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Repairing Credit: The Right Way to Fix a Broken System

Posted on May 14, 2019 by The Progressive Policy Institute

If you think your credit report is accurate, there is a good chance you are wrong. According to the Federal Trade Commission (FTC), one in five Americans has a potentially material error in their credit file, and one of the biggest contributors is medical bills—with half of all medical bills containing an error.

In fact, mistakes on credit reports have become so pervasive that around a third of all complaints filed annually to the Consumer Financial Protection Bureau (CFPB) resulted from problems with consumer credit reports.

Credit report errors are a serious threat to the financial well-being of American families. As Senator Elizabeth Warren has noted, “credit reports regularly contain errors that can make it harder for families to access credit, find jobs, and get housing.” And as many consumers know all too well, it’s very difficult to get those errors corrected.” (1)

Under the Fair Credit Reporting Act, the company that furnished the information to the credit bureau must conduct an investigation to verify the information and correct a mistake, if they find one. Unfortunately, consumers who want to try to fix mistakes on their credit report face three daunting obstacles.

First, the system put into place by the credit reporting agencies heavily favors creditors and other data furnishers. Credit bureaus almost exclusively depend on lenders (such as banks, credit unions, credit card providers, and mortgage underwriters).

Consumers contacted the credit reporting agencies approximately eight million times in 2011 to initiate a credit dispute. But only a small fraction of those disputes was resolved internally by credit bureau staff. According to the CFPB, 85 percent of credit report disputes are passed on to data furnishers (the lenders) to investigate and resolve. (2) Unfortunately, in most cases the disputes are then shelved unless the consumer perseveres.

Second, the credit report agencies earn their profits by providing services such as credit checks to the very entities that provide the data used to create the credit reports – banks, mortgage lenders, credit card companies, retailers, and other businesses that provide credit. This creates a serious conflict of interest.

Third, despite several notable efforts to try to empower consumers, trying to correct errors on your credit report is still tedious, confusing, and time consuming.

CREDIT REPAIR ORGANIZATIONS AND COMPANIES

Because the system is rigged against them, many consumers turn to credit counseling agencies or credit repair companies. The dispute system designed to help consumers fix the problem favors the position of the debt collector over the consumer. Specifically, the credit bureau is only legally required to check with the creditor or debt collector and ask them whether they stand by their claim. As long as the creditor says you owe money, the dispute is resolved in their favor. As the National Consumer Law Center concludes: “Credit bureaus have little economic incentive to conduct proper disputes or improve their investigations.” (3)

Credit counseling agencies are typically a free resource from nonprofit financial education organizations that review your finances, debt and credit reports with the goal of teaching you to improve and manage your financial situation.

A credit repair company is a firm that offers to improve your credit in exchange for a fee. Unfortunately, the quality of these firms varies greatly. Some credit repair firms are highly reputable and follow best practices. Unfortunately, a significant cohort of credit repair firms are not good actors and, in some cases, have committed outright fraud. In 2016 the Consumer Financial Protection Bureau (CFPB) stated that “more than half of people who submitted complaints with the CFPB about credit repair chose the issue ‘fraud or scam’ to describe their complaints.”

There are some telltale signs for consumers trying to separate the bad actors from legitimate credit repair firms. Companies should be avoided that:

Demand an upfront payment.
Don’t provide a written agreement that includes cancellation rights for consumers.
Guarantee they’ll raise your credit score or fix an error.
Have multiple complaints against them with the Consumer Financial Protection Bureau or the attorney general’s office in the state where they operate.
Suggest they can remove legitimate negative information.
Offer to create a new credit profile based on a new employer identification number, rather than your Social Security number.

In contrast, responsible credit repair companies not only follow federal and state law but also:

Offer a free consultation
Have a track record and consistently solid reviews from past clients.
Have an attorney on staff.
Are licensed, bonded and insured.

WHAT NEEDS TO CHANGE?

To protect consumers, some policymakers have suggested new regulations to further police the credit repair industry. They note that credit repair firms don’t do anything someone with a bad credit report couldn’t do on their own. Anyone can dispute credit errors on their own behalf. But the Do-It-Yourself approach can be dauntingly complicated and time-consuming for harried families.

In essense, paying for credit repair assistance is really no different than paying an accountant or purchasing software to do your taxes – something 90 percent of Americans do according to the Internal Revenue Service.

It is important to note that there is already existing legislation to regulate the credit repair system. The Credit Repair Organizations Act (CROA) was signed into law in 1996 to protect consumers from the unscrupulous practices commonly used by several credit scammers.

Because of CROA, credit repair organizations are not permitted to misrepresent the services they provide, including guaranteeing the removal of negative credit listings. Credit repair organizations are also not permitted to attempt to create a “new” credit file or advise you to lie about your credit history. The Act also bars companies offering credit repair services from demanding advance payment, gives consumers certain contract cancellation rights as well as the right to sue a credit repair organization that violates CROA. (4)

CROA is a sensible law, and despite criticisms that it does not go far enough in regulating the credit repair industry, the law does provide consumers with protections against bad actors in the credit repair sector without eliminating legitimate credit repair firms. CROA needs strengthening, not in the form of new regulations but rather more effective enforcement.

Under CROA, the Federal Trade Commission (FTC) is the primary enforcement body at the federal level. The problem is the FTC is severely underfunded and understaffed. In a Senate hearing last year Commissioner Rebecca Slaughter said the FTC’s staff level is 50 percent below its level at the beginning of the Reagan administration in 1981. Senators Jerry Moran (R-Kan.) and Catherine Cortez Masto (D-Nev.) agreed the FTC needs more resources and is “understaffed.” (5)

As Table 1 confirms, FTC staffing levels dropped dramatically during the 1980s and have never really recovered. Yet, over the same time, the responsibilities of the agency have dramatically changed and expanded. Today the FTC has to address some 2.7 million complaints a year in areas from debt collection, to identify theft, to imposter scams. (6)

Better enforcement of CROA would obviate the need to pile on new rules. Unfortunately, in fact, Congress has added to the FTC’s workload even as its workforce has shrunk. The simplest solution is to provide the FTC with additional resources dedicated to enforcing CROA and protecting consumers from those credit repair companies that have acted fraudulently or in bad faith.

