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Buying Outcomes: Lessons from the Past

May 3, 2021 by Mike

By: AIF Staff

In 2014, a year that coincided with the 50th Anniversary of the War on Poverty, then-Chairman of the House Budget Committee Paul Ryan conducted a review of the federal government’s poverty-fighting efforts and disappointingly found that federal programs often fail to align dollars spent with outcomes achieved. All too frequently, well-intended federal programs did not meet their stated aims and as a result, communities and participants suffered due to lack-luster performances.  

The 2014 assessment of the federal government’s poverty-fighting efforts revealed a simple truth: For decades, the federal government has attempted to structure large-scale programs in a way that achieves positive employment outcomes and there are lessons, both good and bad, to be learned from these efforts.

The desire to improve the federal government’s poverty-fighting efforts so they better assist more Americans is why Speaker Ryan and the American Idea Foundation participated in a project, led by Social Finance and conducted in partnership with the Federal Reserves of Philadelphia, Atlanta, and San Francisco, to identify incentive models that have demonstrated track records of success.

The result of this project was a book, Workforce Realigned: How New Partnerships are Advancing Economic Mobility, that contains a series of 19 case studies about how results-based financing can create benefits to the government, employers, service providers, and participants. Speaker Ryan’s chapter focused specifically on the mixed results of past performance-based programs and on a promising new innovation in this space, Social Impact Bonds.

Key excerpts from Speaker Ryan’s chapter follows. You can read his chapter in its entirety here.

An Introduction to Performance-Based Contracting

America is at a moment of great need and great opportunity in the fight against poverty. Amid a global pandemic and recession, the importance of disrupting the stale institutions in place to tackle these challenges has become clearer than ever before…

Our efforts have too often originated in Washington D.C. with little input from the individuals on the ground working to expand opportunity and those with lived experience, leading to approaches that further displace and marginalize those living in poverty. It’s when we innovate together to solve this problem–combining the vibrancy of community-based solutions, the know-how of the private sector, and the scale of government policy–that we have the greatest potential to make a difference.

Social impact bonds bring together the best of the public and private sectors to address the most critical issues our country is facing. The goal of a social public good–a world in which far fewer Americans live in poverty–is central to their execution. So too is the expertise and capital of the private sector, which provides the funding, the strategic thinking, and the energy to deploy resources where most needed. When executed properly, programs like these have enormous promise.

Unfortunately, the long history of performance-based contracting in American civic life includes frequent examples of programs that have not achieved their desired results. Over the past four decades, the government has attempted to structure several programs that offer payouts based on provider performance to drive better outcomes. Although these programs have been created with the best intentions, they have driven little improvement to the status quo. Identifying and addressing the challenges they have faced will be critical to designing the next generation of performance-based contracts….

When performance-based contracts are set up well, shortfalls are mitigated and the programs have significant potential to improve lives. Well-executed performance-based contracting offers benefits for all parties involved, by shifting spending risk away from governments, creating positive feedback loops based on provider effectiveness, and facilitating the collection of data on intervention outcomes.

As the next generation of performance-based contracts takes hold–strengthened by groundbreaking federal legislation, such as the Social Impact Partnerships to Pay for Results Act–it is essential that we learn from the challenges that past initiatives have faced. Historical examples from workforce development and health care offer lessons on how to mitigate typical shortcomings and fully unlock the potential of performance-based contracting.

The Job Training Partnership Act (1982)

Going back to the 1980s, federal legislation has tied payments to employment outcomes achieved by program participants…. The Job Training Partnership Act (JTPA) of 1982 was one such program. Developed through a bipartisan effort led by Senators Dan Quayle, Edward Kennedy, Paula Hawkins, and Claiborne Pell and by Representatives Augustus Hawkins and James Jeffords, it was signed into law by then President Reagan. The bill aimed to improve employment rates for low-income Americans by providing budgetary rewards and sanctions to jurisdictions based on the near-term labor market outcome levels achieved by participants.

To carry out its purpose, the JTPA established federal assistance for adult and youth programs, federally administered programs (such as training for migrant workers and veterans), summer youth employment and training programs, and training assistance for workers affected by layoffs.  The program established a performance management system that provided rankings of 620 Service Delivery Areas (SDAs) and set aside funding to reward SDAs that performed particularly well relative to the overall labor market.

