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In the midst of a global economic downturn, the world’s climate change negotiators will descend on Copenhagen in December to craft a post-2012 climate regime. But with the timing and impacts of climate change still uncertain—not to mention the ongoing transitions brought about by globalization and the increased cost of capital investment due to weak financial markets—tensions across countries are evident. Policy-makers must now think creatively to realize their goal of revitalizing the global economy through low carbon growth models.

2009 Brookings Blum Roundtable: Related Materials
	Read the roundtable report - Climate Crisis, Credit Crisis: The Quest for Green Growth »  Read the conference policy briefs »  Download the participant list » (PDF) Download the scene setter » (PDF) Download the full roundtable agenda » (PDF)

In its sixth annual gathering, led by Kemal Derviş and co-chaired by Strobe Talbott and Richard C. Blum, the Brookings Blum Roundtable convened leaders from the climate change and global development communities from July 30 through August 1, 2009 to discuss and debate policy options to stimulate green, pro-poor growth. By examining the challenges and opportunities policymakers face, the roundtable forged sustainable solutions to solve the climate crisis in a way that revitalizes the global economy and lifts the lives of the poor.

Lunch Briefing: 

“Towards a Global Climate Agreement: Key Insights from Project Catalyst”

Keynote Sessions:

“A Blueprint for Transatlantic Climate Cooperation”

“Compounding Crises: How Can and How Are the Poor Protecting Themselves?”

“Greening Business: Engaging the Private Sector in Climate Change Solutions”

Hal Harvey, ClimateWorks Foundation

Thomas Heller, Stanford Law School

Moderator: William Antholis, Brookings

John Podesta, Center for American Progress

Cem Özdemir, German Green Party

Moderator: Timothy Wirth, United Nations Foundation

Ernest Aryeetey, University of Ghana and Director, Africa Growth Initiative at Brookings

Helen Clark, United Nations Development Program

Raymond Offenheiser, Oxfam America

Moderator: Karen Kornbluh, Center for American Progress

Meg McDonald, Alcoa Foundation

Jane Nelson, Harvard Kennedy School of Government

Glenn Prickett, Conservation International

Mark Tercek, the Nature Conservancy

       

       

       

       

       

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The last time policymakers substantially reviewed federal communications policy, it was the early 1990s. At that time, the Internet was only beginning to reveal itself to be the dynamic technology seen today. Mobile devices and services, such as 100 megabit broadband, smartphones, applications, social networks, tablets, and digital streaming, were barely imagined, let alone factored into policy discussions. As the recent debate around net neutrality highlights, policymakers today can be hamstrung in efforts to fit today's communications technologies and services into last century's communications law. Given that most major communications laws are out of step with today’s advanced mobile capabilities, what shape would smart, updated legislation and regulatory changes take? What are the major changes to U.S. communications law that most need to be addressed and implemented?

On March 24, the Center for Technology Innovation at Brookings hosted a conversation with Craig Silliman, general counsel and executive vice president for public policy at Verizon, to examine what 21st century communications polices might look like.

Video

• Updating communications law and regulations for the mobile era

Audio

• Updating communications law and regulations for the mobile era

Transcript

• Uncorrected Transcript (.pdf)

Event Materials

• 20150324_communications_law_transcript

      

       

       

       

       

       

       

Americans often think of our country as being one of great opportunity – where anyone can rise from very modest circumstances, if they work hard and make good choices. We believe that often remains true.

But, for children and youth growing up in poverty, such upward mobility in America is too rare. Indeed, just 30 percent of those growing up in poverty make it to middle class or higher as adults. Though we’ve made progress in reducing poverty over the past several decades, our poverty rates are still too high and our rate of economic advancement for poor children has been stuck for decades. That is an embarrassment for a nation that prides itself on everyone having a shot at the American Dream.

What can we do to reduce poverty and increase economic mobility? In our polarized and poisoned political atmosphere, it is hard to reach consensus on policy efforts. Both progressives and conservatives want lower poverty; but progressives want more public spending programs to improve opportunity and security for the poor, while conservatives generally argue for more responsibility from them before providing more help.

Even so, progressives and conservatives might not be as far apart as these stereotypes suggest. The two of us—one a conservative Republican and the other a progressive Democrat—were recently part of an ideologically balanced group of 15 scholars brought together by the American Enterprise Institute and the Brookings Institution. Our charge was to generate a report with policy proposals to reduce poverty and increase upward mobility. An additional goal was simply to see whether we could arrive at consensus among ourselves, and bridge the ideological divide that has so paralyzed our political leaders.

Together we decided that the most important issues facing poor Americans and their children are family, education and work. We had to listen to each other’s perspectives on these issues, and be open to others’ truths. We also agreed to be mindful of the research evidence on these topics. In the end, we managed to generate a set of policy proposals we all find compelling.

To begin with, the progressives among us had to acknowledge that marriage is a positive family outcome that reduces poverty and raises upward mobility in America. The evidence is clear: stable two-parent families have positive impacts on children’s success, and in America marriage is the strongest predictor of such stability. Therefore marriage should be promoted as the norm in America, along with responsible and delayed child-bearing.

At the same time, the conservatives among us had to acknowledge that investing more resources in the skills and employability of poor adults and children is crucial if we want them to have higher incomes over time. Indeed, stable families are hard to maintain when the parents – including both the custodial mothers and the (often) non-custodial fathers – struggle to maintain employment and earn enough to support their families. Investing in proven, cost-effective, education and training programs such as high-quality preschool and training for jobs in high-growth economic sectors can improve the skills and employability of kids from poor families and lift them out of poverty through work.

Another important compromise was that progressives acknowledged that expecting and even requiring adults on public assistance to work can reduce poverty, as we learned in the 1990s from welfare reform; programs today like Disability Insurance, among others, need reforms to encourage more work. And reforms that encourage innovation and accountability would make our public education programs for the poor more effective at all levels. We need more choice in public K-12 education (through charter schools) and a stronger emphasis on developing and retaining effective teachers, while basing our state subsidies to higher education institutions more heavily on graduation rates, employment, and earnings of their graduates.

Conservatives also had to acknowledge that requiring the poor to work only makes sense when work is available to them. In periods or places with weak labor markets, we might need to create jobs for some by subsidizing their employment in either the private or public sector (as we did during the Great Recession). We agreed that no one should be dropped from the benefit rolls unless they have been offered a suitable work activity and rejected it. And we also need to “make work pay” for those who remain unskilled or can find only low-wage jobs – by expanding the Earned Income Tax Credit (especially for adults without custody of children) and modestly raising the minimum wage.

We also all agreed on other topics. For instance, work-based learning—in the form of paid apprenticeships and other models of high-quality career and technical education—can play an important role in raising both skills and work experience among poor youth and adults.  And, if we raise public spending for the poor, we need to pay for it—and not increase federal deficits. We all agree that reducing certain tax deductions for high-income families and making our retirement programs more progressive are good ways to finance our proposals.

As our report demonstrates, it is possible for progressives and conservatives to bridge their differences and reach compromises to generate a set of policies that will reduce poverty and improve upward mobility. Can Congress and the President do the same?

Editor's Note: this piece first appeared in Inside Sources.

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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

       

Editor's Note: This blog post is part of The Primaries Project series, where veteran political journalists Jill Lawrence and Walter Shapiro, along with scholars in Governance Studies, examine the congressional primaries and ask what they reveal about the future of each political party and the future of American politics.

Even though they have come to dominate political campaigns, Super PACs and their shadowy counterparts are barely old enough to qualify for pre-kindergarten. Since these big-bucks independent groups have only been legal since 2010, we are still groping to understand the long-term role that Super PACs are apt to play in congressional politics—especially primaries.

With the demonization of the Koch Brothers by the Democrats and the attacks on liberal givers like Tom Steyer from the right, it is easy to assume that Super PAC donors are ideologues. Scorched-earth contests like the Mississippi Republican Senate primary further fuel this impression. Thad Cochran versus Chris McDaniel could be viewed as a proxy war between the GOP establishment (personified by Karl Rove's Super PAC American Crossroads) and the Tea Party (working through groups like Club for Growth Action).

But there is another very important, but far less publicized, role that Super PACs are playing in this year's congressional primaries. And when the internecine warfare in the Republican Party dies down, this type of Super PAC involvement in party primaries may become the norm.

Two recent GOP House primaries in winnable districts in New York illustrate this alternative model. In both cases, Super PACs took on the role—once left to the political parties—of vetting the candidates. Super PAC donors and their campaign consultants made their own decisions about who is electable and who has the right political pedigree. And in these New York primary contests without any clear ideological markers, heavy spending by Super PACs made all the difference.

Twenty-nine-year-old Elise Stefanik was a major beneficiary of Super PAC spending in her primary in New York's rural 21st District that runs from the Saratoga racetrack to the Canadian border. Stefanik has never run for public office before, but she boasts all of the right credentials to appeal to Washington Republican politicos. Even though she calls herself a "small businesswoman" in her TV ads, Stefanik served on the White House domestic policy staff under George W. Bush and was in charge of 2012 debate preparation for Paul Ryan.