To pay for this increase in supervisors, a small annual fee could be placed on the credit reporting agencies (Equifax, TransUnion, and Experian). To create an incentive for these agencies to be more responsive to consumer complaints about credit reporting agencies, the fee could be lowered or raised in synchronization with the number of consumer complaints about their credit reports.

OTHER REMEDIES

Another approach to fixing the current system is to go to the source of the problem, eliminating some of the causes for the extraordinary amount of errors made by the credit reporting industry. As Aaron Klein of the Brookings Institution has noted, there are three major reasons why credit scores are so inaccurate: “size, speed, and economic incentives of the system.”

One way to change the incentive structure would be to create some consequences for credit rating companies that frequently give lenders inaccurate data about borrowers. Lawmakers could consider legislation that would penalize credit reporting agency error rates above a certain level. Klein’s approach would use a random sample method (5 to 10 percent of complaints) to review credit rating firms’ performance. Another approach would be to grade the credit bureaus on their error and response rates.

CONCLUSION

While it is tempting to lump all credit repair firms into the same basket, many of these firms act in good faith and follow CROA to the letter of the law. Yet there is no doubt that a significant number of these companies are misleading consumers and sometimes acting fraudulently. If lawmakers really want to crack down on these bad actors, however, the first step should be strengthening enforcement of existing law.

Otherwise, spawning new laws and regulations would likely enmesh all credit repair firms in new layers of regulatory complexity and compliance burdens, making it even harder for consumers to detect and correct errors on their credit reports. In CROA we have the consumer protection law we need, now it’s time to focus on oversight and enforcement.

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(1) Brian Schatz Press Release: “Following Equifax Breach, Schatz, Warren, McCaskill, Colleagues Reintroduce Legislation to Help Consumers Catch And Correct Credit Report Errors,” September 11, 2017

(2) Kelly Dilworth, “Consumer watchdog report details credit bureaus’ work,” Creditcard.com, December 13, 2013

(3) Aaron Klein, “The Real Problem with Credit Reports is the Astounding Number of Errors,” Brookings Institution, September 28, 2017

(4) 15 USC Chapter 41, Subchapter II-A: Credit Repair Organizations

(5) Kate Patrick, “FTC Asks for More Control Over Big Tech, Privacy Issues,” Insidesources.com, November 30, 2018

(6) Federal Trade Commission, “FTC Releases Annual Summary of Complaints Reported by Consumers,” March 1, 2018

(7) Aaron Klein, “The Real Problem with Credit Reports is the Astounding Number of Errors,” Brookings Institution, September 28, 2017

(8) Ibid

Mandel for Medium: “Tech/Telecom/Ecommerce sector grew by 7.3% in 2018, Political Implications”

Posted on May 14, 2019September 18, 2024 by The Progressive Policy Institute

Many of the Democratic presidential candidates are vying to see who can be toughest on the tech sector. But here’s the paradox: New data shows that the tech boom is a major force driving down unemployment, lifting economic growth, and helping voters — precisely the people that the Democratic candidates are trying to reach.

The key here is that the economic data produced by the government is not typically presented in a form that easily shows the benefits of the tech boom. Software firms, for example, are spread across at least three different industries. Ecommerce — related activities are spread across at least two industries, electronic shopping and warehousing. And telecom includes at least two three industries, telecom services, communications equipment, and data processing and hosting.

Read the full piece on Medium by clicking here.

Kim for Medium: “How to get more companies to put people over profits”

Posted on May 13, 2019September 18, 2024 by The Progressive Policy Institute

Corporate profits are soaring. Yet Americans’ paychecks are inching upward by comparison. It’s no wonder many Americans feel anxious despite an economy that, by the numbers, is booming.

This disconnect between shareholders’ prosperity and workers’ precarity has led many on the progressive left to question the very future of capitalism. Some 2020 presidential candidates, such as Sens. Elizabeth Warren and Bernie Sanders, now routinely paint Big Business as the enemy of middle-class mobility and have called for drastic measures to rein in corporate power and mandate better behavior.

It might be too soon, however, to write off U.S. companies as a force for good.

Read the full piece on Medium by clicking here.

Kane for Medium: “How Medicare-For-All Would Politicize Health Coverage”

Posted on May 7, 2019September 18, 2024 by The Progressive Policy Institute

Last week the Trump administration announced that it would give health care workers greater leeway to refuse, on religious grounds, to provide services that enable birth control use, abortion, sterilization, or assisted suicide. Specifically, the rule bars employers from requiring their employees to participate in delivering health care services they believe their religion proscribes. Such services could include scheduling a vasectomy, prepping a room for a sex change surgery or billing for an abortion.

Democrats slammed the move, which they described as a political plum tossed to religious conservatives who form an important part of President Donald Trump’s base. If they take back the White House in 2020, it won’t take them long to reverse the rule issued by the Department of Health and Human Services (HHS) Office for Civil Rights (OCR).

Read the full piece on Medium by clicking here.

Ritz for Forbes, “Keep the White Walkers Out of Our Tax Code”

Posted on May 6, 2019September 18, 2024 by The Progressive Policy Institute

Millions of Americans watched the 70^th episode of HBO’s Game of Thrones last Sunday to see who would win the ultimate battle between the people of Westeros and the undead army of the White Walkers. But there is another undead threat here in America that has gotten far less attention, one that marches not on our lands and castles, but on our tax code: they’re called “tax extenders.”

