issue: Economy

Repairing Credit: The Right Way to Fix a Broken System

Posted on 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 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 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. 

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

Posted on 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 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.

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

Posted on 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.

 

 

 

 

 

 

 

 

The App Economy in Canada

Posted on by The Progressive Policy Institute

La version française est ci-dessous.

The global App Economy started in 2007, when Apple introduced the first iPhone. Apple’s opening of the App Store in 2008 – followed by Android Market (later renamed Google Play), Blackberry App World (later renamed Blackberry World) and other app stores – created a way for developers to write mobile applications (“apps”) that could run on smartphones anywhere. These apps became an essential part of daily life for most people – and an indispensable tool for business.

The rise of the App Economy has unleashed an abundance of “app developers.” These workers create, maintain, and support an ever-expanding range of apps. Mobile games are the most visible part of the App Economy, but certainly not the only component of it. Mobile apps include such key uses as shopping applications, home banking programs, smart automobile interfaces, healthcare apps for monitoring patients, and sophisticated apps for running manufacturing plants.

The extent of the App Economy workforce in a country reflects how quickly that country is embracing the next stage of the Information Revolution, which depends on mobile technology to digitize physical industries such as manufacturing and healthcare.

However, official economics statistics do not provide an easy way to measure the size of the App Economy. In response, PPI developed a methodology based on a systematic analysis of online job postings. In particular, we look for job postings that call for app-related skills such as knowledge of the iOS, Android, or Blackberry operating systems (though support for the Blackberry operating system is currently scheduled to cease at the end of 2019).

Based on this methodology, in this paper we provide an employment analysis of Canada’s App Economy. We provide an estimate of the total number of App Economy jobs; a breakdown of the jobs among iOS, Android, and Blackberry ecosystems; and an estimate of App Economy jobs by province. In particular, we estimate that Canada has 262,000 App Economy workers as of November 2018.

 

THE DEFINITION OF AN APP ECONOMY JOB

For this study, a worker is in the App Economy if he or she is in:

  • An IT-related job that uses App Economy skills – the ability to develop, maintain, or support mobile applications. We will call this a “core” App Economy job. Core App Economy jobs include app developers; software engineers whose work requires knowledge of mobile applications; security engineers who help keep mobile apps safe from being hacked; and help desk workers who support use of mobile apps.
  • A non-IT job (such as human resources, marketing, or sales) that supports core App Economy jobs in the same enterprise. We will call this an “indirect” App Economy job.
  • A job in the local economy that is supported by the income flowing to core and indirect App Economy workers. These “spillover” jobs include local retail and restaurant jobs, construction jobs, and all the other necessary services.

To estimate the number of core App Economy jobs, we use a multi-step procedure based on data from the universe of online job postings. Then the number of indirect and spillover jobs is estimated using a conservative job multiplier. The methodology is described in detail in previous research (2).

 

CANADA’S APP ECONOMY

Table 1 presents two pieces of information. First, we estimate Canada has 262,000 App Economy jobs as of November 2018. We also break down the total by ecosystem, finding the iOS ecosystem includes 200,000 jobs, the Android ecosystem includes 199,000 jobs, and the Blackberry ecosystem includes 27,000 jobs. The three sum to more than the total because many App Economy jobs belong to multiple ecosystems.

Using a different methodology, the Information and Communications Technology Council (ICTC) estimated total App Economy and related employment in Canada at 51,700 in its 2012 report, “Employment, Investment, and Revenue in the Canadian App Economy” (3). We infer from this that Canadian App Economy jobs roughly quintupled from 2012 to today. That’s consistent with what we have seen for the United States over the same time period.

Now we compare Canada to some of its industrialized peers. In absolute numbers, Canada’s App Economy is relatively small. But, when we adjust for country size, Canada is doing very well. App intensity represents the number of App Economy jobs divided by total employment, where the latter figure is drawn from the International Labor Organization for standardization.

Canada’s app intensity of 1.4 percent ranks ahead of the United States, the United Kingdom, Germany, and Japan – and only slightly behind Korea.

