The Department of Education reported the other day that, of the $97.4 billion in economic-stimulus funding that Congress steered its way, 69 percent was “obligated” by September 30. (The balance — including Secretary Arne Duncan’s much-discussed “Race to the Top” money — must get out the door by September 2010.) In other words, Washington spent almost $68 billion more on education in fiscal 2009 than it otherwise would have. Though this is less than 10 percent of total “stimulus” spending, it’s a whopping big number by historical standards of federal aid to schools and colleges.
What has all that extra money actually bought? The main answer, trumpeted by the Obama administration in a new 250-page document, is jobs, jobs, jobs. “The data,” boasts the Education Department, “indicate that approximately 400,000 jobs have been retained or created through the U.S. Department of Education ARRA grants. They reveal that the rapid distribution of this funding allowed States to fill significant education budget gaps in order to avert layoffs of personnel in public school districts and universities across the nation.” (Colorado, for example, salvaged or added 3,370 educator jobs with its $844 million.
It’s a fact that employment was an explicit purpose of stimulus funding — Congress said as much — and with today’s jobless rate over 10 percent, only a churl would deny the humanitarian value as well as the political appeal of this. That said, well-run public organizations and private firms are using the economic crisis to purge weak performers, cherry-pick talent, and position themselves to be more productive going forward. Turning schools into a jobs program is a dubious way to tone them up for the 21st centuryAnd a tone-up — indeed, a makeover — is what they need. When the American Recovery and Reinvestment Act (ARRA) was unveiled last winter, President Obama and Education Secretary Duncan said exactly that. In February, Obama told Congress that “We know that our schools don’t just need more resources; they need more reform.” Duncan termed ARRA an “historic opportunity to create jobs and advance education reform.” He declared that “a lot of this money will be tied to higher standards and reforms that are desperately needed.” In March, he told the House Budget Committee that ARRA provided “unprecedented levels of Federal support for our schools in return for a commitment to meaningful reform strategies.”
Eight months later, however, it’s all about jobs — and this in a sector that has been a job factory for many decades. Indeed, education employment has grown far faster than pupil enrollment, and more dramatically than employment in many other fields. Though coaxing greater productivity and efficiency from the private-sector workforce has been a major contributor to U.S. prosperity and economic growth, things haven’t worked that way in our schools.
Primary- and secondary-school enrollments have risen by about 10 percent since 1970, but the teacher rolls grew by 61 percent during the same period — an addition of some 1.4 million instructional personnel. The higher-education picture is similar though less egregious, with enrollments up 64 percent since the mid-1970s while campus employment doubled.
Let’s at least acknowledge that all these added employees have not boosted the performance of our schools and colleges. Seen in that light, today’s recession, however painful for individuals who might lose their jobs, could have had a useful purgative effect on the education workforce as in other fields. One might even wager that seizing this opportunity to shed the least effective instructors and ancillary personnel would result in higher quality. Such close analysts as Stanford economist Eric Hanushek estimate that substantial gains in pupil achievement would follow from (permanently) ridding K–12 education of the weakest 10 percent of today’s teachers — even if that means adding a few pupils to the classrooms of those who remain.
ARRA has cushioned districts and states from having to consider such bold moves. Meanwhile, there’s absolutely no evidence — let’s acknowledge the administration’s honesty here — that ARRA’s flood of additional federal spending has done anything for pupil learning or education reform.
To be sure, the $4.5 billion in “Race to the Top” money that remains to be committed in 2010, though barely 5 percent of education’s ARRA funding, may well pay for some worthy changes. Enthusiasts, including David Brooks and a bevy of zealous reformers, point to cases in which states have already been prompted to lift their charter-school caps or revisit their data policies so that, for example, student achievement can be linked to teacher evaluations. Such measures are welcome indeed, but it’s not clear whether they justify ARRA’s whopping cost or the avoidance of belt-tightening that it has made possible. It’s good that the administration pushed Congress to include Race to the Top, but the education stimulus package still looks like a jobs cake with a bit of reform frosting.
Moreover, while Duncan seems bent on making Race to the Top a program with real traction, will he be able to stick to his guns once senators and governors start to pound on the White House for their states’ shares? It could yet disintegrate into superficial compliance, canny grant-writing, and political arm-twisting. Still, optimism is a virtue. And heavy-duty reform, as Duncan well knows, remains America’s top education need.
Someone should point out that “our children will compete for jobs in a global economy that too many of our schools do not prepare them for . . . [even as we have] managed to spend more money and pile up more debt, both as individuals and through our government, than ever before. In other words, we have lived through an era where too often short-term gains were prized over long-term prosperity, where we failed to look beyond the next payment, the next quarter, or the next election.” Oh, wait. Someone did point it out. That was President Obama, addressing Congress in February about ARRA. Seems so long ago. Today, with two-thirds of that money out the door, the best his administration can claim is that hundreds of thousands of adult jobs were saved (and even more created), not that kids are learning more or schools are more effective.
The teachers who are beneficiaries of the grants are surely grateful. Their unions are undeniably pleased. But this is not the audacious change that was promised — and that is needed. Indeed, the 50 million young people who will end up repaying these 97 billion borrowed dollars might want to inquire about a refund.
Chester E. Finn Jr. is president of the Thomas B. Fordham Institute. Frederick M. Hess is director of education-policy studies at the American Enterprise Institute.