What exactly are tax extenders, you may be wondering, and how are they at all similar to the mythical antagonists from Westeros? Tax extenders were a package of “temporary” provisions that that gave preferential tax treatment to particular industries or activities. For nearly 30 years, Congress voted to extend the life of these provisions – which primarily benefited niche special interest groups – for just one or two years at a time. The main purpose of this ritual was to hide the true long-term costs of these special-interest handouts from the American people.

Continue reading at Forbes.

Long for Medium: “Under Legislation, Policymakers Would Micromanage Freight Rail Employment”

Posted on May 6, 2019September 18, 2024 by The Progressive Policy Institute

Republicans despise federal micromanagement, but that hasn’t kept Rep. Don Young of Alaska from hopping aboard the Washington-Knows-Best Express. He recently introduced a bill mandating that freight trains have a minimum of two crew members on board trains at all times.

While Young justifies his bill on safety grounds, the bill also appears to reflect pressure from rail workers’ unions fearful that automation is putting their members out of jobs.

Here’s the backstory: Following the fatal 2008 Chatsworth train collision in Los Angeles, President Bush signed the Rail Safety Improvement Act into law. The law required freight railroads, by the end of 2020, to integrate Positive Train Control (PTC) — a nationwide system of technologies that constantly process thousands of data points to stop a train before human error-caused accidents occur. One of the benefits of PTC was that it was a win-win for consumers and the railroads, enhancing safety and allowing railroads to boost productivity by moving to one-person crews somewhere down the road.

Read the full piece on Medium by clicking here.

Do-Something Congress No. 9: Reserve corporate tax cuts for the companies that deserve it

Posted on May 2, 2019 by The Progressive Policy Institute

Americans are fed up seeing corporate profits soaring even as their paychecks inch upward by comparison. Companies need stronger incentives to share their prosperity with workers – something the 2017 GOP tax package should have included.

Though President Donald Trump promised higher wages as one result of his corporate tax cuts, the biggest winners were executives and shareholders, not workers. Nevertheless, a growing number of firms are doing right by their workers, taking the high road as “triple-bottom line” concerns committed to worker welfare, environmental stewardship and responsible corporate governance. Many of these are so-called “benefit corporations,” legally chartered to pursue goals beyond maximizing profits and often “certified” as living up to their multiple missions. Congress should encourage more companies to follow this example. One way is to offer tax breaks only for high-road companies with a proven track record of good corporate citizenship, including better wages and benefits for their workers.

THE CHALLENGE: Good corporate citizenship is punished, not rewarded, in a market that puts profits first.

The pressure to return profits to shareholders – the tyranny of so-called “shareholder primacy” – is one reason companies have been disinvesting in their workers. As Brookings Institution scholars Bill Galston and Elaine Kamarck have noted, many companies are increasingly reverting to “short-termist” behavior to avoid missing the quarterly earnings targets promised to shareholders (1). For instance, one notable survey of more than 400 CFOs found that 80 percent would “decrease discretionary spending on R&D, advertising and maintenance … to meet an earnings target” and 55 percent would “delay starting a new project” even if it meant sacrificing long-term value (2).

Companies also don’t seem to be raising wages or investing in worker training. Even as many firms have been reporting some of their best profits in years during this recovery (3), companies are cutting back on benefits like health insurance and offering less on-the-job training than they once did. And despite their recent uptick, workers’ wages haven’t caught up to where they should be. According to a Brookings Institution analysis, real wages for the middle quintile of workers grew by just 3.41 percent between 1979 and 2016, and actually fell slightly for the bottom fifth.

Corporate short-termism is bad for workers, who don’t get the wages and training they deserve. It’s also bad for companies, which are shortchanging their long-term health to satisfy short-term shareholder demands. But as long as current corporate culture remains fixated on companies’ stock prices, firms will feel tremendous pressure to put short-term profits above all other priorities – and often at workers’ expense.

THE GOAL: ENCOURAGE MORE BUSINESS TO BE “TRIPLE-BOTTOM LINE” CONCERNS THAT PUT PEOPLE ON PAR WITH PROFITS

A small but growing number of firms have begun to reject the hold of “shareholder primacy” and have organized themselves as “triple-bottom line” companies committed equally to social and environmental good as well as profit. Among these is the growing number of “benefit corporations” specially organized under state law with the purpose of “creating general public benefit.” Since 2010, 34 states and the District of Columbia have passed legislation legally recognizing benefit corporations and protecting them from shareholder lawsuits for decisions that don’t maximize profits. Notably these states include Delaware, which is the leading “domicile” – or legal home – for most of America’s major companies. A significant number of benefit corporations have also won third-party certification from the nonprofit B Lab as “Certified B Corps” – essentially a Good Housekeeping seal of approval for benefit companies that have met strict standards for worker treatment, environmental stewardship and social responsibility. Among the many factors considered for certification are the share of workers who get formal training; rates of employee retention and internal promotion; the share of workers receiving tuition reimbursement or similar benefits for training and education; the extent to which “worker voice” plays a role in the company’s governance; pay equity; and company practices to reduce its environmental footprint.

According to the nonprofit B Lab, more than 2,500 businesses globally are certified B Corps. While the vast majority of these businesses are small, certified B Corps include such well-known U.S. and global brands as outdoor clothing maker Patagonia, Cabot Creamery, Ben and Jerry’s Ice Cream, and New Belgium Brewery, the makers of Fat Tire beer. A small but growing number of B Corps are now publicly traded, including cosmetics company Natura; Sundial Brands, a subsidiary of Unilever; and Silver Chef, a company that finances commercial kitchen equipment purchases for restaurateurs. These firms are proof that companies with an avowed social mission can in fact succeed in a cutthroat capital market. If more companies follow suit, the result could be a dramatic and beneficial shift away from the stranglehold of shareholder primacy and toward better corporate practices.