Canada’s relative success can be attributed in part to its prioritization of digital connectivity and skills. Digital Canada 150 aimed to create jobs and economic growth by, among other things, connecting rural areas to high-speed Internet and investing in Canadian businesses and consumers through technology integration and skills development (4). Accomplishments include extending high-speed Internet to an additional 356,000 households, completing multiple spectrum auctions to improve wireless service, investing an additional $200 million to help entrepreneurs learn about IT technologies, and supporting up to 3,000 internships in high-demand fields. These types of policies help increase access to and employment in the App Economy.

 

GEOGRAPHIC DISTRIBUTION

Our methodology also allows us to look at the geographic distribution of App Economy jobs by province – breaking out the different ecosystems. If we estimate fewer than 500 jobs in a region, we don’t report the number. Not surprisingly, Ontario leads in App Economy jobs, followed by Quebec and British Columbia. Also not surprisingly, the Blackberry ecosystem jobs are concentrated in the company’s home province of Ontario.

 

EXAMPLES OF APP ECONOMY JOBS

The Canadian App Economy is vibrant across a wide range of industries and geographies. As of October 2018, digital studio Adfab was searching for a front-end developer in Montréal with App Economy skills. Mobile device solutions firm Asset Science was seeking a mobile application developer with iOS and Android experience. Mango Software Inc. was looking for an Android developer in Montréal. IT firm CORE Resources was hiring a senior software engineer with Android experience in Mississauga.

Looking at Ontario in particular, as of October 2018, mapping software company Avenza Systems Inc. was searching for a full stack developer with experience in iOS and Android app development in Toronto. Life insurance company Manulife was seeking a senior Android developer in Kitchener. Digital billing company Sensibill was looking for a software developer with Android and iOS experience in Toronto. Household labor marketplace AskforTask was hiring a senior Android developer in Toronto.

As of October 2018, commercial contractor Flynn Group of Companies was hiring a mobile iOS developer in Mississauga, Ontario. Airline software firm NAVBLUE was seeking a software developer in Waterloo, Ontario. Fintech company Borrowell was looking for a React Native developer with experience building iOS and Android apps in Toronto. Consulting firm Neel-Tech Inc. was searching for an iOS developer in Mississauga.

In Quebec, as of October 2018, drone company Microdrones was hiring a senior Android developer in Vaudreuil-Dorion. Event app company Greencopper was seeking a mobile developer with iOS and Android experience in Montréal. Mobile payment company Mobeewave was searching for a mobile Android developer in Montréal. IT firm SolidByte was looking for a programmer with knowledge of iOS and Android programming in Montréal.

British Columbia has plenty of App Economy activity as well. As of October 2018, payment technology firm Alpha Pay was looking for an iOS or Android mobile developer in Richmond, British Columbia. Financial cloud company Global Relay was hiring a senior Android developer in Vancouver. Shopping app company StylePixi was seeking an iOS developer in Vancouver. Digital development firm Atimi was searching for a senior native mobile developer with iOS experience in Vancouver.

Considering Alberta, as of October 2018, GPS company Trimble Inc. was hiring a software engineer with iOS and Android experience in Calgary. Digital production firm Division [1] Media Corp was looking for a mobile app developer in Edmonton. The University of Alberta was searching for a lead software engineer with experience in Android and iOS in Edmonton. Aviation company Air Trail was seeking an intermediate iOS developer in Edmonton.

And the App Economy has spread even further. In Winnipeg, Manitoba, Pollard Banknote Limited – a leading supplier of instant lottery tickets – was hiring a senior applications developer with experience in mobile app development. In Saskatoon, Saskatchewan, Affinity Credit Union was searching for an iOS developer. In Fredericton, New Brunswick, Welltrack – a company that provides a suite of interactive self-help tools – was looking for a mobile developer. And in Bedford, Nova Scotia, IBM’s Client Innovation Centre was hiring a mobile application developer for iOS and Android.

Canadians are developing apps for the rest of the world, not only Canada. One well-known Canadian app that has spread globally is the messaging mobile app Kik, which was created in 2009 by University of Waterloo students and has 300 million users today around the world. Another example: Public transit app Transit was developed in Montréal in 2012. Today, Transit provides real-time crowdsourced data to users in 175 cities across the United States, Canada, and Europe. And well-regarded password manager 1Password, which was developed by Toronto-based AgileBits, has a global user base.

 

POLICY DEVELOPMENTS

As shown in this report, the Canadian App Economy has fared better in terms of scale than some of its industrial peers. Its growth since the introduction of the iPhone over a decade ago (and app intensity today) demonstrate the country is embracing the digital age and is well positioned to be a global leader. A few reforms could catalyze the next round of growth.

