would ever be willing to sit down with their peers from the emerging market economies as equals was short circuited by the picture of the U.S. president at lunch during the G20 Summit, flanked by the presidents of two of the major emerging economies, Brazil and China. This photograph perhaps best defines the new reality of global governance in the 21st Century.

Is the G20 Summit Here to Stay?

The communiqué of the November 15, 2008 Summit locked in the next G20 summit and hence ordained a sequel that appears to have enshrined the G20 as the new format to address the current global financial and economic crisis over the coming months and perhaps years. Much, of course, depends on the views of the new U.S. administration, but the November 2008 Summit has paved the way for President Obama and his team to move swiftly beyond the traditional G8 and to continue the G20 format.

In principle there is nothing wrong with exploring options for further change. However at this juncture, we strongly believe that it is best for the new U.S. administration to focus its attention on making the G20 summit format work, in terms of its ability to address the immediate crisis, and in terms of subsequently dealing with other pressing problems, such as global warming and global poverty. There may be a need to fine-tune size and composition, but more fundamental changes, in our view, can and should wait for later since arguments about composition and size—who is in and who is out—could quickly overwhelm a serious discussion of pressing substantive issues. Instead, the next G20 Summit in the United Kingdom on April 2, 2009 should stay with the standard G20 membership and get on with the important business of solving the world’s huge financial and economic problems.

One change, however, would be desirable: At the Washington Summit in November 2008 two representatives for each country were seated at the table, usually the country’s leader and finance minister. There may have been good reasons for this practice under the current circumstances, since leaders may have felt more comfortable with having the experts at their side during intense discussions of how to respond to the financial and economic crisis. In general, however, a table of 40 chairs undoubtedly is less conducive to an open and informal discussion than a table half that size. From our experience, a table of 20 can support a solid debate as long as the format is one of open give and take, rather than a delivery of scripted speeches. This is not the case for a table with 40 participants. The G8 format of leaders only at the table, with prior preparation by ministers who do not then participate in the leaders level summits, should definitely be preserved. To do otherwise would dilute the opportunity for informal discussion among leaders, which is the vital core of summit dynamics.

What Will Happen to the G8 Summit and to the G7 and G20 Meetings of Finance Ministers?

As the world’s financial storm gathered speed and intensity in recent months, the inadequacy of the traditional forums of industrial countries—the G8 group of leaders and the G7 group of finance ministers—became obvious. Does this mean that the G8 and G7 are a matter of the past? Most likely not. We would expect these forums to continue to meet for some time to come, playing a role as caucus for industrial countries. In any event, the G20 finance ministers will take on an enhanced role, since it will be the forum at which minister-level experts will lay the ground on key issues of global financial and economic management to ensure that they are effectively addressed at summit level by their leaders. The G20 Summit of November 15 was prepared by a meeting of G20 finance ministers in this fashion.

It may well be that the dynamics of interactions within the G20 will cause coalitions to be formed, shifting over time as issues and interests change. This could at times and on some issues involve a coalition of traditional G7 members. However, with increasing frequency, we would expect that some industrial countries would temporarily team-up with emerging market country members, for example on agricultural trade policies, where a coalition of Argentina, Australia, Brazil and Canada might align itself to challenge the agricultural protection policies of Europe, Japan and the United States. Or in the area of energy, a coalition among producer states, such as Indonesia, Mexico, Russia and Saudi Arabia might debate the merits of a stable energy supply and demand regime with an alliance among energy users, such as China, Europe, Japan, South Africa and the United States. It is this potential for multiple, overlapping and shifting alliances, which creates the opportunities for building trust, forcing trade-offs and forging cross-issue compromises that makes the G20 summit such an exciting opportunity.

What Should Be the Agenda of Future G20 Summits?

The communiqué of the November 2008 G20 Summit identified three main agenda items for the April 2009 follow-up summit: (1) A list of key issues for the containment of the current global financial and economic crisis; (2) a set of issues for the prevention of future global financial crises, including the reform of the international financial institutions, especially the IMF and World Bank; and (3) a push toward the successful conclusion of the Doha Round of WTO trade negotiations.

The first item is obviously a critical one if the G20 is to demonstrate its ability to help address the current crisis in a meaningful way. The second item is also important and timely. The experience with reform of the global financial institutions in the last few years has demonstrated that serious governance changes in these institutions will have to be driven by a summit-level group that is as inclusive as the G20. We would hope that Prime Minister Gordon Brown, as chair—with his exceptional economic expertise and experience in the international institutions, especially the IMF—will be able to forge a consensus at the April 2 summit in regard to reform of the international financial institutions. The third agenda item is also important, since the Doha Round is at a critical stage and its successful conclusion would send a powerful signal that the world community recognizes the importance of open trade relations in a time of crisis, when the natural tendency may be to revert to a protectionist stance.

However, we believe three additional topics should be added to the agenda for the April 2009 G20 Summit:

• First, there should be an explicit commitment to make the G20 forum a long-term feature of global governance, even as the group may wish to note that its size and composition is not written in stone, but subject to change as circumstances change.
• Second, the communiqué of the November summit stated that the G20 countries are “committed to addressing other critical challenges such as energy security and climate change, food security, the rule of law, and the fight against terrorism, poverty and disease”. This needs to be acted upon. These issues cannot be left off the table, even as the global financial and economic crisis rages. If anything, the crisis reinforces some of the key challenges which arise in these other areas and offers opportunities for a timely response. The U.K.-hosted summit should launch a G20 initiative to develop framework ideas for the post-Kyoto climate change agreement at Copenhagen.
• Third, assuming the April 2009 summit commits itself—as it should—to a continuation of the G20 summit format into the future, it must begin to address the question of how the summit process should be managed. We explore some of the possible options next.

How Should the G20 Summit Process Be Managed?

So far the G7, G8 and G20 forums have been supported by a loose organizational infrastructure. For each group the country holding the rotating year-long presidency of the forum takes over the secretariat function while a team of senior officials (the so-called “sherpas”) from each country meets during the course of the year to prepare the agenda and the communiqué for leaders and ministers. This organization has the advantage of avoiding a costly and rigid bureaucracy. It also fosters a growing level of trust and mutual understanding among the sherpas.

The problem with this approach has been two-fold: First, it led to discontinuities in focus and organization and in the monitoring of implementation. For the G20 of finance ministers, this problem was addressed in part by the introduction of a “troika” system, under with the immediate past and future G20 presidencies would work systematically with the current G20 presidency to shape the agenda and manage the preparation process. Second, particularly for the countries in the G20 with lesser administrative capacity, the responsibility for running the secretariat for a year during their country’s presidency imposed a heavy burden.

For the G20 summit, these problems will be amplified, not least because these summits will require first-rate preparation for very visible and high-level events. In addition, as the agenda of the G20 summit broadens over time, the burden of preparing a consistent multi-year agenda based on strong technical work will be such that it cannot be effectively handled when passed on year to year from one secretariat in one country to another secretariat in another country, especially when multiple ministries have to be engaged in each country. It is for this reason that the time may have come to explore setting up a very small permanent secretariat in support of the G20 summit.