THE SOLUTION: OFFER TAX BREAKS TO “BENEFIT CORPORATIONS” AND HIGH-ROAD FIRMS THAT DEMONSTRATE SOCIAL RESPONSIBILITY

Many companies may feel they can’t “afford” to invest in their workers if it affects the bottom line for their shareholders. Targeted tax cuts to reward high road companies such as certified benefit corporations could, however, change the calculus for some companies and encourage them to change their behavior. These tax benefits could be structured in one of two ways:

Option One: Preferential tax rate.

As PPI has previously proposed, one option is to modify the new corporate tax rate to establish a preferential “public benefit corporation” rate for businesses that meet “high-road” requirements. Only the most deserving companies should qualify for the new 21 percent corporate tax rate; all others should pay a rate that is two to three percentage points higher.

To be entitled to these benefits, companies would meet one of two requirements: (1) that they be legally organized as “public benefit corporations” in their state and can provide good evidence of how they are fulfilling that mission; or (2) they must meet a minimum set of standards for worker treatment and investment, to be promulgated by a new standards-setting body authorized by Congress (effectively behaving like benefit corporations without the formality of legal status). To set the required standards, Congress could establish an inter-agency “workers’ council,” including representatives from labor and business, to establish guidelines for public benefit corporation rate eligibility (though enforcement would be left to the IRS). Companies would apply for a discounted tax rate in the same way that charities and nonprofits apply to the IRS for tax-exempt status, with the proviso that companies must also report annually on their performance, either in their public filings or in separate submissions to the IRS.

Option two: Benefit corporation tax credit.

A second option for structuring a high road company tax incentive is to create a tax credit for benefit corporations like the “sustainable business tax credit” offered by the city of Philadelphia. Under this benefit, first launched in 2012, Philadelphia businesses that are either certified B Corps or that can show they meet similar standards of social and environmental responsibility can qualify for a tax credit of up to $8,000 against their revenues. Up to 75 firms can apply for the credit on a first-come, first-served basis.

This structure might be especially beneficial for small and medium-sized benefit corporations structured as “pass-through” entities not subject to the corporate tax rate. As Jenn Nicholas, co-founder of the Philadelphia-based graphic design firm Pixel Parlor told Governing magazine, the credit has helped her afford higher wages and other benefits for her 10 workers. “It’s a challenge to be profitable and provide benefits to our employees,” Nicholas said. “Every tiny bit helps, and it feels like somebody is looking out for us when the general climate [for small businesses] is the opposite” (10).

While some policymakers have proposed requiring companies to treat their workers more fairly, tax incentives for high-road businesses are a better approach. Top-down mandates tend to invite resistance or evasion and will not succeed in changing the overall spirit of corporate culture in favor of shareholders over workers. Encouraging companies to reform themselves will ultimately prove the more enduring tactic. As more businesses see that they can indeed “do good and do well,” the grip of shareholder primacy will weaken, and workers will benefit.

Sources:

1) Galston, William A., and Elaine C. Kamarck. More builders and fewer traders: a growth strategy for the American economy. Washington, DC: Brookings Institution, 2015.

2) Graham, John R., Campbell R. Harvey, and Shiva Rajgopa. The Economic Implications of Corporate Financial Reporting. N.p., 2005.

3) Bureau of Economic Analysis. “Gross Domestic Product, Third Quarter 2018 (Second Estimate); Corporate Profits, Third Quarter 2018 (Preliminary Estimate).” News release. November 28, 2018. Accessed March 28, 2019. https://www.bea.gov/news/2018/gross-domestic-product-third-quarter-2018-second-estimate-corporate-profits-third-quarter.

4) Kim, Anne. Tax Cuts for the Companies That Deserve It. Washington, DC: Progressive Policy Institute, 2018.

5) Shambaugh, Jay, Ryan Nunn, Patrick Liu, and Greg Nantz. Thirteen Facts About Wage Growith. Washington, DC: Brookings Institution, 2017.

6) B Lab. “State by State Status of Legislation.” benefitcorp.net. Accessed March 28, 2019. https://benefitcorp.net/policymakers/state-by-state-status.

7) Title 8: Corporations, Delaware Code §§ CHAPTER 1. GENERAL CORPORATION LAW; Subchapter XV. Public Benefit Corporations-361-386 (2017).

8) B Lab. “Certified B Corporation: About B Corps.” Benefitcorp.net. Accessed March 28, 2019. https://bcorporation.net/about-b-corps

9) Id.

10) Kim, Anne. “The Rise of Do-Gooder Corporations.” Governing, Jan 2019.

Creating a 21st Century Education System: Reinventing America’s Schools – An Abridged Version

Posted on May 1, 2019 by The Progressive Policy Institute

For a century, our public education system was the backbone of our success as a nation. By creating one of the world’s first mass education systems, free to all children, we forged the most educated workforce in the world. The creation of standardized, unified school systems with monopolies on free schooling had a dramatic impact on this country, helping us build the most powerful, innovative economy on Earth.

But all institutions must change with their times, and since the 1960s, the times have changed. First television emerged to dominate the lives of young people, undermining their desire and ability to read. Then the cultural rebellion of the 1960s and ‘70s brought new problems, including widespread drug use and the decline of the two-parent family. Teen pregnancy soared, the percentage of children raised by single mothers tripled, arrest rates for those under 18 shot up, and gang activity exploded. Meanwhile immigration picked up, doubling the percentage of public school children from households that didn’t speak English, from 10 to 20 percent. At the same time, our Information-Age economy radically raised the bar students needed to meet to secure jobs that would support middle class lifestyles.