To evaluate outcomes, JTPA originally considered four performance measures: rate of entering employment, average wage at placement, cost per participant who entered employment, and rate of entering employment among welfare recipients. However, states were given considerable flexibility to select comparison data and define favorable terms. Where improved results existed, it became clear that they had been driven by the selection of participants who had fewer needs, and, therefore, were easier to serve…. The JTPA was suffering from several common challenges, as identified in an analysis by Burt Barnow & Jeffrey Smith:

  • The program provided stranger incentives to serve less-vulnerable populations: JTPA incentives treated all program participants equally, which led to higher margins for service providers who chose to serve lower-need individuals. The program did not serve groups such as women and people of color in proportion to their share of the eligible population, while individuals who would likely have achieved high post-training earnings regardless of the quality of the training were disproportionately represented. A structure that assigns different levels of value based upon the need of the population might have addressed this challenge.
  • The timing of performance incentives skewed services provided: In some cases, the length of the training programs was influenced by program managers’ desire to count participants in their data for a particular program year. These arbitrary timing changes were found to reduce the overall mean impact of the training services the program provided. Updates to monitoring and reporting systems may limit the extent to which programs are able to manipulate data in this way.
  • There was limited support that incentives improved individual performance: It is unclear that the project improved the individual efficiency of employees in the absence of incentives at the individual employee level. Future performance-based contracts may explore how service providers can pass on incentive payments to their employees and how they can track individual performance without adding significant overhead costs.
  • Some providers gamed the compensation system: There is strong evidence that JTPA service providers developed strategies to earn higher payments by gaming the performance system. A common gaming strategy involved formally enrolling participants in the program only after they had found jobs, and then quickly terminating them, in order to increase the proportion of employed individuals. Adjusting reporting requirements and improving metrics and evaluation systems could help to reduce the extent to which gaming can yield higher payments.

As a result of its structural challenges and the limited improvement to participants’ employment outcomes, the JTPA was repealed in 1998.  The program’s failure to segment target populations, its focus on measurements that were not linked to individual performance, and its lack of safeguards to avoid gaming are valuable reminders of the potential risks of performance-based contracting in workforce development. However, these mistakes also offer lessons regarding critical areas of focus for other pay-for-performance programs to succeed in the future.

Ticket to Work (1999)

In 1999, another performance-based workforce development program emerged that aimed to increase the number of low-income Americans achieving economic self-sufficiency. At the time, only 0.5% of Social Security Disability beneficiaries were leaving the benefit rolls because they secured jobs. Legislators hoped to create a better market to meet the diverse return-to-work service needs of beneficiaries and increase the rate of exiting the program due to work to 1%.

The Ticket to Work (TTW) and Work Improvement Incentives Act of 1999 was designed to support this mission by promoting flexible, customizable services to help disability insurance beneficiaries secure self-supporting jobs. The program incentivized private organizations and state agencies to deliver quality services by providing large payments for each client who secured a job and retained it for long enough to stop receiving Social Security Disability benefits….

Despite the program’s intent to reach a broad group of beneficiaries, its early success was limited: By 2005, only 2% of the individuals who received Tickets in the mail had used them, and only 45% of the 1,300 enrolled employer networks had accepted a Ticket. Like the JTPA, TTW’s outcomes suffered from a range of shortfalls:

  • Providers perceived the system as too financially risky: TTW tied 100% of provider compensation to outcomes, which caused significant uncertainty as to whether payouts would be achieved. Research showed that after the first two years of program operations, employer networks relying on TTW payments as their sole source of revenue would have lost money: The cost of service delivery far exceeded TTW revenues for most providers. Offering upfront operating capital to providers in addition to outcomes-based payments, as many social impact bonds now do, might have helped to mitigate this challenge.
  • The program provided higher payouts to providers serving less-vulnerable populations: Like other unsuccessful performance-based contracts, TTW created selection bias against harder-to-serve individuals and services less likely to lead to quick employment. Providers could refuse to serve individuals who they thought were unlikely to maintain high enough earnings to stop receiving benefits, and, therefore, unlikely to trigger outcome payments. They could also choose to offer only services that aligned with the outcomes payments they were likely to receive. Differentiating payment amounts based on participants’ level of need could have helped to avoid rewarding providers for serving the lowest-need clients.
  • The benefits structure discouraged some beneficiaries from returning to work: The program did nothing to address that participants would lose 100% of their Social Security Disability benefits once their monthly earnings exceeded a certain threshold, which created a significant barrier for returning to work. Structuring the program to scale the reduction of benefits more gradually might have increased the value proposition of returning to the workforce for participants.
  • Reporting and administrative burdens fell on service providers and participants: Finally, there were significant administrative challenges that delayed outcomes measurement and provider repayment. Beneficiaries were expected to submit salary documentation to employer networks but given no incentive to do so, which made it difficult for employer networks to demonstrate that monthly earnings had reached the designated threshold. Establishing data-sharing provisions upfront might have minimized administrative burdens and streamlined the system for triggering repayment….

In response to provider feedback, a set of revisions passed in 2008 that increased the number and total value of provider payments, shortened the period of participant employment for employer networks to receive full payment from 60 to 36 months, and revamped payment procedures to reduce administrative burden. The revised system was significantly more attractive to providers, and the number of employer networks that accepted at least one Ticket doubled from 2007 to 2010.

The increase in participation in TTW following the 2008 legislation reform affirms the importance of seeking service provider input to mitigate unforeseen barriers to entry….

Physician Pay for Performance (2005-2017)

Health care is another area in which performance-based contracting offers both the potential to improve service quality, and the risk of gaming and poorly structured incentives. The United States spends more on doctors, pharmaceuticals, and health administration as a percentage of GDP than any other high-income nation, yet does not enjoy better health outcomes. To combat rising costs and improve quality, states, healthcare systems, insurance companies, and federal agencies have piloted Pay-For-Performance (PFP) programs for physicians and hospitals across the country. The success of these programs, however, has been largely uneven.

In November 2017, researchers from the University of Pittsburgh and Harvard published a study reporting that Medicare PFP programs failed to improve healthcare quality or reduce costs. Rather than promote better outcomes, the program penalized physicians who cared for lower-income and sicker patients because the doctors’ “quality scores,” and, therefore payment, decreased. The program’s structure emphasized health outputs over baseline improvement, creating financial disincentives for doctors to treat patients who were less healthy.

Providing higher payouts to those who serve healthier patients is a key issue in physician PFP programs, in which financial incentives often fail to promote health improvements over specific health outputs. While physician skill is an important component of health quality, factors such as the patient’s baseline health, socio-economic status, access to insurance, and exercise habits all contribute to health outcomes and are largely outside of the doctor’s control. PFP programs that exclusively target physician pay without supporting other interventions draw a direct link from individual clinician skill to patient health that can create financial disincentives to treat the sickest patients….

The lack of success of physician and hospital PFP programs has led many critics to call for an end to PFP in healthcare. However, it’s possible that an outcomes-based funding system could be effective in the absence of this program’s poor project design, weak measurement, incorrect outcome criteria, and flawed linkages between the intervention and outcomes. Past PFP programs struggled because they were structured around the underlying concept that financial rewards to physicians could improve outcomes in a vacuum. A stronger design could rescue the core concept.

Social Impact Partnerships to Pay for Results (2018)

As we’ve seen, performance-based contracts can fall victim to predictable design errors. But, when structured well, these programs have the potential for impressive results. In support of improving the effectiveness of social services, the Social Impact Partnerships to Pay for Results Act (SIPPRA) was signed into law in 2018.

SIPPRA brings great promise for the next generation of performance-based contracts. The Act appropriates $100 million to the U.S. Department of the Treasury, $15 million of which is set aside for evaluation costs to support state and local governments in building a foundation for outcomes-based decision making. Funding can be used across a range of issue areas, including child and family welfare, health, education, and employment, creating extensive opportunities to address the country’s most pressing needs.