Small wonder that American Crossroads and Karl Rove invested heavily in Stefanik's primary race, spending  $772,000 in attack ads excoriating her GOP rival, Matt Doheny. This was, by the way, the only House primary in the nation in which American Crossroads has made a significant investment to distinguish between Republicans. And the Super PAC's involvement was certainly not motivated by ideology. As the Watertown Daily Times put it on the eve of the Stefanik-Doheny primary, "It's difficult to point to a single issue on which a big divide exists between the two."

Yes, Doheny—a largely self-funding investment banker who had lost two prior races for the House—was a flawed Republican candidate. And Stefanik was the embodiment of the kind of message discipline beloved by campaign consultants. But it is hard to believe that electability alone prompted attack ads with tag lines like: "Matt Doheny—it would be a big mistake to send him to Congress."

American Crossroads, which spent more than either the Stefanik or Doheny campaigns, prevailed in the June 24th primary. Stefanik romped home with 61 percent of the primary vote.

The same pattern emerged in the Republican primary in New York's 1st District on the tip of Long Island. The major player this time was the US Jobs Council, which is heavily funded by hedge-fund mogul Robert Mercer, whose home is in the district. As Mother Jones reported in an article by Molly Redden, Mercer's Ahab-like obsession has been defeating Democratic incumbent Tim Bishop ever since the congressman voted for the Dodd-Frank financial reform legislation.

Both candidates in the Republican primary to oppose Bishop had their weaknesses in appealing to a conservative electorate. State Senator Lee Zeldin carried the burden of votes in Albany that could be interpreted as raising taxes. George Demos, a former SEC lawyer, was heavily supported by his wife's in-laws who, in normal times, are liberal California Democrats.

In truth, there were scant philosophical differences between the two conservative Republicans. Newsday columnist Lane Filler wrote, "Both oppose abortion, think taxes are too high, support gun rights, hate Common Core, favor a strong national defense, are against 'amnesty' for immigrants here illegally...I have not turned up any meaningful difference between them on policy."

But that didn't prevent the US Jobs Council from spending more than $200,000 on attack ads that portrayed Demos, who had been endorsed by Rudy Giuliani and George Pataki, as a creature of "Nancy Pelosi's people." A typical ad charged that Demos "is trying to use the Pelosi cash machine to buy a seat in Congress."

Even though Demos donated $2 million to his own campaign, it was not enough to hold off the onslaught of Super PAC attacks. In the end, Zeldin defeated Demos in the primary by a 62-to-38 percent margin.

Politico reporter Ken Vogel in his praiseworthy new book, Big Money, likens Super PAC donors to meddlesome "sports junkies who plunk down hundreds of millions of dollars to buy a professional team." Often the motivation of these mega-givers is the arrogant belief that because they are rich, they know more about politics than the pros. With it comes the certainty that they can pick winners and losers in primaries just like they do with stocks on Wall Street.

And that is why the heavy Super PAC influence in these two little-covered New York House primaries may represent the wave of the future in party politics.

      

Editor's Note: This blog post is part of The Primaries Project series, where veteran political journalists Jill Lawrence and Walter Shapiro, along with scholars in Governance Studies and the Campaign Finance Institute, examine the congressional primaries and ask what they reveal about the future of each political party and the future of American politics.

A great deal of attention has been paid to the existence of independent expenditure groups and to the billionaires who fund them. The Koch brothers and Sheldon Adelson, right wing billionaires in politics, and Tom Steyer, the newest left wing billionaire in politics, seem to have had nearly as much ink spilled on them as have the candidates and causes they endorse.  And no wonder. Americans are fascinated and worried about the question Darrell West poses in the second chapter of his new book Billionaires, “Can rich dudes buy an election?”

Tracking the sources and amounts of money in post Citizens United elections is a full time and complex job. Our hats go off to the Campaign Finance Institute who has recently completed the most extensive study ever of the role of independent expenditures in primary elections. Michael Malbin, Founding Director of the Center and author of the upcoming report on this year’s primaries, shows us just how big these groups, often funded by billionaires, have gotten.  In research focusing on independent spending in the 2014 congressional primaries, Malbin points out that in the 15 House races with the most independent expenditure money ($500,000 +) these expenditures counted for 76% as much as the candidates own campaign money. In Senate races, the independent expenditures accounted for 44% as much as the candidates own money.  Even the candidates themselves are worried about this trend since it often seems that outside groups can swamp a candidate’s own message.

Malbin also shows us why it is so hard to figure out what’s going on in an individual election. Only 49 of the 281 organizations that were around in the 2012 cycle spending money on behalf of congressional primary candidates were also around in 2014. That means that there were 232 new and different groups playing in 2014, posing challenges for the journalists and academics trying to track them.

The Campaign Finance Institute, however, has data on all these organizations from 2012 and 2014.  They have categorized them by ideology and, as the following chart shows, there are some interesting developments. For instance, while conservative independent expenditure groups remain the biggest spenders in the 2014 congressional primaries, their overall proportion of independent expenditures is down from 2012.  That year, conservative groups spent $40.5 million, nearly three quarters of total independent expenditures, compared to $9.3 million or 17 percent of total expenditures for Democrats.  In 2014, conservative groups upped their spending to $56.8 million, but their overall share of independent expenditures fell to 68% as liberal groups doubled their spending and increased their percentage of the total to 23%.

Even more surprising is the change in spending patterns within the Republican Party. As the following table shows, this really was the year when the establishment fought back. In 2012 anti-establishment spending by independent expenditure groups in congressional primaries constituted 59% of all such expenditures while spending by independent expenditure groups on behalf of establishment Republicans was only 36% of the total.  In two years, those numbers flipped.  In 2014, with control of the Senate at stake, the establishment mobilized independent expenditure groups which spent 55% of all the money spent by such groups while the anti-establishment groups spent only 37%.

 

There’s something for everyone in these findings. For the Democrats who have been on the defensive for much of this year but who have gotten through a primary season with few internal divisions, the increase in spending on their behalf and the sense that they will be able to run a good ground game in the key states where it really counts is a plus.

For the Republicans, the heavy spending by establishment groups has paid off in that they haven’t let weak candidates slip into the general election contest. They are probably as strong as they can be going into the fall campaign.

Nonetheless, tracking the money in this new election environment is a complex and full time job. And Darrell West’s question still hangs over us—“Can rich dudes buy an election?”

      

       

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).

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• 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.

       

       

Policy Brief #173

America needs to transform its energy system, and the Great Lakes region (including Minnesota, Wisconsin, Iowa, Missouri, Illinois, Indiana, Ohio, Michigan, Kentucky, West Virginia, western Pennsylvania and western New York) possesses many of the needed innovation assets. For that reason, the federal government should leverage this troubled region’s research and engineering strengths by launching a region-wide network of collaborative, high intensity energy research and innovation centers.

Currently, U.S. energy innovation efforts remain insufficient to ensure the development and deployment of clean energy technologies and processes. Such deployment is impeded by multiple market problems that lead private firms to under-invest and to focus on short-term, low-risk research and product development. Federal energy efforts—let alone state and local ones—remain too small and too poorly organized to deliver the needed breakthroughs. A new approach is essential.

	RECOMMENDATIONS
	The federal government should systematically accelerate national clean energy innovation by launching a series of “themed” research and commercialization centers strategically situated to draw on the Midwest’s rich complex of strong public universities, national and corporate research laboratories, and top-flight science and engineering talent. Organized around existing capacities in a hub-spoke structure that links fundamental science with innovation and commercialization, these research centers would engage universities, industries and labs to work on specific issues that would enable rapid deployment of new technologies to the marketplace. Along the way, they might well begin to transform a struggling region’s ailing economy. Roughly six compelling innovation centers could reasonably be organized in the Great Lakes states with total annual funding between $1 billion and $2 billion. To achieve this broad goal, the federal government should: Increase energy research funding overall. Adopt more comprehensive approaches to research and development (R&D) that address and link multiple aspects of a specific problem, such as transportation. Leverage existing regional research, workforce, entrepreneurial and industrial assets.

America needs to transform its energy system in order to create a more competitive “next economy” that is at once export-oriented, lower-carbon and innovation-driven. Meanwhile, the Great Lakes region possesses what may be the nation’s richest complex of innovation strengths—research universities, national and corporate research labs, and top-flight science and engineering talent. Given those realities, a partnership should be forged between the nation’s needs and a struggling region’s assets.

To that end, we propose that the federal government launch a distributed network of federally funded, commercialization-oriented, sustainable energy research and innovation centers, to be located in the Great Lakes region. These regional centers would combine aspects of the “discovery innovation institutes” proposed by the National Academy of Engineering and the Metropolitan Policy Program (as articulated in “Energy Discovery-Innovation Institutes: A Step toward America’s Energy Sustainability”); the “energy innovation hubs” created by the Department of Energy (DOE); and the agricultural experiment station/cooperative extension model of the land-grant universities.