Today our traditional public schools “work” for less than half of our students. More than one in five families chooses something other than a traditional public school—a private school, a public charter school, or home schooling. Among those who do attend public schools, 16 percent fail to graduate on time. Even more graduate but lack the skills necessary to succeed in today’s job market. Almost a quarter of those who apply to the U.S. Army fail its admission tests, more than a third of those who go on to college are not prepared for first-year college courses, and almost half of them never graduate. Among industrialized nations, the U.S. ranks 22nd in high school graduation rates and in the bottom half in math, science, and reading proficiency.

Since 1983, we have seen wave after wave of school reforms. Unfortunately, most have been of the “more-longer-harder” variety: more required courses and tests, longer school days and hours, higher standards and harder exams. Few have reimagined how schools might function, given our new technologies.

PPI’s Ben Ritz Discusses Social Security Trustees Report on C-SPAN

Posted on May 1, 2019 by The Progressive Policy Institute

PPI’s Ben Ritz joined an expert panel on Capitol Hill last week to discuss the recently published report by Social Security’s trustees. The annual report projected that the program’s trust funds face insolvency within the next 16 years, after which point beneficiaries face the prospect of an across-the-board cut of 23 percent. All panelists encouraged policymakers to close the gap between Social Security’s revenues and spending sooner rather than later, which Ben noted is critical for ensuring the changes are fair to younger and older Americans alike.

Watch the full panel here on C–SPAN.

Langhorne for Forbes, “Bookshare: How One Nonprofit Is Improving The Lives Of Students With ‘Reading Barriers'”

Posted on May 1, 2019 by The Progressive Policy Institute

Emery Lower loves to read. She loves Harry Potter, Bridge to Terabithia and Pride and Prejudice. Since beginning sixth grade, she’s developed an interest in graphic novels, especially mangas; in particular, she recommends The Tea Dragon Society. Each year that Emery has taken the State of Texas Assessment of Academic Readiness exams, she’s earned a “masters grade level” score on the reading section.

Only a few years ago, however, Emery couldn’t read. By the end of first grade, she hadn’t finished a book independently. She hated reading and didn’t even like it when her parents read to her because they wanted her to look at the text as they read the story.

“Any time Emery had homework in kindergarten and first grade, it would take hours and a lot of crying – mostly her but sometimes me,” says her mother Brandy Lower. “She was mentally exhausted when she came home from school because she’d spent all day trying to decode words and not being able to do it.”

That’s because Emery, like millions of other children in the United States, suffers from dyslexia, a learning disability that affects areas of the brain that process language. People with dyslexia struggle with decoding: the ability to relate speech sounds to letters and words.

“I would look at the page and say a word out loud, but it didn’t click in my brain,” Emery says. “I didn’t know letters made words, that they had to spell something. I thought that any random group of letters could be a word. Reading was not fun at all for me.”

Then, she found Bookshare, and, slowly, her life began to change.

Continue reading at Forbes.

In Win-Win Decision, FDA Approves Innovative Harm Reduction Technology

Posted on April 30, 2019September 18, 2024 by The Progressive Policy Institute

The Food and Drug Administration (FDA) should be complimented for following a data-based approach to innovation and clearing the sale of heat sticks. These are new electrically heated tobacco systems that slowly heat tobacco, rather than burning it, with much fewer harmful chemical byproducts. The agency took almost two years to rigorously analyze the health impact of the innovative product, with the trade name IQOS, including the effect on the young. The goal: To give current smokers a safer alternative to health-destroying cigarettes—a “harm reduction” strategy.

A harms-reduction approach is appropriate. In 2017, the Centers for Disease Control and Prevention estimated 34.3 million adults smoke in the United States, with a public health cost of approximately $300 billion annually.

As PPI has written in the past, a harms-based regulatory approach, like the FDA took on heat sticks, is imperative to achieving advancements in both public health and economic growth. By contrast, a regulatory approach based on precaution inherently fails to maximize economic and social benefits.

Indeed, we also applaud the FDA for paying attention to social benefits and costs. For example, with recent concern over rising youth smoking in the U.S., the FDA rightfully placed restrictions on how heat sticks are marketed to youth. The restrictions limit how heat sticks are marketed via websites and on social media by requiring advertising to be targeted to adults. Heat stick manufacturers must also notify the FDA about how they plan to restrict youth access and limit youth exposure to the products’ marketing.

TAX DAY: Why the Tax Time Moment Matters – Full Op-Ed

Posted on April 26, 2019September 18, 2024 by The Progressive Policy Institute

By former United States Senator Bob Kerrey

In the series of movies called “Nightmare on Elm Street” the warning that Freddy Krueger was not dead after all was two chilling words: He’s back! The tax reform equivalent to Freddy Krueger is the so-called “return-free tax system” that would make the IRS the nation’s tax preparer and just tell each of us how much taxes we owe each year. As this year’s April 15th Tax Day approached, Freddy ‘Return-Free’ was once again slashing his way back onto the airwaves and into our political and public policy discourse.

When this concept is described by academics, electoral candidates or political advocacy journalists, it all sounds too good to be true. And that common sense cautionary instinct is correct. The experience of California and Great Britain were anything but a success.

In California, where millions of taxpayers were sent pre-populated tax returns each year, an average of only about 2-3% of the state’s taxpayers ever elected to accept the government- prepared return. Eventually, the experiment fell of its own weight, and California abandoned it, quietly announcing its demise with a press release on a Christmas Eve when nobody was paying attention.

Some proponents have also claimed the idea originated with the 1998 IRS Restructuring and Reform Commission, which I co-chaired, and to the subsequent statute enacted that year that implemented the commission reforms. This is simply not true. The 1998 act did instruct the Treasury Department to study the proposal. Their conclusion was that Congress would have to enact radical changes in our tax laws before it could conceivably be feasible. Question asked and answered. The truth is that radical change in our tax law is unfortunately about as close as the Ultimate Thule, the piece of rock NASA recently photographed. Located in the Kuiper Belt – the ring of material that circles our solar system – the Ultimate Thule is 4 billion miles away.