The secretariat should only provide technical and logistical support for the political leadership of the troika of presidencies and for the sherpa process, but should not run the summit. That is the job of the host member governments. They must continue to run the summits, lead the preparations and drive the follow-up. The troika process will help strengthen the capacity of national governments to shoulder these burdens. Summits are the creatures of national government authorities where they have primacy, and this must remain so, even as the new summits become larger, more complex and more important.

Implications for the Obama Administration

The November 2008 G20 Summit opened a welcome and long-overdue opportunity for a dramatic and lasting change in global governance. It will be critical that the leaders of the G20 countries make the most of this opportunity at the next G20 Summit on April 2. The presence of U.S. President Obama will be a powerful signal that the United States is ready to push and where necessary lead the movement for global change. President-elect Obama’s vision of inclusion and openness and his approach to governing, which favors innovative and far-reaching pragmatic responses to key national and global challenges, make him a great candidate for this role.

We would hope that President Obama would make clear early on that:

• He supports the G20 summit as the appropriate apex institution of global governance for now;
• He may wish to discuss how to fine-tune the summit’s composition for enhanced credibility and effectiveness but without fundamentally questioning the G20 framework;
• He supports cooperative solutions to the current financial crisis along with a serious restructuring of the global financial institutions;
• He will look to the G20 summit as the right forum to address other pressing global issues, such as climate change, energy, poverty and health; and
• He is ready to explore an innovative approach to effectively manage the G20 summit process.

These steps would help ensure that the great promise of the November 2008 G20 Summit is translated into a deep and essential change in global governance. This change will allow the world to move from a governance system that continues to be dominated by the transatlantic powers of the 20th century to one which reflects the fundamentally different global economic and political realities of the 21st century. It would usher in a framework of deliberation, consultation and decision making that would make it possible to address the great global challenges and opportunities that we face today in a more effective and legitimate manner.

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EXECUTIVE SUMMARY

A few influential Americans have begun to suggest that the United States should reduce its long-standing security commitment to Taiwan. Some say that Taiwan itself has chosen to improve relations with China, so the island has less need for advanced U.S. weaponry and a defense pledge. Others argue that Washington, to avoid unnecessary tensions with a rising China, should accommodate Beijing on the most neuralgic issue—Taiwan.

The first group overstates the limits of the ongoing Taiwan-China détente. True, progress has been made in normalizing, liberalizing, and institutionalizing the economic relationship. But, to the disappointment of many Chinese, none has occurred on political and security issues, because the Taiwan public is not ready to go there and serious conceptual differences exist on how to get there anyway. So the prospects for cross-Strait relations in the near-term are for modest, incremental progress only, or a stall.

The second group misunderstands the benefits and costs of a significant American accommodation to China regarding Taiwan (e.g. by sharply cutting back arms sales). In fact, Washington has frictions with China on a growing list of issues. Conceding to Beijing on Taiwan will not help us elsewhere. Moreover, our friends and allies (e.g. Japan and Korea) will worry that the United States might sacrifice their interests next for the sake of good relations with China. Finally, the primary reason China has failed to incorporate Taiwan on its terms is not U.S. arms sales but because its negotiating position is unacceptable to the Taiwan public.

As China rises and seeks to reshape East Asia more to its liking, how the United States responds will be a critical variable. It needs the right mix of accommodation and firmness. Giving way on Taiwan will neither pacify Beijing nor assure our allies.

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Introduction

Should the United States abandon Taiwan? Until recently, even to pose such a question would have been unthinkable in Washington. While the U.S. relationship with Taiwan may have had its ups and downs over the past six decades, but the strong American commitment has endured. But now, individuals who previously served in senior positions in the U.S. government are calling it into question. Theirs is not a modest proposal, and it deserves careful examination.

Some observers believe that Taiwan has become a strategic liability. They remind us that China regards the settlement of the Taiwan problem as its internal affair, yet the United States continues to provide the island with advanced weaponry and at least an implicit pledge to come to its defense. They echo Chinese diplomats who argue that our arms sales are the major obstacle to good U.S.-China relations. (These diplomats also assert that U.S. arms sales both discourage Taipei to negotiate seriously with Beijing and encourage Taiwanese politicians who have separatist agendas.) Therefore, it is argued, the United States needs to reconsider fundamentally its security support for Taiwan.

The most prominent voice for this point of view is Zbigniew Brzezinski, Jimmy Carter’s national security adviser. He argues that the hostility that arms sales foster in Beijing precludes whatever strategic cooperation a declining United States can secure from a rising China. Moreover, he says, “it is doubtful that Taiwan can indefinitely avoid a more formal connection with China,” and points to some version of the unification formula Beijing used for Hong Kong as a possible basis. That in turn would end the island’s need to depend on the United States for its security.[1] Others in this camp, more or less, include retired admiral Bill Owens, retired ambassador Chas Freeman, Charles Glaser of George Washington University, and the members of a policy panel assembled by the Miller Center of the University of Virginia.[2]

To make the conversation even more interesting, there are two other versions of this abandonment idea, ones that start with how Taiwan has changed since 2008:

• At least one conservative Congressman, a long-time supporter of Taiwan, believes that Taiwan was now working with an “autocratic China,” and since he opposes autocracy, the island’s government no longer deserved his support.[3] That is, Taiwan has abandoned U.S. values, which is bad, so he has abandoned Taiwan.
   
• A Portland State University scholar has argued that Taiwan seems to have decided that its own best interests require it to accommodate to China and rely much less on the United States (as Finland accommodated the Soviet Union during the Cold War). But in his view, this is good for Washington because it eliminates a long-time burden.[4]  And a Taiwan scholar recently argued that it was in the island’s own interest to get out of the middle of the China-U.S. rivalry.[5]

In the abstract, it should not be surprising that some Americans are rethinking U.S. support for Taiwan. We live in a new world. China’s power and international role are growing. It is in the interest of the United States to maximize areas of cooperation and mutual benefit with Beijing where possible, even as we demonstrate firmness when it overreaches (as it has). It is not in the U.S. interest to act in ways that lead Chinese leaders to conclude that America pursues a policy of containment. So, this logic goes, perhaps Washington should end commitments that are so offensive to China that it will not cooperate with the United States on projects of strategic value to us. Moreover, as the People’s Liberation Army (PLA) becomes more capable, America may find it harder operationally to honor its commitments to Taiwan, even if it wished to do so.

Taiwan Shifts Strategy

To sort through these competing ideas, it is necessary to understand how U.S.-China-Taiwan relations have changed in the last five years and what it means for U.S. policy.

For twenty-five years, Taiwan has faced a serious dilemma. On the one hand, many Taiwan companies benefit from investing in China to produce goods for the Chinese and international markets. On the other hand, China wishes to end Taiwan’s separate political status on terms similar to that used for Hong Kong, which most Taiwan people oppose. From around 1995 to 2008, Taiwan’s response to China’s political goals was to emphasize the island’s sovereignty, which only led Beijing to fear that Taiwan’s leaders intended to create a totally independent country. China in turn built up military capabilities to deter what it feared, which only made Taiwan more anxious. Washington worried that this action-reaction spiral might lead to war, and it periodically opposed some of Taipei’s initiatives.