In the spirit of the earlier land-grant paradigm, this network would involve the region’s research universities and national labs and engage strong participation by industry, entrepreneurs and investors, as well as by state and local governments. In response to local needs and capacities, each center could have a different theme, though all would conduct the kinds of focused translational research necessary to move fundamental scientific discoveries toward commercialization and deployment.

The impact could be transformational. If built out, university-industry-government partnerships would emerge at an unprecedented scale. At a minimum, populating auto country with an array of breakthrough-seeking, high-intensity research centers would stage a useful experiment in linking national leadership and local capacities to lead the region—and the nation—toward a more prosperous future.

The Great Lakes Energy System: Predicaments and Possibilities

The Great Lakes region lies at the center of the nation’s industrial and energy system trials and possibilities. No region has suffered more from the struggles of America’s manufacturing sector and faltering auto and steel industries, as indicated in a new Metropolitan Policy Program report entitled “The Next Economy: Rebuilding Auto Communities and Older Industrial Metros in the Great Lakes Region.”

The region also lies at ground zero of the nation’s need to “green” U.S. industry to boost national economic competitiveness, tackle climate change and improve energy security. Heavily invested in manufacturing metals, chemicals, glass and automobiles, as well as in petroleum refining, the Great Lakes states account for nearly one-third of all U.S. industrial carbon emissions.

And yet, the Great Lakes region possesses significant assets and capacities that hold promise for regional renewal as the “next economy” comes into view. The Midwest’s manufacturing communities retain the strong educational and medical institutions, advanced manufacturing prowess, skills base and other assets essential to helping the nation move toward and successfully compete in the 21st century’s export-oriented, lower-carbon, innovation-fueled economy.

Most notably, the region has an impressive array of innovation-related strengths in the one field essential to our nation’s future—energy. These include:

• Recognized leadership in R&D. The Great Lakes region accounts for 33 percent of all academic and 30 percent of all industry R&D performed in the United States.
• Strength and specialization in energy, science and engineering. In FY 2006, the Department of Energy sent 26 percent of its federal R&D obligations to the Great Lakes states and is the second largest federal funder of industrial R&D in the region. Also in 2006, the National Science Foundation sent 30 percent of its R&D obligations there.
• Existing clean energy research investments and assets. The University of Illinois is a key research partner in the BP-funded, $500 million Energy Biosciences Institute, which aims to prototype new plants as alternative fuel sources. Toledo already boasts a growing solar industry cluster; Dow Corning’s Michigan facilities produce leading silicon and silicone-based technology innovations; and the Solar Energy Laboratory at the University of Wisconsin-Madison, the oldest of its kind in the world, has significant proficiency in developing practical uses for solar energy. Finally, the region is home to the largest U.S. nuclear utility (Exelon), the nation’s largest concentration of nuclear plants and some of the country’s leading university programs in nuclear engineering.
• Industry potential relevant to clean energy. Given their existing technological specializations, Midwestern industries have the potential to excel in the research and manufacture of sophisticated components required for clean energy, such as those used in advanced nuclear technologies, precision wind turbines and complex photovoltaics.
• Breadth in energy innovation endeavors and resources. In addition to universities and industry, the region’s research laboratories specialize in areas of great relevance to our national energy challenges, including the work on energy storage systems and fuel and engine efficiency taking place at Argonne National Laboratory, research in high-energy physics at the Fermi National Accelerator Laboratory, and the work on bioenergy feedstocks, processing technologies and fuels occurring at the DOE-funded Great Lakes BioEnergy Research Center (GLBRC).
• Regional culture of collaboration. Finally, the universities of the Great Lakes area have a strong history of collaboration both among themselves and with industry, given their origins in the federal land-grant compact of market and social engagement. GLBRC—one of the nation’s three competitively awarded DOE Bioenergy Centers—epitomizes the region’s ability to align academia, industry and government around a single mission. Another example is the NSF-supported Blue Waters Project. This partnership between IBM and the universities and research institutions in the Great Lakes Consortium for Petascale Computation is building the world’s fastest computer for scientific work—a critical tool for advancing smart energy grids and transportation systems.

In short, the Great Lakes states and metropolitan areas—economically troubled and carbon-reliant as they are—have capabilities that could contribute to their own transformation and that of the nation, if the right policies and investments were in place.

Remaking America’s Energy System within a Federal Policy Framework

America as a whole, meanwhile, needs to overcome the massive sustainability and security challenges that plague the nation’s energy production and delivery system. Transformational innovation and commercialization will be required to address these challenges and accelerate the process of reducing the economy’s carbon intensity.

Despite the urgency of these challenges, however, a welter of market problems currently impedes decarbonization and limits innovation. First, energy prices have generally remained too low to provide incentives for companies to commit to clean and efficient energy technologies and processes over the long haul. Second, many of the benefits of longrange innovative activity accrue to parties other than those who make investments. As a result, individual firms tend to under-invest and to focus on short-term, low-risk research and product development. Third, uncertainty and lack of information about relevant market and policy conditions and the potential benefits of new energy technologies and processes may be further delaying innovation. Fourth, the innovation benefits that derive from geographically clustering related industries (which for many years worked so well for the auto industry) have yet to be fully realized for next-generation energy enterprises. Instead, these innovations often are isolated in secure laboratories. Finally, state and local governments—burdened with budgetary pressures—are not likely to fill gaps in energy innovation investment any time soon.

As a result, the research intensity—and so the innovation intensity—of the energy sector remains woefully insufficient, as pointed out in the earlier Metropolitan Policy Program paper on discovery innovation institutes. Currently, the sector devotes no more than 0.3 percent of its revenues to R&D. Such a figure lags far behind the 2.0 percent of sales committed to federal and large industrial R&D found in the health care sector, the 2.4 percent in agriculture, and the 10 percent in the information technology and pharmaceutical industries.

As to the national government’s efforts to respond to the nation’s energy research shortfalls, these remain equally inadequate. Three major problems loom:

The scale of federal energy research funding is insufficient. To begin with, the current federal appropriation of around $3 billion a year for nondefense energy-related R&D is simply too small. Such a figure remains well below the $8 billion (in real 2008 dollars) recorded in 1980, and represents less than a quarter of the 1980 level when measured as a share of GDP. If the federal government were to fund next-generation energy at the pace it supports advances in health care, national defense, or space exploration, the level of investment would be in the neighborhood of $20 billion to $30 billion a year.

Nor do the nation’s recent efforts to catalyze energy innovation appear sufficient. To be sure, the American Recovery and Reinvestment Act (ARRA) provided nearly $13 billion for DOE investments in advanced technology research and innovation. To date, Great Lakes states are slated to receive some 42 percent of all ARRA awards from the fossil energy R&D program and 39 percent from the Office of Science (a basic research agency widely regarded as critical for the nation’s energy future). However, ARRA was a one-time injection of monies that cannot sustain adequate federal energy R&D.

Relatedly, the Great Lakes region has done well in tapping two other relatively recent DOE programs: the Advanced Research Projects Agency–Energy (ARPA-E) and Energy Frontier Research Centers (EFRCs). Currently, Great Lakes states account for 44 and 50 percent of ARPA-E and EFRC funding. Yet, with ARPA-E focused solely on individual signature projects and EFRC on basic research, neither initiative has the scope to fully engage all of the region's innovation assets.

The character and format of federal energy R&D remain inadequate. Notwithstanding the question of scale, the character of U.S. energy innovation also remains inadequate. In this respect, the DOE national laboratories—which anchor the nation’s present energy research efforts—are poorly utilized resources. Many of these laboratories’ activities are fragmented and isolated from the private sector and its market, legal and social realities. This prevents them from successfully developing and deploying cost-competitive, multidisciplinary new energy technologies that can be easily adopted on a large scale.

For example, DOE activities continue to focus on discrete fuel sources (such as coal, oil, gas or nuclear), rather than on fully integrated end use approaches needed to realize affordable, reliable, sustainable energy. Siloed approaches simply do not work well when it comes to tackling the complexity of the nation’s real-world energy challenges. A perfect example of a complicated energy problem requiring an integrated end-use approach is transportation. Moving the nation’s transportation industry toward a clean energy infrastructure will require a multi-pronged, full systems approach. It will depend not only upon R&D in such technologies as alternative propulsion (biofuels, hydrogen, electrification) and vehicle design (power trains, robust materials, advanced computer controls) but also on far broader technology development, including that related to primary energy sources, electricity generation and transmission, and energy-efficient applications that ultimately will determine the economic viability of this important industry.

Federal programming fails to fully realize regional potential. Related to the structural problems of U.S. energy innovation efforts, finally, is a failure to fully tap or leverage critical preexisting assets within regions that could accelerate technology development and deployment. In the Great Lakes, for example, current federal policy does little to tie together the billions of dollars in science and engineering R&D conducted or available annually. This wealth is produced by the region’s academic institutions, all of the available private- and public-sector clean energy activities and financing, abundant natural resources in wind and biomass, and robust, pre-existing industrial platforms for research, next-generation manufacturing, and technology adoption and deployment. In this region and elsewhere, federal policy has yet to effectively connect researchers at different organizations, break down stovepipes between research and industry, bridge the commercialization “valley of death,” or establish mechanisms to bring federally-sponsored R&D to the marketplace quickly and smoothly.