Whatever the name, and however it is described, the idea of curtailing or eliminating the participation of the taxpayer in their own taxation would fundamentally change the voluntary compliance system that’s been at the core of the American income tax for a century. For a variety of reasons – whether from a desire for more expedient tax administration, or as a strategy to increase revenue collections to pay for public spending – it is a public policy theory that hasn’t gone away and needs to be addressed directly.

The fact is that the American system of income taxation has become, over many decades, a central instrument of national economic policy. A significant proportion of the complexity we all rail about in our income tax system emanates from the public policy objectives we have asked the tax system to carry, and the complexity with which we’ve enacted them, compounded by additional complexity layered-in through regulatory implementation.

Welfare-to-Work proposals turned into the Earned Income Tax Credit (EITC). Energy independence objectives turned into tax credits for home renovations and retrofits for energy conservation. The need to encourage personal retirement savings turned into Individual Retirement Accounts (IRAs). And the list of bi-partisan economic policy initiatives goes on. Despite of all the speeches given by Members of Congress, and political candidates, about the need for tax simplification, this list of complicating provisions is long and growing longer. And the implementing regulations have unfortunately turned complexity into an art and science.

An oft-repeated claim made by those advocating that IRS should just take over tax compliance for the country is the idea that the Federal Government supposedly already has all the information needed to prepare your tax return, and should therefore relieve the citizen of the need to do so. This is fantasy.

How has this so-called ‘simpler’ system worked in Great Britain, the example of perfection that return-free advocates say we should emulate? The Progressive Policy Institute has unearthed a recent study by the British Parliament about the efforts by that Government to implement an EITC-type tax credit, which were initially a disaster. The government simply did not have the kind of information needed to accurately qualify eligible taxpayers, and so their much-vaunted no-return tax system had to go to Plan B.

Unlike in the United States where taxpayers file their own returns at tax time, and claim their own tax credits, the UK has minimized the involvement of the taxpayer in their tax system, and eliminated it entirely under their return-free system – called Pay As You Earn (PAYE) — for blue-collar workers. The Government therefore relied on their PAYE tax withholding assumptions, that were deeply flawed, and produced the overpayment of billions of Pounds in tax benefits to ineligible taxpayers.

And their Plan B solution? British workers are now required to prepare a pre-return tax submission, reporting extensive personal and family information to the Government, in order to claim eligibility for their tax credits. This lengthy pre-return tax filing then enables the Government to determine the citizen’s tax liability, so the taxpayer doesn’t have to prepare and file a tax return. Rather than getting a free lunch, the taxpayer ends up paying twice: once for preparing and filing their own pre-return, and then again when the Government and their employer do their taxes for them so they don’t have to prepare and file a return. The circular logic of this process is what passes for a “return-free” tax system in practice in the real world.

The Parliament’s post-mortem analysis summed up the myth-buster reality of it:

“The Right Honourable Alan Milburn, a former Labour Chief Secretary to the Treasury during Prime Minister Blair’s Premiership, described the reason for the inaccurate and significant overpayments as a result of the state not having enough information about people’s lives to accurately determine tax credit eligibility….”

This is the return-free tax system that is most frequently held up by advocates as the one we should adopt to replace American voluntary compliance. And yet the conclusion of the UK study states the obvious:

“The only party that has all the relevant information about an individual’s economic and family circumstances pertinent to his taxation is the individual himself, not the government and not the individual’s employer….”

The alternative to taxpayers preparing and filing pre-returns over here, as they have to now in Britain, would of course be for the Government to just independently collect extensive additional personal information about the private, personal lives of our taxpayers and their families, in order to make the false assertion true that the Government has all the information it needs to prepare people’s tax returns for them. However, in American culture, such an extraordinary expansion of the role of Government in our society would trigger a host of civil liberty and individual privacy questions, which have yet to even be publicly acknowledged, much less

explored, in the ‘return-free’ advocacy debate. In any serious assessment of this proposal, it would be important to understand the comfort level of the American people for the tax collector to gather the personal and family information necessary to enable Government to develop the detailed profiles of taxpayers needed to permit knowledgeable and accurate preparation of their tax returns with minimal if any involvement of the taxpayer, as the return-free advocates promise. Some might describe this as a chilling prospect.

One more problem with Freddy Krueger’s return-free system: the implications for national security. I have not heard a single expert in cyber security say that we should not worry about the risk of replacing a highly decentralized, diversified tax system with one characterized instead by over-concentration and centralization of systems and data, and the associated risks of attack by cyber criminals and determined nation-state adversaries. We should shiver when Freddy tells us there’s nothing to worry about.

And although it may seem old-fashioned, there would seem to be one final consideration that should somehow figure into this debate as a democratic society. What do the people want? The suggestion that the American public is clamoring for Congress to enlarge the role the tax collector plays in their personal lives is nonsensical. Whether it’s demonstrated in consistent polling data over many years, or simply the plain public sentiment expressed over the backyard fence or around the kitchen table in any city, town or home in America, the idea that the American public would welcome the tax collector as their new best friend is seriously disconnected from reality. And that is compounded by the reality that the IRS is already understaffed and under-funded for its core mission.

If more budget dollars are made available to IRS they need to come in the form of investment in tax administration, technology infrastructure and basic taxpayer service, as well as the agency’s tax collection responsibilities including audits, investigations, and enforcement, both domestically and abroad. Giving the IRS responsibility to also become the preparer of the nation’s tax returns – the accuracy and completeness of which would still be the sole responsibility of the individual taxpayer, whether they understood that fact or not — would further strain the Service’s relationship with the American taxpaying public. It would also create unnecessary political problems for the agency with Congress as predictable problems would emerge from attempting to execute its new role, leading to constituent complaints, Congressional hearings, and lurid headlines. The IRS Restructuring and Reform Commission of the late 1990’s emerged from just such an era of intense controversy, but even then without the added burden of agency trying to double as the nation’s tax preparer.