Ma Ying-jeou won Taiwan’s 2008 presidential election by articulating a different vision: that the island could better preserve its prosperity, freedom, dignity, and security by engaging China rather than provoking it. Engagement would focus first on enhancing economic cooperation, thus avoiding contentious and unproductive political arguments. Expanding business ties would yield concrete benefits for both sides of the Taiwan Strait. Opening Taiwan universities to Mainland students would fill out enrollments and expose Chinese young people to a democratic society. In short, Ma believed, Taiwan could give China such a large stake in peace that it would not dare to risk that stake by coercing the island into submission. He made significant progress during his first term in removing obstacles to business and liberalizing trade, most notably in reaching an Economic Cooperation Framework agreement with China in 2010, the first step toward creating a free-trade area. Taiwan bounced back fairly quickly from the global economic crisis and had 4 percent growth in 2011. A growing stream of Chinese tourists buoyed some sectors of the Taiwan economy, and the number of Mainland students grew steadily.

Ma had another reason for engaging China: the United States. Taipei’s relations with Washington had suffered before 2008 because U.S. officials feared Taiwan’s political initiatives would spark a Chinese over-reaction, creating a conflict that might require American intervention. The reduction of tensions that Ma’s policies brought about calmed Washington’s fears and increased U.S. confidence that Taiwan’s intentions were constructive. The Bush and Obama administrations responded by improving U.S.-Taiwan relations, by approving three large arms-sales packages and extending other benefits.

Yet Ma’s China policy was not a total accommodation to Chinese wishes. Even though Beijing in 2009 exerted pressure on Taiwan to move toward political and security talks, Ma pushed back, and for good reason. The Taiwan public was not yet ready to support them, particularly the approximately 25 percent who retain the goal of total independence. In any case, there were serious conceptual differences between the two sides, specifically whether Taiwan was a sovereign entity for purposes of cross-Strait relations and the island’s international role. On the security side, China continued to build up its military capabilities relevant to Taiwan—particularly ballistic and cruise missiles. According to one think-tank’s analysis, an intensive missile barrage by the PLA can now ground Taiwan’s air force in the very early stages of a conflict, and Taiwan’s current defense strategy depends on its aircraft getting off the ground.[6] So Ma has spurned Chinese proposals for a peace accord because he does not see how it would improve Taiwan’s security, and his caution has persisted to this day.

In effect, Ma has pursued a mixed or hedging strategy toward China: engage it in areas that both benefit Taiwan and encourage Chinese restraint (economics and education); deflect Beijing on proposals that are not in the island’s interests (politics and security); and preserve a good relationship with the United States (to guard against the worst). A significant part of the Taiwan public—known as the Green Camp—was not happy with Ma’s mix of engagement and firmness. They feared he had put the island on a slippery slope to subordination and unification on China’s terms. The Greens would have preferred more firmness and less engagement. Yet so far, Ma’s strategy has the backing of the majority of island’s public, usually known as the Blue Camp. In the last election apparently, around 55 percent of voters approved of his approach while 45 percent remained skeptical or deeply opposed. 

Back to the Question of Abandonment

The fact that Ma is hedging the island’s bets should be reassuring to Americans who worry that Taiwan is, in effect, “abandoning the United States” for the sake of relations with China. Such strategic appeasement would only be happening if Taipei were willing to concede to Beijing on political and security matters. Yet Taiwan has been unwilling to abandon its claim that it is a sovereign entity and accept a solution similar to that applied to Hong Kong. Instead, it asserts what Ma calls “the sovereignty of the Republic of China.” Moreover, Taipei sees a continuing need for a deterrent against China’s use of its growing military capabilities. Even as it sees the value of enhancing Beijing’s stake in peace, it does not fully trust statements of peaceful intentions. And it is certainly not prepared to terminate its special security relationship with the United States.[7]

The more difficult question is whether the United States, for the sake of its own relationship with China, should, in effect, abandon Taiwan. China believes that U.S. political and security support for Taiwan is the primary reason it has not achieved its unification goal, because it fortifies the confidence of the island’s leaders that they can get away with refusing to negotiate on PRC terms. So Beijing believes that if it could induce Washington to end arms sales to Taiwan’s military, drop even an implicit commitment to defend the island if attacked, and support unification, its problem would be solved. So China would be very pleased if the United States abandoned Taiwan, and has suggested that if only Washington ended arms sales, U.S.-China relations would be problem free.

American analysts have offered several compelling reasons why the United States should not dissociate itself from Taiwan as long as Taiwan desires American support:[8]

• Although Taiwan has at times been the most important source of U.S.-China conflict, it is not the only one. For example, Beijing’s goals in East Asia are not limited to bringing the island back into the PRC fold. In addition, it seeks to expand its security perimeter away from its eastern and southern coast, where it was for decades. That in turn has meant that the PLA navy and air force are operating increasingly in the traditional domain of U.S. and Japanese forces.[9] Removing Taiwan as a problem would in no way end or reduce this mutual impingement; it would only change its location. Taiwan aside, Beijing would still regard American “socialization” as negative.
   
• U.S. allies and partners—Japan, the Republic Korea, and others not necessarily in the Asian region—have have much at stake in Washington’s future approach to Taiwan. Simply put, a United States that would abandon Taiwan could abandon them. Of course, there may be hypothetical reasons why America might withdraw support that stem from Taiwan’s policies rather than its own commitment. So the reasons for any abandonment would be important. But the fear remains.
   
• Whatever China says, U.S. arms are actually not the reason that Beijing has been unable to bring Taiwan “into the embrace of the Motherland.” More to the point, China has not been able to persuade Taiwan’s government and public to accept its formula, which is called “one country, two systems” and was the one used for Hong Kong. If China were to make an offer that was actually to Taiwan’s liking, it would not refuse because of U.S. arms sales. Of course, a weak and friendless Taiwan might conclude that it had no choice but to settle on whatever terms it could extract. But that is not an outcome to which Washington should be a party (nor is it really in China’s interest to gain Taiwan through intimidation).
   
• Finally, how a status quo United States and a reviving China cope with each other—their key foreign policy challenge for the rest of the century—will be played out over the next few decades in a series of test cases. North Korea, maritime East Asia, and Iran are a few of them. Taiwan is another. While active U.S. opposition to Taiwan’s unification with the Mainland would understandably lead Beijing to infer that our intentions are hostile across the board, supporting Beijing’s approach when Taipei objects would be a serious demonstration of weakness.

Should the United States concede to China on Taiwan, the lessons that Beijing would learn about the intentions of the United States would likely discourage its moderation and accommodation on other issues like Korea or maritime East Asia; in that respect, America’s friends and allies are right. Continuity of U.S. policy toward Taiwan will not guarantee that China’s actions in other areas will support the status quo, but it increases the likelihood that it will. Conversely, a China that addresses its Taiwan problem with creativity and due regard to the views on the island says something positive about what kind of great power the PRC will be. A more aggressive approach, one that relies on pressure and intimidation, signals reason for concern about its broader intentions. In this regard, Taiwan is the canary in the East Asian coal mine.