A New Approach to Regional, Federally Supported Energy Research and Innovation

And so the federal government should systematically accelerate clean energy innovation by launching a series of regionally based Great Lakes research centers. Originally introduced in the Metropolitan Policy Program policy proposal for energy discovery-innovation institutes (or e-DIIs), a nationwide network of regional centers would link universities, research laboratories and industry to conduct translational R&D that at once addresses national energy sustainability priorities, while stimulating regional economies.

In the Great Lakes, specifically, a federal effort to “flood the zone” with a series of roughly six of these high-powered, market-focused energy centers would create a critical mass of innovation through their number, size, variety, linkages and orientation to pre-existing research institutions and industry clusters.

As envisioned here, the Great Lakes network of energy research centers would organize individual centers around themes largely determined by the private market. Based on local industry research priorities, university capabilities and the market and commercialization dynamics of various technologies, each Great Lakes research and innovation center would focus on a different problem, such as renewable energy technologies, biofuels, transportation energy, carbon-free electrical power generation, and distribution and energy efficiency. This network would accomplish several goals at once:

• Foster multidisciplinary and collaborative research partnerships. The regional centers or institutes would align the nonlinear flow of knowledge and activity across science and non-science disciplines and among companies, entrepreneurs, commercialization specialists and investors, as well as government agencies (federal, state and local) and research universities. For example, a southeastern Michigan collaboration involving the University of Michigan, Michigan State University, the University of Wisconsin and Ford, General Motors, and Dow Chemical could address the development of sustainable transportation technologies. A Chicago partnership involving Northwestern and Purdue Universities, the University of Chicago, the University of Illinois, Argonne National Lab, Exelon and Boeing could focus on sustainable electricity generation and distribution. A Columbus group including Ohio State University and Battelle Memorial Institute could address technologies for energy efficiency. Regional industry representatives would be involved from the earliest stages to define needed research, so that technology advances are relevant and any ensuing commercialization process is as successful as possible.
• Serve as a distributed “hub-spoke” network linking together campus-based, industry-based and federal laboratory-based scientists and engineers. The central “hubs” would interact with other R&D programs, centers and facilities (the “spokes”) through exchanges of participants, meetings and workshops, and advanced information and communications technology. The goals would be to limit unnecessary duplication of effort and cumbersome management bureaucracy and to enhance the coordinated pursuit of larger national goals.
• Develop and rapidly deploy highly innovative technologies to the market. Rather than aim for revenue maximization through technology transfer, the regional energy centers would be structured to maximize the volume, speed and positive societal impact of commercialization. As much as possible, the centers would work out in advance patenting and licensing rights and other intellectual property issues.Stimulate regional economic development. Like academic medical centers and agricultural experiment stations—both of which combine research, education and professional practice—these energy centers could facilitate cross-sector knowledge spillovers and innovation exchange and propel technology transfer to support clusters of start-up firms, private research organizations, suppliers, and other complementary groups and businesses—the true regional seedbeds of greater economic productivity, competitiveness and job creation.
• Build the knowledge base necessary to address the nation’s energy challenges. The regional centers would collaborate with K-12 schools, community colleges, regional universities, and workplace training initiatives to educate future scientists, engineers, innovators, and entrepreneurs and to motivate the region’s graduating students to contribute to the region’s emerging green economy.
• Complement efforts at universities and across the DOE innovation infrastructure, but be organizationally and managerially separate from either group. The regional energy centers would focus rather heavily on commercialization and deployment, adopting a collaborative translational research paradigm. Within DOE, the centers would occupy a special niche for bottom-up translational research in a suite of new, largely top-down innovation-oriented programs that aim to advance fundamental science (EFRCs), bring energy R&D to scale (Energy Innovation Hubs) and find ways to break the cost barriers of new technology (ARPA-E).

To establish and build out the institute network across the Great Lakes region, the new regional energy initiative would:

• Utilize a tiered organization and management structure. Each regional center would have a strong external advisory board representing the participating partners. In some cases, partners might play direct management roles with executive authority.
• Adopt a competitive award process with specific selection criteria. Centers would receive support through a competitive award process, with proposals evaluated by an interagency panel of peer reviewers.
• Receive as much federal funding as major DOE labs outside the Great Lakes region. Given the massive responsibilities of the proposed Great Lakes energy research centers, total federal funding for the whole network should be comparable to that of comprehensive DOE labs, such as Los Alamos, Oak Ridge and others, which have FY2010 budgets between $1 and $2 billion. Based on existing industry-university concentrations, one can envision as many as six compelling research centers in the Great Lakes region.

Conclusion

In sum, America’s national energy infrastructure—based primarily upon fossil fuels—must be updated and replaced with new technologies. At the same time, no region in the nation is better equipped to deliver the necessary innovations than is the Great Lakes area. And so this strong need and this existing capacity should be joined through an aggressive initiative to build a network of regional energy research and innovation centers. Through this intervention, the federal government could catalyze a dynamic new partnership of Midwestern businesses, research universities, federal laboratories, entrepreneurs and state and local governments to transform the nation’s carbon dependent economy, while renewing a flagging regional economy.

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Policy Brief #184

The Leahy-Smith America Invents Act (AIA) approved in September 2011 constitutes the most significant overhaul of the American patent system in decades. This policy brief examines some key patent law changes and studies mandated by the legislation, and provides recommendations for companies on successfully navigating the new landscape. [Editor's Note: the legislation was signed into law by President Obama on September 16, 2011.]

Perhaps most notably, the new law will move the United States away from a “first to invent” system and closer to the “first to file” approach used in much of the rest of the world. Other important changes include a new proceeding in the U .S. Patent and Trademark Office (PTO) for third-party challenges to the validity of a recently issued patent, an expanded mechanism for a third party to provide information to the PTO that could be used to narrow or eliminate claims in a pending patent application being prosecuted by a commercial rival, and the introduction of a new, broadly applicable patent infringement defense based on prior commercial use.

	RECOMMENDATIONS
	Under the “first to file” provision of the AIA, companies should be more careful when producing pre-filing disclosures for venues such as conferences and trade shows, with the understanding that under the AIA those disclosures may play a much larger role than in the past with respect to patentability of the associated IP.   Under the AIA, rights to an invention prior to a filing date will depend more on the history of relevant disclosures and less on nonpublic, internal company documents such as laboratory notebooks. All companies—large and small—should consider how to modify their procedures for protecting, evaluating, and filing patents on their inventions accordingly.   The AIA provides a grace period during which inventors can disclose their invention without losing the right to patent it, but leaves uncertainty regarding the definition of “disclosure”. Companies should carefully monitor case law and PTO actions that will undoubtedly help clarify this issue in the coming years.   Companies should reevaluate the extent and manner to which they use provisional patent applications to preserve IP rights.   In light of the increased number of mechanisms available to challenge the validity of pending and issued patents, companies engaged in patent prosecution should reconsider the tradeoffs of performing their own thorough prior art searches during patent prosecution. By finding and disclosing relevant prior art to the PTO, companies may reduce the likelihood that the disclosed prior art will be used successfully against them in future validity challenges.

In addition, there are several other aspects of the AIA that do not change patent law, but may have far reaching consequences. For example, an AIA mandated study by the Government Accountability Office promises to furnish vitally important information on the economic impact of patent litigation by non-practicing entities, and will almost certainly influence future patent legislation. Under the AIA, the hurdles small businesses face in protecting their patents internationally will also receive attention through a PTO study.

It will take many years to develop a mature body of case law and legal scholarship on the full impact of the AIA. What is clear today is that it will profoundly impact the ways that patents are filed, prosecuted, and litigated in the coming years. Companies and other entities that retool their patent strategies to address these changes will be in a much stronger position to maximize the value of their intellectual property (IP) portfolios.

First Inventor to File

One of the most significant components of the AIA concerns the move from a first to invent system to a first to file system. Under this provision, which takes effect 18 months after the AIA is enacted into law, an inventor may win the race to create the invention but lose the race to file the corresponding patent application, and thus lose the right to patent the invention.

However, the AIA includes an important exception in the form of a grace period allowing an inventor or others who obtained information from the inventor to make disclosures regarding the invention in advance of filing a patent application, as long as the application is filed within one year after the first disclosure. Some form of grace period has been a feature of the U.S. patent landscape since the 19th century, and allows an inventor time to examine the commercial practicability of the invention, engage in discussions with potential partners and customers and secure the resources necessary to draft a patent application.

The inclusion of both first to file language and a grace period in the new patent law creates what could amount to a hybrid between first to invent and first to file. For example, in the case of two inventors who independently disclose the same invention immediately following its conception, both the pre-AIA “first to invent” law and the post- AIA “first to file” law can favor the earlier discloser, who is by definition the earlier inventor if the disclosure is truly immediate. However, in the absence of disclosure in advance of a patent filing, pre-AIA law favors the earlier inventor, while the AIA “first to file” provision will favor the earlier filer.