It is time for a reality check. True tax reform and simplification is very much needed, and Congress has long needed to make it a top priority. The extreme complexity in our tax code is burdensome not only to individual taxpayers and their families, but to small businesses as well, and the emerging self-employed ‘gig’ economy workforce. If policymakers are serious about reducing the need for tax preparation services, a better and more economically sound alternative is to drive complexity out of the tax system, including dramatically simplifying and reducing the number of tax provisions in the code.

And make no mistake, tax code simplification will be hard work. But it cannot be bypassed by instead just getting the taxpayer out of the room where their tax liability is being determined. Disempowering the taxpayer is not reform, and it is not a substitute for doing the hard work of tax simplification. In fact, the direct involvement of our citizens in their own tax system is much

too valuable to lose as a matter of prudent economic policy. That is one of the painful but valuable lessons of the British experience.

Rather than curtailing the role of the taxpayer, we should instead leverage the annual engagement of the taxpayer by helping them develop basic financial literacy, including learning how to save, and the importance of doing so for their own financial well-being. The “tax time moment”, as many economists call it, is an invaluable national economic policy asset, as our myriad of behavior- incentivizing tax credits already recognizes as an essential operating mechanism of economic policy.

As a nation we face an enormous and growing unfunded retirement liability for our society, as the traditional work-based retirement systems of the past fade away, replaced by 401-K’s and IRA’s. Not to mention that Social Security and Medicare have serious solvency challenges coming at us just over the horizon. And the Federal Reserve’s research tells us the average family cannot put their hands on even $400 in rainy day savings if they had an emergency. Improving the nation’s financial capability, and financial security, is a serious economic policy challenge for our shared future as a nation, and having the Government substitute itself for the taxpayer in the taxation process would unwisely compound the problem.

The fact is that for many working-poor and middle-class families, their annual tax refund is the largest paycheck they see all year. Using the tax time moment to help families, self- employed workers, and small businesses, learn to take stock of their financial situation, and save even a small portion of their tax refund, would make a difference not only in their individual and family financial health over time, but in the economic health and savings rate of the nation. The engagement of the taxpayer in determining their own taxes, and taking stock of their finances each year, is much too valuable to the country, and to the average household, to kick it to the curb. It would be the antithesis of reform.

And so, my sincere advice for what to do as the Freddy Krueger return-free advocates try to slash their way back into our lives this Spring like clockwork: Just wake yourself up, look at the real world, and apply common sense. There is no good reason for this nightmare to ever become a reality.

TAX DAY: Why the tax time moment matters

Posted on April 26, 2019September 18, 2024 by The Progressive Policy Institute

By former United States Senator Bob Kerrey.

In the movie series “Nightmare on Elm Street” the words “He’s back” indicated that the antagonist – Freddy Krueger – was not dead after all. The tax reform equivalent to Freddy Krueger is the so-called “return-free tax system” that would make the IRS the nation’s tax preparer. As Tax Day came around, Freddy’s ‘Return-Free’ slashed its way back onto the airwaves once again.

When this proposal is described by academics and political figures, it all sounds too good to be true – and it is. Supporters point to examples in California and Great Britain as successful, and yet the truth is quite different.

In California, where millions of taxpayers were sent pre-populated government returns each year, an average of little better than 2-3% of the state’s taxpayers ever accepted it. Eventually, the experiment fell of its own weight and California quietly abandoned it.

The much-praised “simpler’ system in Great Britain was examined in a recent study by the British Parliament which reports that the efforts by government to implement an EITC-type tax credit in their return-free tax system were initially a disaster. The reason was because the blue collar taxpayer in the UK is not involved in determining their own taxation, and government did not have the information needed to accurately qualify taxpayer eligibility for the credit. After the initial failed effort at an EITC-like welfare-to-work credit, the British no-return tax system moved to Plan B.

Now British workers are required to prepare a pre-return tax submission, reporting extensive personal and family information to the government, in order to claim tax credit eligibility. This lengthy pre-return filing – which looks like an American 1040 tax return – then enables the government to determine the citizen’s tax liability, so the taxpayer doesn’t have to prepare and file a tax return. This circular logic, and layered complexity, is what passes for a “return-free” tax system in practice in the real world.

The UK Parliament’s post-mortem analysis summed up the true myth-buster reality:

This is the return-free tax system that is most frequently held up as the one we should adopt to replace American voluntary compliance. And yet the conclusion of the UK study states the obvious:

The alternative to taxpayers preparing and filing pre-returns would of course be for the IRS to just independently collect extensive additional personal information about the private, personal lives of our taxpayers and their families, in order to make the false assertion true that the Government has all the information it needs to prepare people’s tax returns for them. However, in American culture, such an expansion of the role of government in our society would trigger a host of civil liberty and individual privacy questions. Some might describe this as a chilling prospect.

The fact is the American system of income taxation has become, over many decades, a central instrument of national economic policy. A significant proportion of the complexity we all rail about in our income tax system emanates from the public policy objectives we have asked the tax system to carry, from Welfare-to-Work (EITC) to Retirement (IRA’s) to Energy Conservation to Education. The implementing regulations alone have added enormous complexity, and require voluminous information.

Another basic question would seem a rather straightforward one: What do the people want? The suggestion that the American public is clamoring for Congress to enlarge the role the tax collector plays in their personal lives is nonsensical. And that simple truth has been consistently and overwhelmingly demonstrated in national polling over many years. The idea that the American public would welcome the tax collector as their new best friend is seriously disconnected from reality. And that is compounded by another reality — that the IRS is already understaffed, technologically struggling, and under-funded for its core mission.