A Slippery Slope?

Even if Taipei does not make a proactive strategic decision to appease Beijing, and even if Washington does not seek to curry Chinese favor by sacrificing Taiwan’s interests, there remains the possibility that Taiwan might undermine itself through inattention or neglect. That is, Taiwan might assume that Beijing’s intentions are so benign that it is prepared to accept some version of the status quo over the long term. Yet China has a different objective—ending Taiwan’s de facto independence more or less on its terms—and it may not have infinite patience. The danger is, therefore, that a frustrated China might seek to exploit the power asymmetry between the two sides of the Strait and intimidate Taiwan into accepting “an offer it can’t refuse.”

So what can Taiwan do to forestall that day? The first thing is to not create the impression in Beijing that the door on unification is closing forever—which Taiwan is currently doing. In addition, there are things it can do at the margin to strengthen itself and therefore increase the confidence needed to resist PRC pressure.

• Economically, sustain the island’s competitiveness in shifting to a knowledge-based economy, and by liberalizing its economic ties with all its major trading partners, not just China. This will require eliminating some protectionist barriers, but the structural adjustment thus created will work to Taiwan’s benefit.
   
• Politically, reform the political system so that it does a better job of addressing the real challenges that Taiwan faces (rather than focusing on relatively superficial issues).
   
• Also politically, foster a clearer sense of what it means to say that Taiwan or the ROC is a sovereign entity, not just for its role in the international system but also regarding cross-Strait relations.
   
• Militarily, enhance the deterrent capabilities of Taiwan’s armed forces in ways that raise the costs and uncertainties for Beijing if it were ever to mount an intimidation campaign.

None of these forms of self-strengthening will be easy. But they will buoy Taiwan’s psychological confidence and reduce the chances of PRC pressure in the first place.

Because the United States has an interest in China approaching its Taiwan “test case” in a constructive manner—that is, avoiding intimidation and accommodating Taiwan’s concerns—it should help Taiwan where it can to improve its odds. The most obvious ways are economically, by drawing Taiwan into the circle of high-quality liberalization, and militarily, by supporting innovative and cost-effective ways to enhance deterrence.

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This speech focuses on the issue of affordable housing. It is a tough issue that is misunderstood and often maligned. It doesn't receive the kind of national or even local attention that it deserves. It is rarely discussed in a metropolitan context, even though many people realize that housing markets are metropolitan not local.

And it is not just about shelter or social justice. It is about economic competitiveness. It is about quality neighborhoods. It is about rewarding work and building wealth. And it is about community cohesion and continuity.

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Why is Springfield's economy proving so resilient?

Several reasons come to mind: You're a manageably sized regional hub. You've got a university and important hospital assets. And you stand at the brink of an enormously attractive natural area -- the Ozarks.

More and more in today's footloose economy, jobs and people flock to livable places with affordable housing, vibrant downtowns, cultural amenities and lots of close-by outdoor recreation.

And Springfield's got all that. Well, OK: Downtown hardly buzzes with "24-7" meeting and living as yet. But the university keeps students around, and meanwhile, nearby Branson remains one of the nation's foremost "drive-to" cultural attractions. Likewise, the beautiful "lake country" draws visitors and second-home buyers from all over the Midwest. In this case natural beauty really is natural capital: The famous Ozarks ambience continues to support a $1-billion-a-year tourist sector to cushion the blows of any national economic downturn.

No wonder the region paced the state's growth in the 1990s and now holds on better in bad times. Greater Springfield has service jobs, rolling hills, lakes, Andy Williams, retirees and their pensions, and reasonably priced new subdivisions. What's not to like?

But here's the harder question: Can Springfield stay attractive? Can it stay resilient? The worry is that signs of strain have now appeared after a decade of fast growth.

Many of these strains my colleagues and I detailed in a recent Brookings Institution report I co-authored, titled "Growth in the Heartland: Challenges and Opportunities for Missouri."

Springfield, we demonstrated, sprawled in the 1990s. Yes, the city proper grew by 8 percent. But mostly population moved ever outward during the decade, and that, we said, has brought problems.

Thousands of people flocked to smaller outlying towns like Willard, Strafford, Republic, Clever, Nixa and Ozark, which hit "hypergrowth" in the 1990s and struggled to keep up. Christian and Webster counties grew unsustainably by 66 and 31 percent, respectively. And even more disturbing some 28,000 people settled in unincorporated fringe areas ill-equipped to accommodate them with modern sewers and good services.

The result: Septic and fertilizer seepage from scattered new homes exacerbates the water-quality problems that have fouled Lake Taneycomo and Table Rock Lake. Taxes are increasing as local governments strain to provide the necessary roads, services or sewer lines in places that never needed them. And with more sprawl coming, more traffic and more mini-malls could cost the region its reputation as the heartland of rural America -- quaint, scenic and friendly. The bottom line: Highly dispersed, low-density development may well be undermining the durability of its growth.

In that sense, the real test of Springfield's resilience lies ahead and turns on its ability to manage its growth to make it sustainable. What is more, the best way for Springfield to continue to grow in high-quality ways would seem to be to continue to set the standard for land-use and environmental reform in Missouri -- a state that has lagged on promoting sensible land use and planning.

As a state, after all, Missouri needs to update its badly outmoded planning statutes to provide its regions more tools to manage change.

It needs to promote regional solutions among its many localities. And it needs to better align its transportation and infrastructure investment policies with the principles of sound land use and sensible planning.

In this regard, what the state does -- or doesn't do -- to manage growth matters for Springfield because, ultimately, it is the state that sets the rules for what type of growth occurs all over. By remaining virtually laissez-faire on growth and development topics, the state of Missouri may well be undercutting its future competitiveness.

Given that, Springfield should take seriously the fact that with its strong growth, fresh voice and signature environmental assets, it is well positioned to lead the state in promoting reform.

So Springfield should step forward on these issues -- as the state's new economic driver, and as its most progressive region.

Already southwest Missouri business leaders have come together to protect the lakes. Now the region should show the way in other ways, by hammering out a regional system for managing fast growth; rationalizing local government competition; and insisting on state action to allow all regions to make headway.

For that is the way for the Springfield region to prosper: To help itself, it must help nudge the entire state along. Only in that fashion will a distinctive region maintain its distinctive vitality.

      

Executive Summary

Tax increment finance (TIF) is a popular and potentially powerful tool for places that need economic development the most yet have the least to spend. By allowing jurisdictions to use portions of their tax base to secure public-sector bonds, the mechanism allows fiscally strapped localities to finance site improvements or other investments so as to "level the playing field" in economic development.

However, poorly designed TIF programs can cause problems. Not only can they increase the incentives for localities to engage in inefficient, zero-sum competition for tax base with their neighbors. Also, lax TIF rules may promote sprawl by reducing the costs of greenfield development at the urban fringe. It is therefore critical that state legislatures design TIF rules well.