As a result, under the AIA inventors and the companies that employ them must think much more carefully about how to manage pre-filing disclosures. Put simply, silence can be costly. To the extent that a company remains quiet about an invention while contemplating whether or not to pursue patent protection, it stands exposed to the possibility of losing the right to do so if a competitor files first. A company wishing to avoid this risk faces the additional challenge that the AIA does not specifically define what constitutes “disclosure” sufficient to preserve patentability. The use of provisional patent applications, which offer advantages including a more formalized way to document the dates and content of disclosures than activities such as presentations at trade shows, should also be reevaluated in light of the AIA.

Some companies may find themselves targeted by competitors’ disclosures engineered specifically to foreclose patent opportunities. To reduce vulnerability to such attacks, companies can engage in preemptive “defensive” disclosures, but must be mindful of the impacts of these disclosures on their own patent filing deadlines.

In addition, employees engaged in intellectual property creation can be made aware that there is an increased need to pursue timely steps to secure patent protection on new inventions. Internal company systems for documenting, reporting, and rewarding innovations can be modified to better match the provisions of the AIA. Companies should also consider the budgetary impact of the AIA in terms of the amount and timing of expenditures.

It is important to recognize that the AIA leaves substantial differences between the patent laws in the United States and those in other countries. For example, unlike in the United States both pre- and post-AIA, in Europe an inventor’s own public disclosures in the year prior to a patent filing can be invalidating prior art. To the extent that for financial or other reasons a company needs to defer filing a U.S. patent application to a future date, in one sense the systems have actually moved farther apart. This is due to what amounts to a newly incentivized option to buy some measure of protection in the U.S. by disclosing in advance of a filing at the cost of losing patentability in Europe. This requires careful consideration of disclosure plans.

Best Mode and Invalidity

The AIA does not alter the requirement that a patent application must “set forth the best mode contemplated by the inventor of carrying out” the invention. However, somewhat paradoxically, for proceedings commenced on or after the date of its enactment, the AIA eliminates the alleged failure to follow this requirement as grounds for asserting invalidity.

This change has the potential to alter a fundamental compact between an inventor and the government that is at the core of the patent system, which grants a patent holder the right to exclude others from practicing an invention in exchange for disclosing the best mode contemplated by the inventor. The AIA eliminates the failure to make this disclosure as grounds for asserting invalidity. Some inventors may view this as creating an incentive to intentionally withhold information on how to best carry out an invention.

Supplemental Examination

The AIA creates a new supplemental examination procedure, effective one year after enactment, allowing a patent owner to request that the PTO perform a supplemental examination to “consider, reconsider, or correct information believed to be relevant” to a patent. Subject to certain exceptions, this process can prevent a patent from being “held unenforceable on the basis of conduct” relating to this information.

The supplemental examination provision is particularly relevant to inequitable conduct allegations that are frequently raised by defendants in patent litigation. Defendants often try to identify information relating to the prosecution of patents that have been asserted against them that, in their view, indicates inequitable conduct rendering the patents unenforceable. Supplemental examination provides a way for a patent owner to preemptively attempt to inoculate a patent against such allegations.

Pre-Issuance Submissions

Beginning one year after the AIA is enacted, third parties will have the option of providing pre-issuance submissions of prior art accompanied by “a concise description of the asserted relevance of each submitted document” to the PTO in connection with a pending application. Such submissions can be used, for example, to attempt to prevent or hinder the issuance of a patent that the submitting party views as detrimental to its interests. However, to the extent that a patent examiner finds the arguments provided through a pre-issuance submission unconvincing, the resulting patent might actually be strengthened, not weakened.

Prior Commercial Use Defense to Infringement

Since 1999, alleged infringers of business method patents have had access to a “prior use” provision that can constitute a defense against infringement, provided certain conditions are met. For patents issued on or after the date of enactment of the AIA, the prior use defense can be applied, subject to certain exceptions, to patent infringement claims covering a much broader range of subject matter “consisting of a process, or consisting of a machine, manufacture, or composition of matter used in a manufacturing or other commercial process.”

Post-Grant Review Proceedings

Post-grant review proceedings are conducted through the PTO in order to reconsider alreadyissued patents, and can lead to the confirmation, cancellation, withdrawal, or modification of patent claims. T he phrase “post-grant review” is sometimes used to broadly refer to multiple types of post-grant proceedings including the ex parte and inter partes reexaminations available under pre- AIA patent law, and sometimes to more narrowly refer to a specific new review option created by the AIA (in fact, in the AIA itself the phrase is used in both the broad and narrow meanings).

Under pre-AIA patent law, a requester wishing to initiate an ex parte or inter partes reexamination provides the PTO with one or more published prior art references and an explanation why those references, in the view of the requester, raise a “substantial new question of patentability.” The PTO can either grant or deny the request; if the request is granted, an ex parte reexamination proceeds without any further input from the requester (unless the requester is the patent owner), while in an inter partes reexamination the requester participates during the reexamination process.

Both types of reexaminations have proven to be highly effective ways for third parties to challenge the validity of issued patent claims, often in tandem with or as a lower cost alternative to challenges adjudicated through the Federal court system and the International Trade Commission. According to data released by the PTO in June 2011, 92% of the requests for ex parte reexamination filed since the proceeding was introduced in the 1980s have been granted, and fewer than one quarter of patents subject to ex parte reexamination have emerged without any claim changes or cancellations. Inter partes reexamination was introduced in 1999; since then 95% of inter partes reexamination requests have been granted, and only 13% of patents subject to inter partes reexamination have survived with all claims confirmed.

The AIA leaves ex parte reexamination in place, but a year after enactment will replace inter partes reexaminations with “inter partes review” proceedings adjudicated by a newly renamed Patent Trial and Appeal Board within the PTO. The pre-AIA threshold to grant an inter partes reexamination of a “substantial new question of patentability” will be replaced with a higher threshold requiring that the PTO find a “reasonable likelihood that the petitioner would prevail with respect to at least one of the claims challenged in the petition.” This higher standard will also be applied to inter partes reexaminations filed during the transition period immediately following enactment of the AIA and preceding the shift to inter partes review. Inter partes review requests must be filed no earlier than nine months (and in some cases longer) after the grant or reissue of the patent being challenged.

Additionally, the AIA creates a new “post-grant review” process through which a petitioner who is not the patent owner can request the cancellation as invalid of one or more claims of a patent granted or reissued within the previous nine months. The PTO can authorize a post-grant review if the information presented by the petitioner, “if not rebutted, would demonstrate that it is more likely than not that at least one of the claims challenged in the petition is unpatentable.” Under the AIA this threshold can be satisfied not only using traditional invalidity arguments based on settled law, but also by a petition that raises “a novel or unsettled legal question that is important to other patents or patent applications.” This language amounts to an invitation to address “novel or unsettled” legal questions through the PTO, raising a number of issues relating to respective roles the courts and the PTO will play in resolving them.

For companies engaged in or threatened with patent litigation or those that simply want to launch a pre-emptive strike at patents held by a competitor, post-grant review introduces a new way to challenge patents. The AIA contains estoppel and other provisions intended to prevent a requester from having two bites at the apple by challenging a claim in both a PTO post-grant (or inter partes) review and a civil action or International Trade Commission proceeding. However, in some circumstances these provisions may turn out to be largely toothless, since patent cases often involve multiple defendants who form joint defense groups and engage in coordinated attacks on patent validity. There is nothing in the AIA preventing one defendant from challenging claim validity through a post-grant or inter partes review and another from simultaneously or later asserting invalidity of the same claims in the federal court system or at the International Trade Commission.

The AIA also expressly provides that, starting one year after enactment, statements by a patent owner filed in a federal court or with the PTO regarding claim scope can be cited to the PTO for consideration in ex parte, inter partes, and post-grant review proceedings to determine claim meaning.

Other Provisions

In addition to codifying many changes to patent law, including those described above, the AIA contains other provisions that will likely have a significant impact on the operation of the PTO and on future patent legislation. Several of these provisions are discussed below.

Fee Diversion

One of the most controversial aspects of the patent reform debate has pertained to the practice of fee diversion, which arises because the PTO takes in an amount in fees that exceeds its appropriation. The Senate version (S. 23) of the AIA passed in March 2011 provided for the creation of a fund that would have allowed the PTO roll over excess funds into future fiscal years. However, in the House version (H.R. 1249) passed in June 2011 that became the template for the final legislation, this provision was removed and replaced with a newly established “Patent and Trademark Fee Reserve Fund” to be held in the treasury and into which excess fees will be deposited. This approach does not cleanly put the fee diversion issue to rest, and the details of how the reserve fund will be managed in future years remain unclear.

Studies Mandated by the AIA

The AIA mandates several studies, including one to be performed by the Government Accountability Office to examine the “consequences of litigation by non-practicing entities, or by patent assertion entities,” to gather data, among other things, on the volume of litigation, the number of cases found to be without merit, the costs to patent holders, licensees, licensors, and inventors, the economic impact of this litigation, and the “benefit to commerce, if any, supplied by non-practicing entities or patent assertion entities that prosecute such litigation.”