I’m personally incredibly proud of SIPPRA and the principles it follows. First and foremost, SIPPRA takes a clearly evidence-based approach to lifting Americans out of poverty: Funding flows to programs whose methods have been evaluated using data, supporting real-world efforts that achieve positive results.

In building programs based on evidence of what works, SIPPRA has the potential to finance the most effective solutions for fighting poverty, which originate not from Washington D.C., but from leaders on the ground in communities across the country. SIPPRA funding will support individuals and organizations that have been making a difference in their communities for decades, while bringing their ideas to policymakers to expand their reach. This intersection of community-based approaches and government support is what will ultimately most improve the lives of Americans in need.

Filed Under: Blog, In The News Tagged With: Promoting Evidence-Based Public Policies

Op-Ed from Paul Ryan: Fixing our Fiscal Trajectory amid the COVID-19 Pandemic

April 26, 2021 by Mike

By: AIF Staff

Earlier this week, American Idea Foundation President and former Speaker of the House Paul Ryan penned an opinion piece for the latest edition of The International Economy focusing on America’s fiscal policy. Throughout his career in Congress, Speaker Ryan advocated for serious reforms to the federal government’s spending patterns and as our national debt stands at over $28 trillion, this issue has become more urgent than ever before.

To be clear, both parties – Democrats and Republicans – share responsibility for this problem and both parties will be needed to solve it. While the federal government’s response to COVID-19 was both necessary and appropriate, the massive increases in spending that were required to address the pandemic will have a profound effect on our fiscal trajectory in both the short and long term.

Given the growing size of our debt and deficits, the time for kicking the can down the road must end. A failure to act will result in real consequences for millions of Americans who rely on critical safety-net programs like Social Security, Medicare, and Medicaid.

Fortunately, as Speaker Ryan argues, a framework does exist for legislators to come together and fix our fiscal policies. The 1981 “Greenspan Commission” provides an example of how Congress can successfully tackle these problems and lawmakers would be wise to learn from its lessons. Additionally, the bipartisan TRUST Act, formally called the Time to Rescue the United States’ Trusts Act and which would setup commissions to solve the looming shortfalls in critical government programs, provides legislators with a great place to start.

Check out Speaker Ryan’s full op-ed here or scan some excerpts below.

“COVID-19 has temporarily changed every facet of American life. Our nation’s fiscal policy is no exception, and our debt trajectory has not been immune to the devastating impact—both short-term and long-term—of this virus…. Mitigating the immediate economic turbulence caused by COVID-19 was critical and necessary but in the long-term, lawmakers cannot turn a blind eye to our fast-growing debt and deficits.

“Interest rates cannot stay at historic lows forever, nor will inflation and we can’t tax our way out of this problem without cannibalizing economic growth and hurting hard-working families. As it stands, our monetary policy and our fiscal policy are on a collision course.”

***

“If the economics profession successfully advances this notion that debts don’t matter (or that they matter much less than previously believed), and if policy makers continue to take the easy path of kicking the can down the road, then this course will surely end in catastrophe. The advancement of digital and crypto currencies alone will bring a level of accountability to fiat currencies that cannot be ignored, not to mention that the assumptions and projections upon which fiscal stimulus policies rest are rarely realized. Ultimately, a failure to act would impose a painful lesson onto society that is borne by our children and grandchildren.”

***

“As head of the House Budget Committee, year after year, I offered proposals to balance the budget and pay off the debt. These budgets would pass the House annually before languishing in the Senate. It has become clear to me that one party will not solve this problem. Compromise and consensus are required. Legislators must no longer view our debt and deficits as a partisan problem, but a math problem.”

***

“The United States cannot continue spending, printing, and borrowing money that it simply doesn’t have. Our fiscal policy has real consequences for real people, as millions of Americans rely on federal safety net programs, which is precisely why lawmakers must embrace a spirit of compromise, utilize models that have worked in the past to address spending issues, and put our fiscal trajectory back on the right track.”

The American Idea Foundation will continue to focus on solutions that promote economic opportunity and upward mobility and by tackling our debt and deficits in a responsible way, more Americans will benefit from our safety net being on sounder financial footing.