In view of this, an analysis of the way TIF is designed and utilized in Missouri shows that:

• Missouri law creates the potential for overuse and abuse of TIF. Vague definitions of the allowable use of TIF permit almost any municipality, including those market forces already favor, to use it. Weak limits on its use for inefficient inter-local competition for tax base touch off struggles between localities. And the inclusion of sales tax base in the program tilts it toward lower-wage jobs and retail projects, which rarely bring new economic activity into a region.
  
  
• Thanks to these flaws, TIF is used extensively in high-tax-base Missouri suburban areas with little need for assistance in the competition for tax base. This is especially true in the St. Louis metropolitan area. There, TIF money very frequently flows to purposes other than combating "blight" in disadvantaged communities' its classic purpose. In fact, less than half of the 21 St. Louis-area cities that were using TIF in 2001 were disadvantaged or "at-risk" when evaluated on four indicaters of distress. On another measure, just seven of the 20 suburban areas using TIF fell into the "at-risk" category.
  
  
• TIF is also frequently being used in the outer parts of regions' particularly in the St. Louis area. Most notably, only nine of the St. Louis region's 33 TIF districts lie in the region's core. Conversely, 14 of the region's 38 TIF districts lie west of the region's major ring road (I-270). These districts, moreover, contain 57 percent of the TIF-captured property tax base in the region. By contrast, the Kansas City region shows a pattern more consistent with the revitalization goals of TIF. The vast majority of the districts lie in the region's center city, though the huge size of the city means many are still geographically far-flung.

In sum, poorly designed TIF laws are being misused at a time when state and local fiscal pressures require every dollar be spent prudently. As a result, a potentially dynamic tool for reinvestment in Missouri's most disadvantaged communities threatens to become an engine of sprawl as it is abused by high-tax-base suburban areas that do not need public subsidies.

For these reasons, Missouri would be well-served by significant reforms in the laws governing TIF:

• The allowable purposes for TIF should be more strictly defined to target its use to places with the most need for economic development.
  
  
• Higher level review of local determinations that TIF subsidies will support net contributions to the regional or state economy (the "but-for" requirement) should be implemented.
  
  
• Local TIF administrators should be required to show that TIF subsidies are consistent with land-use and economic development needs both locally and in nearby areas.

If such reforms were put in place, TIF could be returned to its attractive main purpose: that of providing resources that would not otherwise be available to localities that badly need them to promote needed economic development and redevelopment.

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The full story of the killing of Michael Brown, a young, black, unarmed man shot by a policeman in Ferguson, Missouri, is still unfolding—and the truth will not be known for some time. It is only after full investigations are completed that an objective evaluation of the incident can be made. Nonetheless, there is no doubt that the killing of the young man was unfortunate and has generated a serious debate about race relations in America, and on the relations between police and the communities that they are supposed to protect. The riots and massive looting portrayed not only the extent of criminality in America’s inner cities, but also the economic marginalization of the minority communities.

Coming not long after the successful U.S.-Africa Leaders Summit held in Washington, the Ferguson incident and the follow-up demonstrations have been rather unfortunate in as far as how Africans view America—in a way questioning America’s standing as a protector of human rights. The hostility towards the United States in regard to its treatment of African-Americans has dominated social media with claims that the incident shows that America should not claim leadership when it comes to human rights. Such criticisms by many other countries, including Russia and China, are widespread.

I was particularly surprised by the comments in the Kenyan media coverage of this topic. Here are some statements on the topic by readers of the most popular paper there—the Daily Nation:

(This is an apparent reference to the fact that the United States government issues travel advisories to countries like Kenya when such incidents occur and there are riots.)

(This statement is in reference to the U.S. government’s actions following the 2007-2008 post-election violence in Kenya.)

       

Event Information

As part of ongoing cooperative work with the U.S. Food and Drug Administration, the Engelberg Center for Health Care Reform has formed a council to bring together expert perspectives on the challenges facing antibacterial drug development. Designed to include representatives from academia, patient advocacy groups, industry, providers, and government agencies, the Brookings Council on Antibacterial Drug Development (BCADD), will convene twice a year to discuss pressing issues in the treatment of infectious diseases and potential steps to address them.  

The first BCADD meeting, held on August 30, 2012, brought stakeholders together to discuss the following:

• Ongoing antibacterial initiatives at FDA and the Clinical Trials Transformation Initiative
• Statistical and methodological approaches that could be harnessed to improve the efficiency of antibacterial drug development
• Balancing benefit-risk and uncertainty considerations with public health needs
• Next steps for council action

For more information on FDA’s Antibacterial Drug Development Task Force, click here.

Event Materials

• 30 antibacterial drug development summary
• Presentation Slides
• FINAL BCADD Discussion Guide 20120828
• FINAL May 9 Summary 20120828
• Participant List_Final

       

Event Information

As part of an ongoing cooperative agreement with the U.S. Food and Drug Administration (FDA), the Engelberg Center for Health Care Reform at Brookings has formed the Brookings Council on Antibacterial Drug Development (BCADD) to identify steps to address the major technical, regulatory, and financial barriers impeding antibacterial drug development. At the first meeting of the BCADD, stakeholders emphasized the importance of concentrating on discrete policy and program areas to revitalize the antibacterial drug development enterprise.

BCADD convened a diverse group of stakeholders, including FDA officials, industry and biotech representatives, payers, providers, clinicians, and academic researchers Wednesday, February 27, 2013, to discuss two of the economic challenges facing antibacterial drug development:

• Better understanding the potential role of incentives in drug discovery and development; and
• Identifying potential reimbursement models that can support both stewardship and expanded investment for antibacterial drug products.

Antibacterial development has moved slower than other therapeutic areas in part due to the challenges of achieving a return on investment under the current reimbursement system. New models are needed to incentivize research and development of antibacterial products and to separate reimbursement from unit sales in order to help preserve the effectiveness of existing and new antibacterial drugs. The workshop’s objectives are to support the development of pragmatic proposals for the larger stakeholder community to consider.

Event Materials

• meeting summary 20130925 FINAL
• Discussion Guide
• Participant List
• Presentation

       

While antibiotics are necessary and crucial for treating bacterial infections, their misuse over time has contributed to a rather alarming rate of antibiotic resistance, including the development of multidrug-resistance bacteria or “super bugs.” Misuse manifests throughout all corners of public and private life; from the doctor’s office when prescribed to treat viruses; to industrial agriculture, where they are used in abundance to prevent disease in livestock. New data from the World Health Organization (WHO) and U.S. Centers for Disease Control and Prevention (CDC) confirm that rising overuse of antibiotics has already become a major public health threat worldwide.

As drug resistance increases, we will see a number of dangerous and far-reaching consequences. First, common infections like STDs, pneumonia, and “staph” infections will become increasingly difficult to treat, and in extreme cases these infections may require hospitalization or treatment with expensive and toxic second-line therapies. In fact, recent estimates suggest that every year more than 23,000 people die due to drug-resistant infections in the U.S., and many more suffer from complications caused by resistant pathogens. Further, infections will be harder to control. Health care providers are increasingly encountering highly resistant infections not only in hospitals – where such infections can easily spread between vulnerable patients – but also in outpatient care settings.