It is time for a reality check. True tax reform and simplification is very much needed, and it will be hard work. But it does not begin with getting the taxpayer out of the room where their tax liability is being determined. In fact, the direct involvement of our citizens in their own tax system is much too valuable to lose. Rather than curtailing the role of the taxpayer, we should leverage the annual engagement of our people by helping them develop basic financial literacy, including learning how to save, and the importance of doing so, for their own financial well-being.

The tax refund, for many families, is the largest paycheck they see all year. The reality is that the “tax time moment”, as many economists call it, is an invaluable national economic policy asset, far too valuable to kick to the curb, regardless of whether the theoretical objective is tax administration expediency, or a strategy to increase revenue collections to pay for public spending.

And so, my sincere advice for what to do as the Freddy Krueger return-free advocates try to slash their way back into our lives this Spring like clockwork: Just wake yourself up, look outside

at the real world, and apply common sense. There is no good reason for this nightmare to ever become a reality.

(To read the full text of Senator Kerrey’s tax policy analysis, click here.)

Social Democrats, progressives need strong economic and jobs platform to compete

Posted on April 25, 2019 by The Progressive Policy Institute

A newly commissioned poll from PPI by Expedition Strategies shows Social Democrats, progressives need a strong economic and jobs platform to stay competitive moving forward. According to the poll, Social Democrats and progressives:

Have widespread voter anxiety about economic and political conditions. Most believe the economy is working for the wealthy, but many are concerned about how it works for themselves. Other important voter concerns: immigration, climate change.
Say their country and the EU are headed the wrong way. That means: 1) in many cases the status quo will be a bigger risk than change. So the default would be to vote for change; and 2) there will be little tolerance being asked to accept less (fewer benefits, higher taxes) – particularly unless the burden appears to be shared.
Are (not surprisingly) far less concerned about conditions in Europe than in their own conditions – particularly economic.
See the EU as important for addressing a small number of challenges – mostly related to harmonizing policies. But improving economic conditions such as wages is largely viewed as a national responsibility, not EU.
Overwhelmingly agree that small and medium-sized businesses need help to be more successful even though many industries (finance, health, technology, pharmaceuticals) are viewed as areas of concern.

See the full, detailed results here: PPI EU Poll Deck A4 FNL 2

Tech/telecom/ecommerce sector grew by 7.3% in 2018: Political Implications

Posted on April 22, 2019September 18, 2024 by The Progressive Policy Institute

Is there room for a presidential candidate who stresses innovation and growth? Voters quite naturally want to see benefits from technology before they enthusiastically embrace more. As we have written in earlier reports, there are signs that digitization is starting to create new businesses and jobs in physical industries like manufacturing.

Another political argument for innovation and growth: The tech/telecom/ecommerce sector is still expanding at a rapid rate, benefiting both consumers and workers.

The tech/telecom/ecommerce sector grew by 7.3% in 2018, triple the 2.4% growth of the rest of the private sector. These figures–calculated by PPI based on the BEA’s newly-related 2018 industry GDP data— update our previous research that showed the tech/telecom/ecommerce sector far outperforming the rest of the private sector between 2007 and 2017.

Prices in the tech/telecom/ecommerce sector fell by 0.8% in 2018, compared to a 3% price increase in the rest of the private sector. That’s good news for consumers.

Perhaps more important is what we see on the labor side. Job growth in the tech/telecom/ecommerce sector exceeded job growth in the rest of the private sector, propelled by ecommerce fulfillment and delivery jobs, which added 178,000 FTE positions in 2018. If these new jobs are all assigned to the ecommerce sector, then tech/telecom/ecommerce FTE employment grew by 4% in 2018, compared to 2.1% growth in the rest of the private sector.

Finally, our preliminary calculations suggest that labor share rose in the tech/telecom/ecommerce sector in 2018, while falling in the broader private sector. We compared the percentage change in value-added with the percentage change in wages and salaries in the first three quarters of 2018, as reported by the BLS QCEW data. We found that value-added rose by 5.6% in the broader private sector, compared with a 5.4% increase in wages and salaries. To the extent that these trends continue in the fourth quarter and are reflected in compensation, labor share fell slight in the broader private sector.

By contrast, the available data points in favor of a rising labor share in the tech/telecom/ecommerce sector. For the purposes of this calculation we separated out tech/telecom from ecommerce, since the eventual ecommerce results will be greatly driven by the fourth quarter. For tech/telecom–computer and electronics manufacturing, software, telecom, communications, and Internet–value-added rose by 6.7% in 2018, compared to a 7.7% rise in wages and salaries. To the extent that these trends continue in the fourth quarter and are reflected in compensation, labor share rose in the tech/telecom sector in 2018.

We could not do a full analysis of labor share in ecommerce without the fourth quarter QCEW data, which is not available until June. However, we can look at warehousing, which is where ecommerce fulfillment centers are generally classified. We find that value-added in warehousing overall rose by 10.1% in 2018, while wages and salaries rose by 14.2% through the first three quarters. Assuming that these trends continue, there was a significant rise in labor share in the warehousing industry in 2018.

To emphasize: These are preliminary results, which may be revised substantially as new data comes in.

Political implications: In 2018, both consumers and workers were benefiting from the tech/telecom/ecommerce sector. Consumers were getting falling prices, and workers were getting faster job growth and a bigger share of the economic pie.

As digitization spread to other sectors, consumers and workers in those sectors will start sharing the fruits of faster growth. We suffer from too little innovation, not too much.

Repairing Credit: The Right Way to Fix a Broken System

As the idea of “free college” gains popularity, Virginia and Iowa are instead focused on career and technical education.