Filed Under: Blog, In The News Tagged With: Promoting Evidence-Based Public Policies

Policy Discussion on the future of the Earned Income Tax Credit & Child Tax Credit

April 12, 2021 by Mike

By: AIF Staff

On Friday, former Speaker Paul Ryan’s American Idea Foundation hosted a virtual policy panel on the future of the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC). The conversation featured a bipartisan group of experts for a timely and informative discussion about how legislators can make sure that our nation’s tax code is oriented toward expanding economic opportunities for those who need it most.

Spectrum News’ Anthony Dabruzzi covered the event and summarized its aims succinctly:

“Amid the pandemic, there has been lots of talk about tax credits, leaving many people wondering about what they really mean and how they can help Americans.

Former House Speaker Paul Ryan hopes two of those reforms can reduce poverty and grow the economy. He moderated a virtual conversation about the Earned Income and Child Tax credits on Friday. Ryan, who once led the House Ways and Means Committee, still has a lot of ideas about how to improve tax credits.

The American Idea Foundation hosted a bipartisan discussion to talk about ways to improve policies like the Earned Income Tax Credit (EITC), which helps low- to moderate-income workers and families get a tax break….

Regardless of a possible solution, the whole point of bouncing ideas around Friday was about finding ways to improve anti-poverty tools for policymakers.”

The wide-ranging conversation, featuring AEI’s Scott Winship and Katharine Stevens and Northwestern University’s Diane Schanzenbach, covered a lot of ground and some key excerpts follow.

Former Speaker Ryan frames the timeliness of this conversation coming out of the COVID-19 pandemic and in light of recent Congressional reforms:

“As we recover from this [COVID-19] pandemic, policymakers are facing a number of choices on ways to reduce poverty while continuing to encourage work. And, two of the most important poverty fighting tools the federal government has are the EITC and the CTC. These programs have long been key ways that the federal government both incentivizes work as well as reduces poverty.

Over the last several months, Congress has enacted changes to these programs. For example, the CTC received a large increase and was made refundable in the most recent COVID-19 relief bill. And numerous proposals have been made recently to either expand the EITC or CTC, as well as to create brand new programs, such as a child allowance….

These issues are front and center in a way that they rarely are, which is why I’m so looking forward to discussing the possibilities of improving the EITC and CTC, and taking a look at tradeoffs as we look towards reforming our social benefit programs.”

Northwestern University’s Diane Schanzenbach on how these credits impact families and children and how to address a gap during economic downturns:

“I want to start off by reaffirming that the Earned Income Tax Credit and Child Tax Credit are the cornerstones of our anti-poverty policies for families with kids. They boost the incomes of 28 million Americans, many of whom are low-income, and they lift 10.5 million people out of poverty, including 5.5 million children out of poverty. It truly is our most effective anti-poverty policy for families with kids….

There is strong evidence that the benefits conveyed by the EITC have lasting impacts on kids. There is better infant health, better school performance, higher college enrollment, and higher earnings in young adulthood. This is an investment that pays off over a lifetime for kids.

On the employment effects, this is joint work with Michael Strain of the American Enterprise Institute, it’s not surprising that the EITC improves employment. The EITC includes strong incentives for non-workers to get jobs. For example, with the EITC, for every $1 that you earn, we say: If you’re going to earn that $1, we’re going to give you an extra $.40 right. This is sort of Economics 101 so we shouldn’t be surprised that it works.

So, what we did was look at employment and how employment responded after the five major expansions in Earned Income Tax Credit…. Now, the EITC is primarily targeted at unmarried mothers who are going to earn low wages and so we studied those people in particular and across three decades, the EITC expansions led to increases in employment. People got jobs and these were large 3%, 7% or even 10% point increases, so it’s worth it.

It shouldn’t surprise us that subsidizing something like employment means we have more but this truly is a program that works. It works at its best when the economy is thriving, so unfortunately the EITC does not pay off, of course, when workers lose their jobs. And over time, we’ve shifted a lot our safety net spending to promote and encourage work and there’s great merit in that, but what it has done is left us exposed without enough insurance when the economy turns down just because there is just not enough of safety net.”