Fundamental Approaches to Slowing Resistance

Incentivize appropriate use of antibiotics. Many patients and providers underestimate the risks of using antibiotics when they are not warranted, in part because these drugs often have rapid beneficial effects for those who truly need them.  In many parts of the world the perception that antibiotics carry few risks has been bolstered by their low costs and availability without a prescription or contact with a trained health care provider. Education efforts, stewardship programs, and the development of new clinical guidelines have shown some success in limiting antibiotic use, but these fixes are limited in scope and generally not perceived as cost-effective or sustainable. Broader efforts to incentivize appropriate use, coupled with economic incentives, may be more effective in changing the culture of antibiotic use. These options might include physician or hospital report cards that help impact patient provider selection, or bonuses based on standardized performance measures that can be used to report on success of promoting appropriate use.  While these might create additional costs, they would likely help control rates of drug resistant infections and outweigh the costs of treating them.

Reinvigorate the drug development pipeline with novel antibiotics. There has not been a new class of antibiotics discovered in almost three decades, and companies have largely left the infectious disease space for more stable and lucrative product lines, such as cancer and chronic disease. Antibiotics have historically been inexpensive and are typically used only for short periods of time, creating limited opportunities for return on investment. In addition, unlike cancer or heart disease treatments, antibiotics lose effectiveness over time, making them unattractive for investment. Once they are on the market, the push to limit use of certain antibiotics to the most severe infections can further constrict an already weak market.

Late last year, H.R. 3742, the Antibiotic Development to Advance Patient Treatment (ADAPT) Act of 2013, was introduced and referred to the House Energy and Commerce Subcommittee on Health. If enacted, the ADAPT Act would create a streamlined development pathway to expedite the approval of antibiotics that treat limited patient populations with serious unmet medical needs. This could potentially reduce costs and development time for companies, thereby encouraging investment in this space. Regulators have indicated that they would also welcome the opportunity to evaluate benefits and risk for a more selective patient subpopulation if they could be confident the product would be used appropriately. The bill has received a great deal of support and would help address a critical public health need.

Advance new economic incentives to remedy market failure. Innovative changes to pharmaceutical regulation, research and development (R&D), and reimbursement are necessary to alleviate the market failure for antibacterial drugs. A major challenge, particularly within a fee-for-service or volume-based reimbursement system, is providing economic incentives that promote investment in drug development without encouraging overuse.  A number of public and private stakeholders, including the Engelberg Center for Health Care Reform and Chatham House’s Centre on Global Health Security Working Group on Antimicrobial Resistance, are exploring alternative reimbursement mechanisms that  “de-link” revenue from the volume of antibiotics sold. Such a mechanism, combined with further measures to stimulate innovation, could create a stable incentive structure to support R&D.

Improve tracking and monitoring of resistance in the outpatient setting. There is increasing concern about much less rigorous surveillance capabilities in the outpatient setting, where drug-resistant infections are also on the rise. Policymakers should consider new incentives for providers and insurers to encourage a coordinated approach for tracking inpatient and outpatient resistance data. The ADAPT Act, mentioned above, also seeks to enhance monitoring of antibiotic utilization and resistance patterns. Health insurance companies can leverage resistance-related data linked to health care claims, while providers can capture lab results in electronic health records. Ultimately, this data could be linked to health and economic outcomes at the state, federal, and international levels, and provide a more comprehensive population-based understanding of the impact and spread of resistance. Current examples include the Food and Drug Administration’s (FDA) Sentinel Initiative and the Patient-Centered Outcomes Research Institute’s PCORnet initiative. 

Antibiotic resistance is an urgent and persistent threat. As such, patients and providers will continue to require new antibiotics as older drugs are forced into retirement by resistant pathogens. Stewardship efforts will remain critical in the absence of game-changing therapies that parry resistance mechanisms. Lastly, a coordinated surveillance approach that involves diverse stakeholder groups is needed to understand the health and economic consequences of drug resistance, and to inform antibiotic development and stewardship efforts.

       

Antimicrobial resistance is one of the most significant threats to public health globally. It will worsen in the coming decades without concerted efforts to spur the development of new antibiotics, while ensuring the appropriate use of existing antibiotics. Antimicrobial therapy is essential for treating and preventing bacterial infections, some of which can be life-threatening and acquired as a result of
critical medical interventions, including surgery, chemotherapy and dialysis. However, the international rise in antimicrobial resistance has weakened our antibiotic armamentarium and multi-resistant bacteria now cause over 150,000 deaths annually in hospitals around the world (WHO, 2013). Unfortunately, the evolution of drug-resistant pathogens is unavoidable due to random genetic changes in the pathogens that can render antibiotics ineffective. While antibiotic therapy can succeed in killing susceptible pathogens, it also inadvertently selects for organisms that are resistant. Because each exposure to antibiotics contributes to this process, efforts to restrict antibiotic usage only slow the development of resistance. Ultimately, innovative antimicrobial drugs with diverse mechanisms of action will be needed to treat emerging resistant pathogens.

Combating resistance

Inappropriate use of antibiotics contributes significantly to the acceleration of resistance. Needlessly exposing patients to antibiotics (for example, for viral or mild infections likely to resolve on their own), the use of overly broad-spectrum antibiotics and suboptimal doses of appropriate therapy hasten the evolution of resistant pathogens. While affordable, rapid and accurate point-of-care diagnostics are essential for determining appropriate therapy for many bacterial diseases, routine clinical use will be limited if the tests are too expensive or not accessible during routine clinical encounters. In the absence of a clear diagnostic result, many health care providers prescribe empiric broadspectrum therapy without knowing exactly what they are treating. Although inappropriate use is widespread in many parts of the world, where antibiotics are available without a prescription or oversight by a health care provider or stewardship team, overuse abounds even where antibiotic prescribing is more tightly regulated.

Studies conducted in the USA indicate that around 258 million courses of antibiotics are dispensed annually for outpatient use (Hicks, 2013) and up to 75 per cent of ambulatory antibiotic prescriptions are for the treatment of common respiratory infections, which may or may not be bacterial in origin (McCaig,1995). Recent evidence suggests that over half of these prescriptions are not medically indicated. For example, 60 per cent of US adults with a sore throat receive an antibiotic prescription after visiting a primary care practice or emergency department, despite the fact that only ten per cent require treatment with antibiotics. This is particularly troubling given the availability of rapid tests that can detect Group A Streptococcus, the bacteria responsible for the ten per cent of cases that require antibiotic treatment.

The overuse of antibiotics has been driven largely by their low cost and clinical effectiveness, which has led many patients to view them as cure-alls with few risks. This perception is reinforced by the fact that antibiotics are curative in nature and used for short durations. However, the clinical effectiveness of these drugs decreases over time, as resistance naturally increases, and this process is accelerated with inappropriate use. Moreover, there are numerous consequences associated with the use of antibiotics, including over 140,000 emergency department visits yearly in the USA for adverse incidents (mostly allergic reactions; CDC, 2013a). In addition, antibiotics can eliminate protective bacteria in the gut,
leaving patients vulnerable to infection with Clostridium difficile, which causes diarrhoeal illness that results in 14,000 deaths every year in the USA (CDC, 2013b). It is estimated that antimicrobial resistance costs the US health care system over US$20 billion annually in excess care and an additional $35 billion in lost productivity (Roberts et al., 2009).