Unlike in the United States, where a patchwork of laws govern privacy, one law applies at the federal level in Canada – the Personal Information Protection and Electronic Documents Act (PIPEDA). But, while PIPEDA covers all health data, personal information, and employee information in one comprehensive structure, if a province has passed legislation deemed “substantially similar,” the province’s law prevails. For example, Alberta, British Columbia, and Quebec have laws in place that have been deemed substantially similar, thus serving as the prevailing law. But, as PPI has previously recognized, cross-border data flows means multiple regulatory regimes can be burdensome, unclear, and even contradictory for app developers – slowing the digitization of physical industries and economic growth.

The Canadian government began a review of its Broadcasting and Telecommunications Acts in 2018, with the intent of modernizing its legislative framework after the invention of new technology – particularly streaming services otherwise known as “over-the-top” (OTT) providers (5). OTT providers are those companies delivering video streaming, voice calls, or messaging via the Internet, without requiring users to subscribe to a traditional cable, satellite, or phone service. Policymakers should be cautious of taking a heavy-handed regulatory approach that would slow growth and, instead, should opt for a balanced approach that both promotes competition without jeopardizing the cost savings this technology has afforded consumers.

Lastly, according to the Information and Communications Technology Council’s latest ICT Labor Outlook, Canada will need an additional 216,000 ICT professionals by 2021 (6). Programs designed to incorporate and lower the cost of ICT skills development could help close this shortage. To that end, in their recent report on innovation and competitiveness, Canada’s Economic Strategy Tables recommend expanding on existing work-integrated learning opportunities, adopting portable competency-based credentials, and consolidating and streamlining skills and talent programming (7).

 

CONCLUSION

Canada has a vibrant App Economy that spans the iOS, Android, and Blackberry ecosystems. Compared to most of its industrialized peers, Canada’s app intensity is high, and represents a wide diversity of locations and jobs. Policy reforms such as streamlining privacy laws, taking a balanced regulatory approach when it comes to OTT providers, and closing the skills gap could help catalyze future growth.

 

PDF En Français: PPI_CandianAppEconomy_FRA-V2

 

ENDNOTES

1) PPI has issued App Economy reports on the United States, Japan, Vietnam, Indonesia, Korea, Thailand, Mexico, Brazil, Colombia, Argentina, Chile, and most of the countries of the European Union, including the United Kingdom, Germany, and France. Most notably, we have not yet issued reports on China and India.

2) A description of the methodology can be found in the appendix to Michael Mandel and Elliott Long, “The App Economy in Europe: Leading Countries and Cities, 2017,” Progressive Policy Institute, October 2017. https://www.progressivepolicy.org/wp-content/uploads/2017/10/PPI_EuropeAppEconomy_17.pdf

3) “Employment, Investment, and Revenue in the Canadian App Economy,” October 2012, Information and Communications Technology Council. https://www.ictc-ctic.ca/wp-content/uploads/2012/10/ICTC_AppsEconomy_Oct_2012.pdf

4) “Digital Canada 150,” Industry Canada. https://www.ic.gc.ca/eic/site/028.nsf/eng/home#item5

5) Canadian Heritage, “Government of Canada launches review of Telecommunications and Broadcasting Acts,” June 5, 2018. https://www.newswire.ca/news-releases/government-of-canada-launches-review-of-telecommunications-and-broadcasting-acts-684595661.html

6) “The Next Talent Wave: Navigating the Digital Shift – Outlook 2021,” Information and Communications Technology Council. https://www.ictc-ctic.ca/wp-content/uploads/2017/07/ICTC_Outlook-2021-ENG-Final.pdf

7) “The Innovation and Competitiveness Imperative Seizing Opportunities for Growth,” Canada’s Economic Strategy Tables. https://www.ic.gc.ca/eic/site/098.nsf/vwapj/ISEDC_SeizingOpportunites.pdf/$file/ISEDC_SeizingOpportunites.pdf

New Ideas For A Do Something Congress No. 8: Enable More Workers to Become Owners through Employee Stock Ownership

Posted on by The Progressive Policy Institute

Despite growth in gross domestic product, corporate profits, and the stock market over the past several years, American workers today capture a historically low share of those economic benefits. The labor share of income today is several percentage points lower than the postwar average and, after adjusting for inflation, median compensation today is only about 10 percent higher than in the mid-1970s.