“Non-practicing entities” and “patent assertion entities” are terms that are sometimes used to describe companies that have little or no business other than the assertion of patents. Patent litigation involving these entities has grown significantly in recent years, in large part due to the potential for large judgments and settlements. The GAO study provides an opportunity for an unbiased examination of a significant aspect of the litigation environment, and is likely to produce information that will be valuable in drafting future patent legislation.

The AIA also mandates that the PTO perform a study on international patent protections for small businesses. T he financial burden of obtaining international patent protection is particularly heavy for small companies due to the combined costs of performing many different country-specific filings. As a result, many small companies either avoid foreign filings altogether, or perform foreign filings only for a small subset set of countries and only for the patents that they believe to be the most valuable. A goal of the AIA-mandated study is to determine whether to recommend establishing a loan or grant program to help small businesses defray the costs associated with international patent protection.

It is likely the study will conclude that such a program would be beneficial to small businesses, but it is just as likely that implementing it will prove to be extremely difficult in the current budgetary environment. However, the study may influence future patent legislation in the United States and abroad, and may be useful in multilateral discussions regarding international patent protection.

Conclusion

The AIA will reshape how United States patents are obtained, challenged, and valued in acquisition, licensing, and litigation settlement discussions. Companies that overhaul their intellectual property strategies in light of the provisions of the AIA will be in a better position to maximize the value of their patent portfolios and to strengthen their options in patent litigation matters.

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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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The Ferguson Commission—convened by Missouri Governor Jay Nixon in the aftermath of the police shooting death of Michael Brown—was given a daunting task. Its charge was not only to examine the underlying causes of “the social and economic conditions that impede progress, equality, and safety in the St. Louis region,” but also to issue a report “containing specific, practical policy recommendations for making the region a stronger, fairer place for everyone to live.”

Reflecting the magnitude of that charge, the Ferguson Commission’s final report, released on Monday, totals almost 200 pages and contains 189 calls to action that span a range of issue areas, from police and court reform, to creating higher-quality education and training opportunities, to improving access to jobs, transportation, and affordable housing.

The sweeping scope of the report’s recommendations is in proportion to the complexity of the shifting economic and demographic trends and the legacy of racial discrimination that helped set the stage for last summer’s events. Like many of its neighboring communities, and suburbs across the country, Ferguson has recently experienced rapid demographic and economic changes, transitioning from a largely white to a majority black community that has seen its poor population double since 2000.

The report’s authors emphasize that they want readers to “realize how interconnected all of these issues are.” (That’s one reason for the interactive online design—to allow users to navigate across related initiatives, even if they fall in different issue areas.) And the commission situates their calls to action within a regional framework that recognizes these issues operate at a scale broader than one neighborhood or suburb.

Even so, the challenge of municipal fragmentation looms large, both in the commission’s report and in any move towards implementing its recommendations. The report acknowledges that “the current state of municipal fragmentation is both a result of and a propagator of racial disparity” and that many of St. Louis’ suburbs “have problems with budgets because of their small size.” The commission calls for consolidation of the region’s 60 local police departments and 81 municipal courts, a move which could improve oversight and compliance and save the region millions of dollars a year.

But the commission stops short of addressing the municipalities themselves, many of which would continue to struggle with strapped budgets even after these reforms. Capping the share of municipal revenue generated by fines and fees, as the state legislature has done, could help curb abusive practices, but it doesn’t solve the underlying problem. Many of these small municipalities don’t have the resources they need to meet their current budget obligations, let alone pay for additional services and programs that increase access to opportunity (like those called for in the Ferguson Commission’s report).

There is no easy solution, but there are models for the region to consider that could ameliorate the negative effects of fragmentation (e.g., municipal collaboration, municipal consolidation, and regional revenue sharing and governance structures) and potentially ease the way for the broader slate of reforms recommended by the commission.

Presented with a Gordian knot of a challenge, the Ferguson Commission has put forward its framework for changing the status quo—what it believes “to be the best starting point, the beginning of a path toward a better St. Louis.” And the reality is that failing to act on the deep-seated challenges facing the region means struggling suburbs like Ferguson, and their residents, will only fall further behind.

       

       

       

       

       

       

       

Editor's note: This article appears in the April 2015 issue of Global Forum. Click here to view the full publication.

Since passage of the Affordable Care Act in 2010, the last several years have seen a groundswell in physician payment and delivery reforms designed to achieve higher value health care through incentivizing higher quality care and lower overall costs. Accountable care models, for example, are achieving marked progress by realigning provider incentives toward greater risk-sharing and increased payments and shared savings with measured improvements in quality and cost containment. Medical homes are introducing greater care coordination and team-based care management, while the use of episode-based or bundled payments is removing perverse incentives that reward volume and intensity.

These reforms are coming just as the number of highly targeted, highly priced treatments continues to expand. The U.S. Food and Drug Administration (FDA) approved a decade-high 41 novel new drugs in 2014, many of them targeted therapies approved on the basis of increasingly sophisticated progress in genomics and the understanding of disease progression. In areas like oncology, such targeted treatments have grown as a percentage of global oncology market size from 11% in 2003 to 46% in 2013. New brand specialty drug spending in the U.S. is estimated to have been $7.5 billion in 2013, or 69% of total new drug spending. The growing prevalence of these drugs and their cost to the health system are setting the stage for significant flashpoints between industry, payers, and providers, seen most clearly in the debate over hepatitis C treatment costs that roiled stakeholder interactions for most of the past year. 

More of these targeted treatments are in the development pipeline, and a growing number of public policy efforts taking shape in 2015 are focused on accelerating their availability. The House of Representatives' 21st Century Cures Initiative, for example, has released a slew of legislative proposals aimed at promoting breakthrough innovation by increasing the efficiency of drug development and regulatory review. These efforts have significant downstream implications for the pace at which targeted and specialty therapies will become available, their associated costs, and the growing importance of demonstrating value in the postmarket setting.

As payers and providers continue their push toward increased value-based care, more innovative models for connecting such reforms to drug development are needed. Earlier collaboration with industry could enable more efficient identification of unmet need, opportunities to add value through drug development, and clearer input on the value proposition and evidentiary thresholds needed for coverage. Equally important will be unique public-private collaborations that invest in developing a better postmarket data infrastructure that can more effectively identify high value uses of new treatments and support achieving value through new payment reforms.

Stronger collaboration could also improve evidence development and the coverage determination process after a targeted  treatment has gained regulatory approval. Facilitated drug access programs like those proposed by the Medicare Administrative Contractor Palmetto GBA create access points for patients to receive targeted anti-cancer agents off-label while payers and industry gather important additional outcomes data in patient registries. More systematic and efficient use of policies like Medicare's Coverage with Evidence Development (CED), which allows for provisional coverage for promising technologies or treatments while evidence continues to be collected, could enable industry and payers to work together to learn about a medical product's performance in patient populations not typically represented in clinical studies. A CED-type model could be especially useful for certain specialty drugs: data collected as a condition of payment could help payers and providers develop evidence from actual practice to improve treatment algorithms, increase adherence, and improve outcomes. 

Finally, collaborations that support stronger postmarket data collection can also support novel drug payment models that further reward value. Bundled payments that include physician-administered drugs, for example, could encourage providers to increase quality while also incentivizing manufacturers to help promote evidence-based drug use and lower costs for uses that generate low value. Outcomes-based purchasing contracts that tie price paid to a medical product's performance could be another promising approach for high-expense treatment with clearly defined and feasibly measured outcomes.

Many of these ideas are not new, but as manufacturers, payers, providers, and patients move into an increasingly value-focused era of health care, it is clear that they must work together to find new ways to both promote development of promising new treatments while also making good on the promise of value-based health care reforms.

      

EXECUTIVE SUMMARY

Parents, educators, government ministers and policymakers in all contexts and countries around the world are concerned with learning and how to improve it. There are many reasons for this, but none is more important than the fact that learning is at the heart of success at the individual, community and global levels. Learning First is the title of this report, with the strong implication that learning should be the foremost goal of education policies worldwide.

The present review seeks not only to explain why this is the case but also focuses on what we need to know—that is, what research is needed—in order to improve learning in the decades to come, particularly among those children most in need. This question is addressed in the following six sections.

1. Learning Goals and Research. The first section begins with a historical synopsis of international education goals put forward in 1990 at the World Conference on Education for All in Jomtien (Thailand), in 2000 at the Education for All conference in Dakar, and later in 2000 as a part of the UN Millennium Development Goals for 2015. In 2011, the Center for Universal Education at the Brookings Institution published A Global Compact on Learning: Taking Action on Education in Developing Countries, which stated that there is a “global learning crisis—which affects children and youth who are out of school with limited learning opportunities and those who are in school but not learning the skills they need for their futures.” The present review of learning research in low-income countries follows from that report. The overall purpose is to explore the most pressing learning issues today that require further research attention in the years to come.
    