The inappropriate use of antimicrobial drugs is particularly concerning because highly resistant pathogens can easily cross national borders and rapidly spread around the globe. In recent years, strains of highly drug-resistant tuberculosis, carbapenem-resistant Enterobacteriaceae and other resistant pathogens have spread outside their countries of origin within several years of their detection. Because resistant bacteria are unlikely to stay isolated, stewardship efforts must be improved globally and international attention is needed to improve surveillance of emerging pathogens and resistance patterns.

A major challenge for clinicians and regulators will be to find stewardship interventions that can be scaled-up and involve multiple stakeholders, including providers, drug manufacturers, health care purchasers (insurers), governments and patients themselves. Such interventions should include practical and costeffective educational programmes targeted towards providers and patients that shift expectations for antibiotic prescriptions to a mutual understanding of the benefits and risks of these drugs.

Educational programmes alone, however, will not be sufficient to lower prescribing rates to recommended levels. Pushing down the inappropriate use of antibiotics also warrants stronger mechanisms that leverage the critical relationships between the stakeholders. For example, health care purchasers can play an important role by using financial disincentives to align prescribing habits with clinical guidelines that are developed by infectious disease specialists in the private and public sectors. This type of approach has the potential to be effective because it includes multiple stakeholders that share responsibility for the appropriate use of antibiotics and, ultimately, patient care.

Key obstacles to antibiotic development

The continual natural selection for resistant pathogens despite efforts to limit antibiotic use underscores the need for new antibiotics with novel mechanisms of action. To date, antimicrobial drug innovation and development have not kept pace with resistance. The number of approved new molecular entities (NME) to treat systemic infections has been steadily declining for decades (see Figure 1). Some infections are not susceptible to any antibiotic and in some cases the only effective drugs may cause serious side effects, or be contra-indicated due to a patient’s allergies or comorbidities (e.g. renal failure). There is significant unmet medical need for therapies that treat serious and life-threatening bacterial diseases caused by resistant pathogens, as well as some less serious infections where there are few treatment alternatives available (e.g. gonorrhoea).

Antibiotic development for these areas of unmet medical need has been sidelined by a number of scientific, regulatory and economic obstacles. While the costs and complexity of any clinical trial necessary for approval by drug regulators can be substantial, in part due to the large study samples needed to demonstrate safety and efficacy, the infectious disease space faces a number of unique clinical challenges. Patients with serious drug-resistant infections may be in need of urgent antibiotic therapy, which can preclude efficient consent and timely trial enrolment procedures; prior therapy can also confound treatment effects if the patient is later enrolled in a trial for an experimental drug. In addition, many patients with these pathogens are likely to have a history of longterm exposure to the health care setting and may have significant comorbidities that render them less likely to meet inclusion criteria for clinical trials.

Emerging infections for which there are few or no treatment options also tend to be relatively rare. This makes it difficult to conduct adequate and well-controlled trials, which typically enrol large numbers of patients. However, clinical drug development can take many years and waiting until such infections are more common is not feasible. Another issue is that it may also not be possible to conclusively identify the pathogen and its susceptibility at the point of enrolment due to the lack of rapid diagnostic technologies. Ultimately, uncertainty about the aetiology of an infection may necessitate trials with larger numbers of patients in order to achieve sufficient statistical power, further compounding the challenge of enrolling seriously ill infectious disease patients in the first place.

The need to conduct large trials involving acutely ill patients that are difficult to identify can make antibiotic development prohibitively expensive for drug developers, especially given that antibiotics are relatively inexpensive and offer limited opportunities to generate returns. Unlike treatments for chronic diseases, antibiotic therapy tends to last no longer than a few weeks, and these drugs lose efficacy over time as resistance develops, leading to diminishing returns. The decline in antimicrobial drug innovation is largely due to these economic obstacles, which have led developers to seek more durable and profitable markets (e.g. cancer or chronic disease) in recent decades. There are only a handful of companies currently in the market and the development pipeline is very thin. Changes to research infrastructure, drug reimbursement and regulation are all potentially needed to revitalise antibiotic innovation.

Opportunities to streamline innovative antibiotic development

In the USA, several proposals have been made to expedite the development and regulatory review of antibiotics while ensuring that safety and efficacy requirements are met. In 2012, the US President’s Council of Advisors on Science and Technology recommended that the US Food and Drug Administration (FDA) create a ‘special medical use’ (SMU) designation for the review of drugs for subpopulations of patients with unmet medical need. Drug sponsors would be required to demonstrate that clinical trials in a larger patient population would need much more time to complete or not be feasible. A drug approved under the SMU designation could be studied in subgroups of patients that are critically ill, as opposed to the broader population, under the condition that the drug’s indication would be limited to the narrow study population. The SMU designation was discussed at an expert workshop convened by the Brookings Institution in August 2013. Many participants at the meeting agreed that there is a pressing need to develop novel antibiotics and that such a limited-use pathway could support the appropriate use of newly approved drugs.

The Infectious Diseases Society of America developed a related drug development pathway called the Limited Population Antibacterial Drug (LPAD) approval mechanism. The LPAD approach calls for smaller, faster and less costly clinical trials to study antibiotics that treat resistant bacteria that cause serious infections. Both the SMU and LPAD approaches would allow drug developers to demonstrate product safety and efficacy in smaller patient subpopulations and provide regulatory clarity about acceptable benefit–risk profiles for antibiotics that treat serious bacterial diseases. The US House of Representatives is currently considering a bill¹ that incorporates these concepts.

A recent proposal from the drug manufacturer industry for streamlined antibiotic development is to establish a tiered regulatory framework to assess narrow-spectrum antibiotics (e.g. active versus a specific bacterial genus and species or a group of related bacteria) that target resistant pathogens that pose the greatest threat to public health (Rex, 2013: pp. 269–275). This is termed a ‘pathogen-focused’ approach because the level of clinical evidence required for approval would be correlated with the threat level and feasibility of studying a specific pathogen or group of pathogens. The pathogen-focused approach was also highlighted at a recent workshop at the Brookings Institution (Brookings Institution, 2014). Some experts felt that the approach is promising but emphasised that each pathogen and experimental drug is unique and that it could be challenging to place them in a particular tier of a regulatory framework. Given that pathogen-focused drugs would likely be marketed internationally, it will be important for drug sponsors to have regular interactions and multiple levels of discussion with regulators to find areas of agreement that would facilitate the approval of these drugs.

Antibiotics with very narrow indications could potentially support stewardship as well by limiting use to the most seriously ill patients. Safe use of these drugs would likely depend on diagnostics, significant provider education, labelling about the benefits and risks of the product, and the scope of clinical evidence behind its approval. Because these antibiotics would be used in a very limited manner, changes would potentially need to be made to how they are priced and reimbursed to ensure that companies are still able to generate returns on their investment. That said, a more focused drug development programme with regulatory clarity could greatly increase their odds of success and, combined with appropriate pricing and safe use provisions, could succeed in incentivising antimicrobial drug development for emerging infections.