Scott Winship from the American Enterprise Institute on the debate over these credits among conservatives and the trade-offs involved between workforce participation and family formation:

“I don’t think there’s necessarily tension in the sense that originally the Child Tax Credit was targeted as a way to both reward work and to make the costs of raising families easier and as an anti-poverty tool for low-income workers who did work.

Under the current CTC before the recent temporary expansion, there is a phase-in area for lower-income workers. It is the same as with the EITC where it clearly pays to work more and where you get a bigger Child Tax Credit from additional income and additional hours. And the benefits of the CTC, most of them do actually go to non-poor workers. It extends up the income scale a ways and phases out at a fairly high-income scale into families that make over six figures can still generally get some Child Tax Credits. And so, you know, in that sense I think it’s fairly well-designed to both support work and to support family formation and reduce poverty.

I think the more recent debates really do divide the center-right between those who are most concerned about family formation and declining fertility and those who are more concerned about anti-poverty efforts and not taking steps backwards where we might be able to reduce child-poverty in the short term by giving non-working parents a more generous child allowance, whereas the current Child Tax Credit generally requires at least some work.

That crowd is very concerned about expanding benefits for non-workers versus I think where Senator Romney comes at this — and where a lot of social conservatives come at this, which is that they would like there to be more children and they think that it’s become too expensive to raise a family. I think that declining fertility is just something that we see across the world. As countries get richer, they shift. If you look at a trend and what happened in the 1970’s, the same decade when professional opportunities for women opened up, and I just think there is no going back to that sort of pre-1970’s world. So, I do think policies like the Child Tax Credit and reforms to it can encourage more family formation and more children on the margin, but we’re talking about pushing against some pretty big societal forces that are going to keep us from getting back to a baseline where everybody has 3 or 4 more kids.”

Katharine Stevens on reforming the Child Tax Credit so it could be a “borrowable benefit” targeted to when parents and child need it most:

“Matt Weidinger at AEI and I recently published paper proposing that parents be allowed to borrow from future child tax credits. So, assuming it’s an actual credit and assuming the parent has sufficient work earnings over the life of a child, it totals $34,000 over the life of the child.

Our thought was that [the credit] kind of dribbles out over these years where by the time the child is 16, you’re earning more money, your child is not in childcare and you may not even notice the credit. So, what we propose was allowing parents to borrow up to $30,000 from their lifetime of their Child Tax Credit in the first five years of the child’s life.

So, it could be all in the first two years, so they could have $15,000 in year one plus $15,000 in year two. Added to that is the $2,000 Child Tax Credit that you were getting those years anyways, so it is $17,000. $17,000 is actually enough for a two-earner family to allow one earner to step out of the workplace for a year or for two years.

Our idea was that these dollars given upfront in the child’s life, when the development is most important, gives parents a lot more choice in how and who is going to be raising their kids.

Another alternative would be if a single woman was working full-time, she could use it for higher-quality childcare. This is a problem I see with poor families: You’re working, but child development doesn’t depend exactly on your work. it doesn’t depend on your money either. It depends on the environment that your child is developing in and so, it’s very painful for many poor parents to know that their infant or their toddler isn’t in an environment that is good for their baby. So, the idea on the lower-end of the income scale is that it would empower women, empower families to make sure that their child, whether at home with a parent or at a high-quality childcare situation, is able to be put somewhere that is good for that kid.”

Diane Schanzenbach on how a strong safety net and tax policies can supplement the efforts of community organizations to better fight poverty:

“I agree with you broadly that a lot of these community organizations that can walk beside people and do the hard work of getting the job or getting the job training can really do a lot of good. They can do more good when they don’t also have to meet the basic needs of people. So, for example, you’ll see here that at the Greater Chicago Food Depository, we have got a fantastic job-training program. We can be really creative and meet their needs and help solve the underlying causes of poverty, but not when there is a line one-mile long outside of the food bank.

So, we do need income support and that’s why a thriving safety net is important, so that others who are better equipped for the one-on-one, “let’s walk through this together and sort of get you on track” efforts can do their jobs more effectively.”