How—and why—other countries have built more efficient systems than the U.S.’s multi-tiered model

By Catherine Arnst

BusinessWeek – link to origin

August 13, 2009

The Healing of America:
A Global Quest for Better, Cheaper, and Fairer Health Care
By T.R. Reid
Penguin Press; 277 pp.; $25.95

In 1994, back when President Bill Clinton’s health-care reform effort was going down in flames, there was a quiet revolution in Switzerland. This wealthy federation of 26 state-like cantons, with four official languages, had a fragmented American-style health-care system. In other words, it was costly, with employer-based private insurance that left many Swiss uninsured. But unlike Clinton-era America, Switzerland got its medical act together.

It switched to a system that separates insurance from employment. Each individual or family is required to buy coverage, and insurers must offer a basic package of benefits to all applicants. They can’t profit from selling basic coverage, but they can from supplemental plans. Premiums are deducted from paychecks; the unemployed and poor are subsidized.

Despite opposition from insurers, drugmakers, and business, the plan passed by a bare majority and went into effect in 1996. Switzerland now spends 11% of its gross domestic product on health care, just as it did before. But everyone is covered, insurers are more profitable than ever, and its high-quality health care has been maintained.

The lesson, as laid out in The Healing of America: A Global Quest for Better, Cheaper, and Fairer Health Care, by T.R. Reid, is that “health-care systems can be changed, even in the face of powerful…interests.”

Reid’s book couldn’t be more timely, as Democrats and Republicans do battle over health-care reform proposals that would affect one-sixth of the U.S. economy. If this insightful book were required reading for everyone involved in the debate, the odds of America ending up with a system that measures up to Switzerland’s or Japan’s or Taiwan’s might jump.

Many Americans boast about having the best health care in the world, even though the U.N. ranks the U.S. system 37th, based on a broad range of measurements. Reid, a former Washington Post correspondent, decided to take his reporter’s curiosity and examine the health-care systems of higher-ranked nations to determine what works and what doesn’t.

He also took his aching shoulder. To give him more movement and less pain, an American surgeon had recommended replacing it with one made of titanium—major surgery with all the attendant risks. The cost, though covered, would be astronomical, and there was no guarantee he would feel any better. So Reid got opinions from top orthopedists in Britain, Canada, France, Germany, India, Japan, Switzerland, and Taiwan. None recommended such a radical solution.

At the same time, he learned that almost all countries use one of four health-care models: Germany’s Bismarck system, in which hospitals and insurers are private entities and financing comes from payroll deductions; Britain’s Beveridge Model, with the government providing health care financed by taxes; the Canadian plan, where private doctors and hospitals are paid by the government through taxes; and the out-of-pocket care found in most poor nations, where those who can afford care get it, while the rest suffer or die.

Unlike any other country, the U.S. combines all four models. The employer-based coverage most workers get follows the Bismarck Model. Veterans and soldiers are treated under the Beveridge Model (which conservatives often call socialized medicine). Medicare is so similar to Canada’s system that they share the name. And the 47 million uninsured do as Cambodians do.

Reid interviewed doctors, politicians, patients, and experts in each country he visited. Everyone had gripes, and all the systems he examined were struggling with rising costs. But countries with universal coverage differ from the U.S. in a striking way—they accept that everyone has a right to medical care and, out of fairness, one system should apply to all. America must ask itself, Reid writes: “Should society guarantee health care the way we guarantee the right to think and pray as you like, to get an education, to vote in free elections? Or is medicine a commodity to be bought and sold?”

The Healing of America could have been a policy-heavy slog, but Reid manages to keep it low on wonkery, crisply paced, and seriously incisive. As for his shoulder, it’s much better and remains titanium-free.