Endnote
1 H.R. 3742 – Antibiotic Development to Advance Patient Treatment (ADAPT) Act of 2013.

References
Barnett, M. L. and Linder, J. A., 2014. ‘Antibiotic prescribing to adults with sore throat in the United States, 1997–2010’. JAMA Internal Medicine, 174(1), pp. 138–140.

Brookings Institution, 2013. Special Medical Use: Limited Use for Drugs Developed in an Expedited Manner to Meet an UnmetMedical Need. Brookings Institution. Available at: www.brookings.edu/events/2013/08/01-special-medical-use

Brookings Institution, 2014. Modernizing Antibacterial Drug Development and Promoting Stewardship. Available at: www.brookings.edu/events/2014/02/07-modernizing-antibacterialdrug-development [Accessed 11 March 2014].

CDC, 2013a. Antibiotic resistance threats in the United States,2013 [PDF] CDC. Available at: www.cdc.gov/drugresistance/threatreport-2013/pdf/ar-threats-2013-508.pdf#page=25 [Accessed 16 January 2014].

CDC, 2013b. Clostridium difficile. Antibiotic resistance threats in the United States, 2013 [PDF] CDC. Available at: www.cdc.gov/drugresistance/threat-report-2013/pdf/ar-threats-2013-508.pdf#page=50 [Accessed 16 January 2014].

Hicks, L. A. et al., 2013. ‘US Outpatient Antibiotic Prescribing, 2010’. New England Journal of Medicine, 368(15), pp. 1461–1463.
Infectious Disease Society of America, 2012.

Limited Population Antibacterial Drug (LPAD) Approval Mechanism. Available at: www.idsociety.org/uploadedFiles/IDSA/News_and_Publications/IDSA_News_Releases/2012/LPAD%20one%20pager.pdf [Accessed 5 March 2014].

Infectious Disease Society of America, 2012. Limited Population Antibacterial Drug (LPAD) Approval Mechanism [PDF] Infectious
Disease Society of America. Available at: www.idsociety.org/uploadedFiles/IDSA/News_and_Publications/IDSA_News_Releases/2012/LPAD%20one%20pager.pdf  [Accessed 18 January 2013].

Kumarasamy, K. K., Toleman, M. A., Walsh, T. R. et al.,2010. ‘Emergence of a new antibiotic resistance mechanism in India,
Pakistan, and the UK: A molecular, biological, and epidemiological study’. Lancet Infectious Diseases, 10(9), pp. 597–602.

McCaig, L. F. and Hughes, J. M., 1995. ‘Trends in antimicrobial drug prescribing among office-based physicians in the United
States’. Journal of the American Medical Association, 273(3), pp. 214–219.

President’s Council of Advisors on Science and Technology, 2012. Report to the President on Propelling Innovation in Drug
Discovery, Development and Evaluation. Available at:www.whitehouse.gov/sites/default/files/microsites/ostp/pcast-fdafinal.pdf    [Accessed 5 March 2014].

Rex, J. H. et al., 2013. ‘A comprehensive regulatory framework to address the unmet need for new antibacterial treatments’. Lancet Infectious Diseases, 13(3), pp. 269–275.

Roberts, R. R., Hota, B., Ahmad, I. et al., 2009. ‘Hospital and societal costs of antimicrobial – Resistant infections in a Chicago
teaching hospital: Implications for antibiotic stewardship’. Clinical Infectious Diseases, 49(8), pp. 1175–1184.

WHO (World Health Organization), 2010. Fact Sheet: Rational Use of Medicines [webpage] WHO. Available at:
www.who.int/mediacentre/factsheets/fs338/en [Accessed 28 February 2014].

WHO (World Health Organization), 2013. Antimicrobial Drug Resistance [PDF] WHO. Available at: http://apps.who.int/gb/ebwha/pdf_files/EB134/B134_37-en.pdf [Accessed 6 March 2014].

WHO (World Health Organization), 2013. Notified MDR-TB cases (number per 100,000 population), 2005–12. WHO. Available at:
https://extranet.who.int/sree/Reports?op=vs&path=/WHO_HQ_Reports/G2/PROD/EXT/MDRTB_Indicators_map [Accessed 28 February 2014].

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• Antibiotics Stewardship and Innovation

       

After years of warnings from the public health community about the growing threat of antibiotic resistance, yesterday the White House announced a national strategy to combat the growing problem of antibiotic resistance within the U.S. and abroad. The administration’s commitment represents an important step forward, as antibiotic-resistant infections are responsible for 23,000 deaths annually, and cost over $50 billion in excess health spending and lost productivity.  The administration’s National Strategy on Combating Antibiotic-Resistant Bacteria includes incentives for developing new drugs, more rigorous stewardship of existing drugs, and better surveillance of antibiotic use and the pathogens that are resistant to them.  President Obama also issued an Executive Order that establishes an interagency Task Force and a non-governmental Presidential Advisory Council that will focus on broad-based strategies for slowing the emergence and spread of resistant infections. 

While antibiotics are crucial for treating bacterial infections, their misuse over time has contributed to a rather alarming rate of antibiotic resistance, including the development of multidrug-resistance bacteria or “super bugs.” Misuse manifests throughout all corners of public and private life; from the doctor’s office when prescribed to treat viruses; to industrial agriculture, where they are used in abundance to promote growth in livestock. New data from the World Health Organization (WHO) and U.S. Centers for Disease Control and Prevention (CDC) confirm that rising overuse of antibiotics has already become a major public health threat worldwide.

The administration’s announcement included a report from the President’s Council of Advisors on Science and Technology (PCAST) titled “Combatting Antibiotic Resistance,” which includes recommendations developed by a range of experts to help control antibiotic resistance. In addition, they outline a $20 million prize to reward the development of a new rapid, point-of-care diagnostic test. Such tests help health care providers choose the right antibiotics for their patients and streamline drug development by making it easier to identify and treat patients in clinical trials.  

The Need for Financial Incentives and Better Reimbursement

A highlight of the PCAST report is its recommendations on economic incentives to bring drug manufacturers back into the antibiotics market. Innovative changes to pharmaceutical regulation and research and development (R&D) will be welcomed by many in the health care community, but financial incentives and better reimbursement are necessary to alleviate the market failure for antibacterial drugs. A major challenge, particularly within a fee-for-service or volume-based reimbursement system is providing economic incentives that promote investment in drug development without encouraging overuse.

A number of public and private stakeholders, including the Engelberg Center for Health Care Reform and Chatham House’s Centre on Global Health Security Working Group on Antimicrobial Resistance, are exploring alternative reimbursement mechanisms that “de-link” revenue from the volume of antibiotics sold. Such a mechanism, combined with further measures to stimulate innovation, could create a stable incentive structure to support R&D. Further, legislative proposals under consideration by Congress to reinvigorate the antibiotic pipeline, including the Antibiotic Development to Advance Patient Treatment (ADAPT) Act of 2013, could complement the White House’s efforts and help turn the tide on antibiotic resistance. Spurring the development of new antibiotics is critical because resistance will continue to develop even if health care providers and health systems can find ways to prevent the misuse of these drugs.