2. Learning Definitions and Contexts. This section reviews how the field of education has defined learning over the years. Here, learning is defined as a modification of behavior due to experience—such as in knowledge, skills, attitudes and values. Three main principles of effective learning are suggested: individual active involvement, social participation, and meaningful engagement. As a way to emphasize the importance of learning contexts, three individual stories—Illa, a four-year-old Quechua-speaking girl in Peru; Pawan, an eight-year-old primary school student in urban India; and Rachida, a young illiterate woman in rural Morocco—are provided in order to better explain the importance of learning as a culturally specific phenomenon. These stories help to illustrate a more general learning framework, encompassing the relationship between two dimensions of learning—its processes and contexts. A discussion follows concerning the need to disaggregate learners and their learning contexts—between countries and within countries—as a way to overcome frequent and simplistic generalizations about how the “average” child learns.
    
3. Global Change and the Contexts of Learning. This section considers the issue of global change on how learning and learning contexts are being transformed around the world. For example, researchers need to pay more attention to the impact of migration on children’s learning and on educational systems more broadly. In each instance of translocation, children confront the challenges of adapting to a new environment that may include different languages, dialects or cultures within the nonformal learning contexts of daily life. Similarly, in formal education contexts, student migrants have to cope with contrasts in culture, lifestyle and language of schooling, and demonstrate skills and achievement that may vary dramatically with their culture of origin. Other changes due to globalization include increased multilingualism in schools, growing overcrowding in classrooms, inability to keep up with teacher training, changes in intergenerational learning, and the growing importance of 21st-century skills. Based on these observations, it is suggested that learning contexts and needs should be understood as a shifting target.

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John Kerry to travel to Kenya and Djibouti next week

Exactly one year after U.S. Secretary of State John Kerry’s last multi-country tour of sub-Saharan Africa, he is preparing for another visit to the continent—to Kenya and Djibouti from May 3 to 5, 2015. In Kenya, Kerry and a U.S. delegation including Linda Thomas-Greenfield, assistant secretary of state for African affairs, will engage in talks with senior Kenyan officials on U.S.-Kenya security cooperation, which the U.S. formalized through its Security Governance Initiative (SGI) at the U.S.-Africa Leaders Summit last August. Over the past several years, the U.S. has increased its military assistance to Kenya and African Union (AU) troops to combat the Somali extremist group al-Shabab and has conducted targeted drone strikes against the group’s top leaders.  In the wake of the attack on Kenya’s Garissa University by al-Shabab, President Obama pledged U.S. support for Kenya, and Foreign Minister Amina Mohamed has stated that Kenya is currently seeking additional assistance from the U.S. to strengthen its military and intelligence capabilities.

Kerry will also meet with a wide array of leaders from Kenya’s private sector, civil society, humanitarian organizations, and political opposition regarding the two countries’ “common goals, including accelerating economic growth, strengthening democratic institutions, and improving regional security,” according to a U.S. State Department spokesperson. These meetings are expected to build the foundation for President Obama’s trip to Kenya for the Global Entrepreneurship Summit in July of this year.

On Tuesday, May 5, Kerry will become the first sitting secretary of state to travel to Djibouti. There, he will meet with government officials regarding the evacuation of civilians from Yemen and also visit Camp Lemonnier, the U.S. military base from which it coordinates its counterterror operations in the Horn of Africa region.

Protests erupt as Burundian president seeks third term

This week saw the proliferation of anti-government street demonstrations as current President Pierre Nkurunziza declared his candidacy for a third term, after being in office for ten years.  The opposition has deemed this move as “unconstitutional” and in violation of the 2006 Arusha peace deal which ended the civil war. Since the announcement, hundreds of civilians took to the streets of Bujumbura, despite a strong military presence. At least six people have been killed in clashes between police forces and civilians. 

Since the protests erupted, leading human rights activist Pierre-Claver Mbonimpa has been arrested alongside more than 200 protesters. One of Burundi’s main independent radio stations was also suspended as they were covering the protests.  On Wednesday, the government blocked social media platforms, including Twitter and Facebook, declaring them important tools in implementing and organizing protests. Thursday, amid continuing political protests, Burundi closed its national university and students were sent home. 

Amid the recent protests, Burundi’s constitutional court will examine the president’s third term bid. Meanwhile, U.N. secretary general Ban Ki-moon has sent his special envoy for the Great Lakes Region to hold a dialogue with president Nkurunziza and other government authorities. Senior U.S. diplomat Tom Malinowski also arrived in Bujumbura on Thursday to help defuse the biggest crisis the country has seen in the last few years, expressing disappointment over Nkurunziza’s decision to run for a third term.

China invests billions in African infrastructure

Since the early 2000s, China has become an increasingly significant source of financing for African infrastructure projects, as noted in a recent Brookings paper, “Financing African infrastructure: Can the world deliver?” This week, observers have seen an additional spike in African infrastructure investments from Chinese firms, as three major railway, real estate, and other infrastructure deals were struck on the continent, totaling nearly $7.5 billion in investments.

On Monday, April 27, the state-owned China Railway Construction Corp announced that it will construct a $3.5 billion railway line in Nigeria, as well as a $1.9 billion real estate project in Zimbabwe. Then on Wednesday, the Industrial and Commercial Bank of China (one of the country’s largest lenders) signed a $2 billion deal with the government of Equatorial Guinea in order to carry out a number of infrastructure projects throughout the country. These deals align with China’s “One Belt, One Road” strategy of building infrastructure in Africa and throughout the developing world in order to further integrate their economies, stimulate economic growth, and ultimately increase demand for Chinese exports. For more insight into China’s infrastructure lending in Africa and the implications of these investments for the region’s economies, please see the following piece by Africa Growth Initiative Nonresident Fellow Yun Sun: “Inserting Africa into China’s One Belt, One Road strategy: A new opportunity for jobs and infrastructure?”

      

       

       

       

Next Sunday’s first round of the Tunisian presidential election is unlikely to produce an outright winner but the country can already lay claim to the most democratic success story in the uncertain post-Arab Spring period.

Earlier this year, the Islamist-led National Constituent Assembly in Tunis produced a pluralist constitution that set the stage for a parliamentary contest on October 26 in which the incumbents lost. That simple fact of political alternation is a historic milestone: Ennahda is not the only Islamist party to lose the confidence of its initial protest-vote electorate, but it is the first to live to tell the tale.

Islamist participation in the democratic process

The birthplace of the Arab Spring offers a tantalizing third way toward Islamist participation in the democratic process: a Goldilocks outcome between Turkish majoritarianism and Egyptian militarism. Tunisia is different: it is smaller, lacks a hegemonic army, and Ennahda doesn’t have anywhere near a majority of votes.

The alluring tableau, however, conceals a fragmented elite and a scattered electorate. Twenty-seven parties declared candidates for president, although a handful have dropped out. Last month, more than 15,000 candidates running on over 1,300 party lists vied for 217 parliamentary seats. Only two-fifths of eligible adults registered to vote and less than two-thirds of them actually voted.

The main pattern to emerge from parliamentary elections is the same that has defined the country for decades: an existential battle between Islamists and anti-Islamists with a majority for neither. The Islamists lost six percentage points (32 percent) but the secularists were not exactly embraced. Taking into account non-registration and abstention, the victorious party Nidaa Tounes’s share of the legislative vote (38 percent) corresponds to roughly one out of five eligible voters.

These results accurately reflect a highly polarized society. Nidaa Tounes is led by presidential frontrunner Beji Caïd Essebsi, an 87-year-old who served under every regime since 1956 independence and who stoked voters’ fear of Ennahda’s “seventh century project” during the campaign. Ennahda’s leadership framed the election as a contest “between supporters of the revolution and supporters of the counter-revolution.” It is the only Muslim-majority country where nearly half of the population claims to never step foot in a mosque.

Do Tunisians favor “authoritarian government”?

For the first time since the 2011 revolution, polling this summer showed a majority of Tunisians favoring “authoritarian government” over an “unstable” democratic government. Also for the first time, Ennahda declined to field a presidential candidate to contain apprehensions about them. While Essebsi mostly enjoys an untainted reputation his party, Nidaa Tounes is a loose coalition including many holdovers from the previous regime.

The last time electoral democracies experienced a comparable juncture was not in 2013 Cairo or Gezi Park, but rather Rome during the tense 1970s. In 1976, the Italian Communist Party received one-third of the votes, making it the largest Communist electoral bloc west of the Iron Curtain. Frequent small-scale terrorist attacks took place against the backdrop of global tensions between NATO and Warsaw Pact members.

It is hard to remember a time when the term “socialism” provoked as much angst as “Sharia” does today, but Tunisia stands at a crossroads analogous to the old Cold War alternatives of Washington and Moscow, with Qatar and other Gulf states filling the shoes of the old “evil empire.”

Recognizing that Italy was too divided to govern alone, party leader Enrico Berlinguer proposed a historic compromise (compromesso storico) with the archenemy Christian Democrats to bridge a seemingly impassible cultural-political gap.