Arnst is a senior writer for BusinessWeek based in New York.

It’s better policy, and politics, than the proliferation of tax credits.

Wall Street Journal – link

JULY 14, 2009

By PETER FERRARA

The federal income tax code is now so mangled that we can probably increase federal revenues with a 0% income tax rate for a majority of Americans.

Long before President Barack Obama took office, the bottom 40% of income earners paid no federal income taxes. Because of refundable income tax credits like the Earned Income Tax Credit (EITC), in 2006 these bottom 40% as a group actually received net payments equal to 3.6% of total income tax revenues, according to the latest Congressional Budget Office data. The actual middle class, the middle 20% of income earners, pay only 4.4% of total federal income tax revenues. That means the bottom 60% together pay less than 1% of income tax revenues.

This actually resulted from Republican tax policy going all the way back to the EITC, which was first proposed by Ronald Reagan in his historic 1972 testimony before the Senate Finance Committee on the success of his welfare reforms as governor of California. Besides calling for workfare, Reagan proposed the EITC to offset the burden of Social Security payroll taxes on the poor. As president, Reagan cut and indexed income tax rates across the board and doubled the personal exemption. The Republican majority Congress, led by former House Speaker Newt Gingrich, adopted a child tax credit that President George W. Bush later expanded and made refundable, while also reducing the bottom tax rate by 33% to 10%.

President Bill Clinton expanded the EITC in 1993. But it was primarily Republicans who abolished federal income taxes for the working class and almost abolished them for the middle class. Now Mr. Obama has led enactment of a refundable $400 per worker income tax credit and other refundable credits, which probably leaves the bottom 60% paying nothing as a group on net.

Many conservatives are deeply troubled by this, arguing that everyone should be contributing something to the tax burden. They worry that, not paying for any of the tab, this majority will see no reason not to vote for limitless spending burdens. But are conservatives now going to campaign on increasing taxes on the bottom 60%, arguing that is good tax and social policy? Steve Lonegan recently demonstrated in the New Jersey gubernatorial primary that this is not a viable political position. He proposed a 3% state flat tax which, while very good tax policy, would increase taxes slightly for the bottom half of income earners. His victorious opponent Chris Christie pounded away in advertising on that point.

But what if Republicans proposed a federal tax reform with a 0% income tax rate for the bottom 60% of income earners? With that explicit 0% tax rate framing the issue, abolishing the refundable tax credits that actually ship money to lower income earners through the tax code would become politically viable. Trading an explicit 0% tax rate for the bottom 60% in return for eliminating the refundable tax credits would likely be at least revenue neutral, and probably result in a net increase in revenue.

Such tax reform can and should be combined with overall welfare reform based on work that would ensure an adequate safety net for the poor. Considering the success of the 1996 reform to the Aid to Families with Dependent Children (AFDC) program, further reform could result in huge overall savings. Besides AFDC, there are 85 more federally administered welfare programs that could benefit from reform.

Moreover, we should then be free to adopt sound tax policy for the top 40% of earners who make 75% of total income. Suppose we tax all of the income of those top 40% once with a 15% flat tax? That would be close to revenue neutral on a dynamic basis (i.e. counting work incentive effects).

The usual distribution arguments against such a flat rate would not apply because the bottom 60% would bear a 0% rate. All flat tax proposals effectively try to do the same through generous personal exemptions that are tax neutral for low- and moderate-income workers. But the explicit 0% rate would make the reform more easily understood.

This — rather than adopting still more refundable tax credits as some conservatives are advocating — is also the way to eliminate the distorting tax preference for employer-provided health insurance. For the bottom 60%, there would no longer be any health insurance tax preference, and for the rest the favoritism would be reduced to a minimal 15%. Or the tax exclusion for employer provided health benefits could be eliminated altogether, affecting only the top 40%. The economic distortions caused by every other tax preference in the code would be minimized or eliminated entirely in this same way.

Contrary to the fears of conservatives, this tax system would sharply limit the size of government. No politician would dare suggest imposing income taxes anew on the bottom 60%. While the last two Democratic presidents won by running on a tax cut for the middle class, that game would be over. Instead conservatives can argue for middle-income and working-class votes to protect the 0% tax rate from big government liberals. As the Obama administration will soon learn, higher income earners have flexibility in their taxable income and increasing revenues by raising taxes on them is not easy.

Mr. Ferrara is director of entitlement and budget policy for the Institute for Policy Innovation. He served in the White House Office of Policy Development under President Reagan.

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