More American workers would benefit directly from economic growth if they had an ownership stake in the companies where they work. To help achieve this goal, Congress should encourage more companies to adopt employee stock ownership plans (ESOPs), which provide opportunities for workers to participate in a company’s profits and share in its growth. Firms with ESOPs enjoy higher productivity growth and stronger resilience during downturns, and employees enjoy a direct stake in that growth. ESOP firms also generate higher levels of retirement savings for workers, thereby addressing another crucial priority for American workers.

While the tax code encourages employee ownership through certain policy incentives, not all businesses benefit equally from these measures. Expanding ESOP tax incentives for S corporations, a large and growing share of U.S. companies, can help ensure that more Americans have access to the economic benefits that ESOPs provide.

 

THE CHALLENGE: AMERICAN WORKERS AREN’T FULLY BENEFITING FROM ECONOMIC GROWTH

In the last two months of 2018, average hourly earnings for American workers rose by three percent (year-over-year). This was the first time that nominal wage growth had broken the three percent mark in nearly 10 years (1). Yet on an inflation-adjusted basis, the real hourly wages of American have been more or less flat for 40 years. Today, they’re only about 10 percent higher than in the 1970’s (2).

Wage stagnation fuels economic anxiety, as workers and their families find it difficult to pay bills and cover the basic costs of living. Partly as a result, Americans take on debt: aggregate household debt reached a new peak in September 2018, surpassing the previous high (in 2008), of $12.68 trillion (3). More and more people feel like they’re running faster but not getting ahead, and loading up on debt just to stay in place. This exacerbates political anger, as Americans get frustrated with government’s apparent inability to help them escape this vicious cycle.

Workers’ share of economic growth is historically low

From the late 1940s through the 1980s, the share of economic output accruing to workers as compensation was fairly constant at between 61 and 64 percent but has since fallen to between 56 and 58 percent (4). That translates into billions of dollars of economic value that would have formerly gone to workers. Meanwhile, GDP and corporate profits have grown strongly in recent years–thanks in part to corporate tax cuts–with the latter even setting new records in 2018 (5).

Wage stagnation has worsened workers’ retirement security

One especially worrisome consequence of the lack of wage growth is that workers have less capacity to save. In particular, Americans face a crisis in retirement security: nearly two-thirds of working-age Americans have no retirement assets of any kind (6).

The median amount saved for retirement is, in fact, $0; if only workers with retirement savings are counted, the median is only $40,000 (7). Just 51 percent of workers have access to an employer-provided savings plan, such as a 401(k) (8). Small business employees have the least access: according to some estimates, less than 20 percent of businesses with fewer than 50 employees offer retirement plans (9).

 

THE GOAL: PROVIDE MORE AMERICAN WORKERS WITH A CHANCE TO SHARE IN THE PROFITS AND GROWTH OF THEIR EMPLOYERS

How can workers get a bigger share of the economic growth they help create, along with stronger financial security? One way to achieve this goal could be to impose rigid top-down mandates on companies requiring higher wages or benefits, but this approach invites resistance, potentially stifles growth, and may not achieve the intended aims of improving workers’ economic security. A better approach is to encourage more companies to provide workers with an ownership stake in their employers, such as through an employee stock ownership plan (ESOP).

ESOPs are a proven way to help workers participate in business growth while generating a host of social and economic benefits, including greater opportunities for economic security. Research has consistently found that companies with ESOPs enjoy stronger growth in productivity and profits than other firms, so employees get a larger share of a faster-growing pie (10). The wage distribution at employee-owned firms is tighter than in non-ESOP companies, meaning that greater employee ownership can help put at least a small dent in income inequality (11). ESOP companies have also demonstrated stronger economic resilience and job stability than other firms, particularly during economic downturns (12).

Employee-owned companies also offer greater retirement security. Critics of ESOPs have raised the possibility of a lack of diversification in employees’ retirement holdings if a large share is concentrated in their company’s shares. Yet research has established that ESOP companies are actually more likely to also set up diversified 401(k) accounts as secondary retirement plans (13). And, ESOPs are legally required to help plan participants diversify their investments.