Ennahda party faces doubts

Today’s Ennahda party faces the same doubts as Communist leaders in postwar Europe: are they truly pluralist democrats? Do they accept power sharing? The executive director of Nidaa Tounes, Mondher Belhadj Ali, said in an interview in Tunis earlier this year that Ennahda must undergo the equivalent process of the various leftist parties in Europe during the Cold War. The party needs to renounce its “jihadist logic,” Belhadj said, in the same way that the German left distanced itself from international Marxist-Leninist creed at Bad Godesberg in 1959.^[1]

To be considered trustworthy despite its association with a revolutionary ideology, the Italian Communist Party (Partito Comunista Italiano, or PCI) underwent key shifts. Its leadership broke with the international Comintern by supporting Italy’s NATO membership. They also refused Moscow’s order of “intransigence” through silent partnership with a Christian Democrat-led government, giving way to the “via Italiana” – an Italian path – to socialism.

Why did the PCI pursue this path at a moment of rising strength, when their share of the vote was peaking at 32 percent? Italian Communists had no doubt noticed that NATO countries were willing to forego democratic outcomes in Chile three years earlier in the name of political stability and anti-communism.

“Alternative to the Islamic State”

It is also apparent that Ennahda’s leadership has correctly interpreted the West’s silence after the arrest of Egypt’s first democratically elected president last year. The party’s agreement to omit the word “Sharia” from the constitution, its decision to ban the extremist group Ansar Echaria and its voluntary departure from political posts in 2013 have been taken as early signs of a willingness to compromise. There is no exact Islamist equivalent to Moscow and the Comintern, but Ennahda has offered itself up as “the alternative to the Islamic State.” Ennahda has also adopted an official party line not to govern alone but only in alliance with other parties. Party leader Rached Ghannouchi said he hopes to avoid “the repetition of the Egyptian bilateral polarizing model.”

Political pressure already forced Ennahda and its partners to wage not merely ideological but also actual military war on violent Islamist extremism. The martyrs of the Tunisian Revolution now include not only the two secular politicians who were assassinated in the first half of 2013 but also the 39 Tunisian soldiers who have been killed since then – including five in an attack earlier this month.

The interim government has not hesitated to combat religious enemies of the state. President Moncef Marzouki, a human rights activist, looked ashen in an interview in his office this summer: “I deeply regret it: it means killing and arresting people but I have to defend this state” – at times leading to the deaths of a dozen combatants per month, including six on election weekend.^[2]

In the years since the revolution, through a mixture of coercion and conviction, the religious affairs ministry whittled down the number of prayer spaces under the control of Salafi extremists from over 1000 in 2011 to under 100 today. This summer, the government fired an imam who refused to say prayers for a soldier who died in a raid on an Islamist cell.”^[3]

Like Berlinguer before him, Ghannouchi has made timely visits to meet with American officials and offer democratic reassurances – but to far greater effect than the Italian Communists ever managed. Washington’s reception of the PCI is captured by the chiaroscuro headshot of Berlinguer on a June 1976 cover of Time declaiming “The Red Threat.” In 2012, the magazine named Ghannouchi one of the “World’s Most Influential People,” someone who offers “a vision of a moderate, modern and inclusive political movement.”

Critics will point out that shortly after the compromesso storico, the Communist Party’s electoral base bottomed out. Left-wing terrorism did taper off but not before the Red Brigades kidnapped and executed the Communists’ main Christian Democratic interlocutor, former Prime Minister Aldo Moro, in 1978.

Compromise may lead to national unity

With counterterrorism support to resist such extremist violence on the fringes and more enthusiastic backing from Western capitals, however, a Tunisian historic compromise may yet deliver the national unity that the country needs to advance to self-confident partisan rule – and mutual faith in political alternation. The recent announcement of joint U.S.-Tunisian counter-terrorism exercises and a gift of $14 million worth of equipment and supplies are small in scale but their timing conveys a broader reassurance.

The lack of a clear political mandate may turn out to be the hidden advantage of this inaugural election season in Tunisia. The country’s political parties can now use the first full presidency and parliamentary session of a democratic Tunisia to blaze a third way between military rule and majoritarian Islamist democracy.

Just as Italian communism was a different animal than the Soviet Communist Party, Tunisian exceptionalism is a real thing. The accelerated modernization period under Independence leader Habib Bourguiba after decolonization left behind the lowest illiteracy rate and lowest birthrate in the neighborhood. Its relatively peaceful democratic revolution has now passed several institutional milestones. As President Moncef Marzouki put it, “if the experiment in Islamic democracy doesn’t work here then it’s unlikely to work anywhere.”^[4]

The Italian Communist Party voted to dissolve itself almost 24 years ago, not long after the Berlin Wall fell and sealed its obsolescence. An equivalent geopolitical shift in Sunni Islam – away from the hegemony of ideologically rigid Gulf States – is as unimaginable now as was the thaw of November 1989. But a great compromise between the region’s modern nemeses – secularist and Islamist – could well dislodge the first brick.

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[1] Jonathan Laurence interview with Mondher Belhadj Ali, May 2014, Tunis, Tunisia.
[2] Jonathan Laurence interview with Tunisian President Moncef Marzouki, May 2014, Carthage, Tunisia.
[3] Jonathan Laurence Interview with Tunisian Minister of Religious Affairs Mounir Tlili, May 2014, Tunis, Tunisia.
[4] Ibid.

       

Editor’s Note: Brookings will hold an event and live webcast on Wednesday, August 26 to discuss the findings of the 2015 Financial and Digital Inclusion (FDIP) Report and Scorecard. Follow the conversation on Twitter using #FinancialInclusion 

Access to affordable, quality financial services is vital both for ensuring the financial well-being of individuals and for fostering broader economic development. Yet about 2 billion adults around the world still do not have formal financial accounts.

The Financial and Digital Inclusion Project (FDIP), launched within the Center for Technology Innovation at Brookings, set out to answer three key questions:

• Do country commitments make a difference in progress toward financial inclusion?
• To what extent do mobile and other digital technologies advance financial inclusion?
• What legal, policy, and regulatory approaches promote financial inclusion?

To answer these questions, the FDIP team spent the past year examining how governments, private sector entities, non-government organizations, and the general public across 21 diverse countries have worked together to advance access to and usage of formal financial services. This research informed the development of the 2015 Report and Scorecard — the first in a 3-year series of research on the topic.

For the 2015 Scorecard, FDIP researchers assessed 33 indicators across four dimensions of financial inclusion: Country commitment, mobile capacity, regulatory environment, and adoption of selected basic traditional and digital financial services.

The 2015 FDIP Report and Scorecard provide detailed profiles of the financial inclusion landscape in 21 countries, focusing on mobile money and other digital financial services.

On August 26, the Center for Technology Innovation will discuss the findings of the 2015 Report and Scorecard and host a conversation about key trends, opportunities, and obstacles surrounding financial inclusion among authorities from the public and private sectors.

Register to attend the event in-person or by webcast, and join the conversation on Twitter at #FinancialInclusion.

      

Editor’s Note: Brookings will hold an event and live webcast on Thursday, August 4 to discuss the findings of the forthcoming 2016 Financial and Digital Inclusion Project (FDIP) Report. Follow the conversation on Twitter using #FinancialInclusion.

The 2016 Brookings Financial and Digital Inclusion Project (FDIP) Report, the second annual report produced by the FDIP team, assesses national commitment to and progress toward financial inclusion through traditional and digital mechanisms in 26 countries.  

As in the 2015 report, the FDIP team analyzed four key dimensions of financial inclusion: country commitment, mobile capacity, regulatory environment, and adoption of formal financial services. The 2016 report amplifies the geographic diversity of the FDIP country sample by adding five new countries and features descriptions of the financial inclusion landscape in all 26 countries.

The 2016 FDIP Report finds that significant progress has been made toward advancing financial inclusion in many countries, and robust commitment to strengthening the digital financial services ecosystem is evident across diverse geographic, political, and economic contexts.

On August 4, the Center for Technology Innovation will discuss the key findings of the 2016 FDIP Report and host a conversation with public sector representatives about key trends, opportunities, and obstacles regarding financial inclusion in their respective countries and around the world.

Below we provide some context regarding the role of financial inclusion within the global drive for sustainable development.

What is financial inclusion?

The common themes that emerge from many definitions of financial inclusion are the ability to access formal financial services and to utilize those services in a way that promotes financial health.

For example, the Center for Financial Inclusion at Accion defines financial inclusion as a “state in which everyone who can use them has access to a range of quality financial services at affordable prices, with convenience, dignity, and consumer protections, delivered by a range of providers in a stable, competitive market to financially capable clients.”

In short, financial inclusion in itself is not the end goal, but instead serves as a key mechanism for advancing the well-being of individuals, families, and communities. At the macroeconomic level, financial inclusion provides opportunities to advance economic growth, reduce income inequality, and combat poverty.

For the purposes of FDIP, we primarily focus on individuals’ access to and usage of affordable, secure, basic financial services and products, such as person-to-person payments and savings accounts. However, we also recognize the important role that more extensive financial services (e.g., microinsurance and microcredit) can play in enabling individuals to plan for the future and absorb financial shocks. Where possible, we highlight examples of a broad suite of financial services within the country profiles of the 2016 report.

To learn more about the 2016 FDIP Report, please register to attend the launch event in-person or watch the live webcast.