Katharine Stevens on how potential reforms would impact distinct populations like childless adults and working parents:

“Let’s start with childless adults. We know that the EITC has been fantastically successful especially for those working-moms, but it has historically been smaller for childless adults. And as we’ve seen rates of employment drop for those populations, I think it makes a lot of sense that if we want those people to come back [to the workforce], perhaps we should start subsidizing that more.

“I think the Romney people made a good point when they put out their version of the child allowance proposal. They said: Why do we separate the EITC from subsidizing work just for people with children? Why don’t we subsidize work just period for [all] workers and then think about a different mechanism for children? And there’s a lot of merit to that. But I didn’t love how they did it because there were sort-of going to pull the rug out from under too many single moms and I think that would lead to worse work incentives but in any case, I do think that if we’re worried about single men and their employment rates or single women and childless women and their employment rates then in this era, then subsidizing them makes a lot of sense.”

Diane Schanzenbach and Scott Winship on the EITC’s effect on rates of marriage and whether it creates disincentives to marry:

Schanzenbach: “It’s a great question. The studies agree with you and find that the EITC makes women less likely to marry, but it’s a pretty small effect. The simulations seem to say that if she gets married, she would lose about half of her expected EITC benefit. Certainly, we could do more to reduce the marriage penalty of the EITC. The model that we use in economics to think about marriages is that if women are earning more, they’re less likely to choose to get married because they are in less need of a partner. And so, this is just the one of those things that are hard to break.”

Winship: “I think there are a few basic ways that you can reform the EITC to promote marriage more. The biggest reform would be to make the EITC tied to individual earnings rather than to the amount of earnings or income on the tax form, as that way you get the same benefit whether you are single or married. Another way is to sort of expand the plateau and phase-out regions of the EITC so that you can get the maximum amount even with higher income and you can get something, at least, even at higher incomes versus what you get now. And then the third way, which would be more radical, would be to explicitly increase the generosity methods for married couples or reduce them for single-earners. I’ve proposed something before [like this] that remarkably, didn’t catch on. It was to increase the generosity of the EITC but just for married couples. It would promote marriage and it wouldn’t actually hurt single-parent workers, but it seemed to be a bridge too far.”

Former Speaker Paul Ryan on Democrats recent tax proposals to pay for an infrastructure proposal:  

“I think they made a huge mistake on this one. I think the Biden Administration and [Senator] Ron [Wyden], who is a friend of mine, is going in the wrong direction on this one. I think he’s going exactly backwards. We were the worst corporate tax system in the world. We were number one with the highest corporate rates. We fixed that with the Tax Cuts and Jobs Act and went to a territorial tax system, which stopped inversions.

As a result of that reform, we had impressive wage-growth, especially among the bottom two quintiles of earners. So, we had great wage growth, productivity increases, living standard increases and then obviously, we had a pandemic but the worst thing you could do right now is launch America into this uncompetitive area yet again. This bill will make us, again, the worst business tax system in the world.

We would go to worst from the middle of the pack. We would go from very competitive back to worse again with this. Most importantly, it is not going to work. You’re going to create more inversions of these American companies where they are going to leave American again if this were to pass…

[Democrats] are acknowledging that they’re making American businesses less competitive. We’re going to encourage them to go overseas and we’re going to ask all the rest of the world to do this to their own companies.

It’s this whole theory of tax harmonization versus tax competition. The jury is in: The current competition works, harmonization doesn’t.

The last point I’ll make, as I want to get back on topic here, is that if you want to design a perfect system to not compete well against China, this is it. This is conceding to China, big time..

They made infrastructure, which is really kind of a bipartisan issue, partisan by seemingly undoing the great success and progress that was done on getting our tax system in a competitive environment with the rest of the world…. I think they missed the boat on this and it’s now two times that they have walked away from what could have been a bipartisan success.”

This panel conversation was the latest hosted by the American Idea Foundation, following informative dialogues on criminal justice reform and Opportunity Zones. Consistent with its mission, the American Idea Foundation believes that policymakers should look for solutions that empower individuals and communities to reach their full potential and though Speaker Ryan’s leadership on the Tax Cuts and Jobs Act improved the tax system for the first time in a generation, this conversation made clear that there is still more work to be done. 

Filed Under: Blog, In The News Tagged With: Validating Reforms that Expand Opportunity

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