While ESOPs might have more public visibility in the context of large employers, more and more small businesses are discovering the benefits of employee ownership as well. Today, roughly 10 percent of private-sector employees in the United States work in ESOP companies (14). The fastest growth in ESOP adoption has been among S corporations, which are also a fast-growing form of business organization (15). The ESOP model is promising for employers of all sizes, boosting the ability of their employees to save for retirement. As the Chief Financial Officer of the engineering and construction firm MMC Contractors in Kansas City told PPI: “There’s no way [our employees] would have accrued the type of retirement benefits they have but for the ESOP. Some of them will have a nicer standard of living when they retire than they do today” (16).

 

THE PLAN: EQUALIZE TAX TREATMENT FOR EMPLOYEE-OWNED BUSINESSES TO ENCOURAGE WIDER SPREAD OF THIS MODEL

Originally authorized in 1974, policy incentives have expanded to encourage ESOP adoption by more companies (17). Just last year, the 115th Congress passed the Main Street Employee Ownership Act which, among other things, made employee-owned businesses eligible for Small Business Administration loan guarantees (18). States have also taken action to encourage more employee ownership: in 2017, bipartisan legislation passed in Colorado establishing a new office and revolving loan fund to support transitions to ESOPs (19).

Yet more can and should be done to incentivize the use of ESOPs–in particular, pass-through S corporations should have access to all the ESOP tax benefits that accrue to traditional C corporations. While they now represent a small fraction of U.S. companies, C corporations employ nearly half the workforce because they are typically the entity of choice for large companies and are subject to the corporate income tax.

An S corporation, on the other hand, does not pay the corporate income tax; rather, income is “passed through” to shareholders and taxed as ordinary income. S corporations are now the second-most common form of business organization in the United States (after sole proprietorships) (20). There are two-thirds more S corporations than C corporations, and S corporations have grown more rapidly in number and income over the past two decades. In fact, they have been the fastest-growing business entity since the 1980s (21).

Both types of corporations may sponsor an ESOP, but C corporations enjoy an ESOP tax benefit not currently available to S corporations. When a company transitions to an ESOP, its current shareholders sell their shares to the ESOP, which in turn distributes shares to employees. The difference is in the tax treatment of the profits from the sale of those shares to the ESOP. Under section 1042 of the Internal Revenue Code, the owners of a C corporation who choose to sell stock to an ESOP can put off the tax liability on the gains for that sale (22). But, when owners of an S corporation sell stock (or the entire company) to an ESOP, gains from the sale are taxed immediately.

This erects a barrier to ESOP adoption by S corporations and matters especially for business owners nearing retirement. In the United States, 57.5 percent of the owners of employer firms (that is, those with employees) are between the ages of 45 and 64 (23). Another 19.6 percent are over age 65, and more than half of the youngest companies are owned by individuals over 45 (24). When asked about their exit strategy, selling to employees is low in the list–14 percent say they will simply walk away, and nearly one-third have no exit strategy. Alarmingly, the businesses whose owners have no exit strategy employ the largest number of people (25). Facilitating the sale of S corporations to ESOPs will give business owners a stronger exit strategy option, and help businesses stay in their communities.

Extending to S corporations the same tax benefit that C corporations receive when adopting an ESOP will create broader awareness of this option for businesses, spreading the benefits of ESOPs to more people.

Congress should extend IRC 1042 to S corporations. This will continue to expand the benefits of ESOPs, not least because S corporations are much more numerous than C corporations. Additionally, S corporations with ESOPs (known as S-ESOPs) have been shown to have high resilience in recessions, higher wages than other firms, and stronger retirement holdings for employees (26). S-ESOPs are also more likely to offer additional retirement plans than other businesses are to offer any retirement plan. Uneven tax treatment potentially denies these benefits to millions of American workers and business owners.

Such a change was proposed in bipartisan legislation introduced in the Senate in January 2019 at the beginning of the 116th Congress: the Promotion and Expansion of Private Employee Ownership Act would allow S corporations to defer tax upon transition to an ESOP. Sponsored by Sens. Pat Robers (R-KS) and Ben Cardin (D-MD), the bill has attracted 24 co-sponsors from both sides of the aisle. In the House, in 2017, similar legislation was introduced by Reps. Dave Reichert (R-WA) and Ron Kind (D-WI).

American workers have endured wage stagnation for too long. They deserve a large share of the growth they help create. ESOPs help deliver that, and they help drive greater business productivity in the process. At the same time, ESOPs increase retirement security, and making their adoption easier will be good for business owners, too.

ENDNOTES

  1. Economic Policy Institute, Nominal Wage Tracker (based on data from Bureau of Labor Statistics) https://www.epi.org/nominal-wage-tracker/
  2. Drew Desilver, “For most U.S. workers, real wages have barely budged in decades,” Pew Research Center, August 7, 2018 https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/
  3. Federal Reserve Bank of New York, Quarterly Report on Household Debt and Credit, 2018:Q3, November 2018 https://www.newyorkfed.org/microeconomics/hhdc.html.
  4. Michael D. Glandrea and Shawn A. Sprague, “Estimating the U.S. labor share,” Monthly Labor Review, February 2017 https://www.bls.gov/opub/mlr/2017/article/estimating-the-us-labor-share.htm.
  5. Robert Hughes, “Corporate Profits Hit a New Record as GDP Growth is Revised Higher,” American Institute for Economic Research, August 29, 2018 https://aier.org/article/corporate-profits-hit-new-record-gdp-growth-revised-higher.
  6. Jennifer Erin Brown, Joelle Saad-Lessler and Diane Oakley, “Retirement in America: Out of Reach for Working Americans?” National Institute on Retirement Security, September 2018, https://www.nirsonline.org/wp-content/uploads/2018/09/FINAL-Report-.pdf
  7. Jennifer Erin Brown, Joelle Saad-Lessler and Diane Oakley, “Retirement in America: Out of Reach for Working Americans?” National Institute on Retirement Security, September 2018, https://www.nirsonline.org/wp-content/uploads/2018/09/FINAL-Report-.pdf
  8. Jennifer Erin Brown, Joelle Saad-Lessler and Diane Oakley, “Retirement in America: Out of Reach for Working Americans?” National Institute on Retirement Security, September 2018, https://www.nirsonline.org/wp-content/uploads/2018/09/FINAL-Report-.pdf
  9. John Rekenthaler, Jake Spiegel, and Aron Szapiro, “Small Employers, Big Responsibilities: How Policymakers Can Address the Small Retirement Plan Problem,” Morningstar, November 2017
  10. Steven F. Freeman and Michael Knoll, “S Corp ESOP Legislation Benefits and Costs: Public Policy and Tax Analysis,” University of Pennsylvania, Center for Organizational Dynamics, July 2008
  11. Jared Bernstein, “Employee Ownership, ESOPs, Wealth, and Wages,” Employee-Owned S Corporations of America (ESCA), January 2016
  12. Phillip Swagel and Rober Carroll, “Resilience and Retirement Security: Performance of S-ESOP Firms in the Recession,” McDonough School of Business, Georgetown University, March 2010; Steven F Freeman and Michael Knoll, “S Corp ESOP Legislation Benefits and Costs: Public Policy and Tax Analysis,” University of Pennsylvania, Center for Organizational Dynamics, July 2008
  13. Jared Bernstein, “Employee Ownership, ESOPs, Wealth, and Wages,” Employee-Owned S Corporations of America (ESCA), January 2016
  14. NCEO, Statistical Profile, https://www.nceo.org/articles/statistical-profile-employee-ownership
  15. Alex Brill, “An Analysis of the Benefits S ESOPs Provide the U.S. Economy and Workforce,” Matrix Global Advisors, July 2012
  16. Interview with Dave Cimpl, Chief Financial Officer at MMC Contractors. Cimpl is also the chairman of ESCA
  17. Steven F. Freeman and Michael Knoll, “S Corp ESOP Legislation Benefits and Costs: Public Policy and Tax Analysis,” University of Pennsylvania, Center for Organizational Dynamics, July 2008
  18. Steve Dubb, “Historic Federal Law Gives Employee-Owned Businesses Access to SBA Loans,” Nonprofit Quarterly, August 14, 2018 https://nonprofitquarterly.org/2018/08/14/employee-owned-businesses-sba-loans/
  19. HB17-1214, “Encourage Employee Ownership of Existing Small Business,” https://leg.colorado.gov/bills/hb17-1214
  20. Scott Greenberg, “Pass-Through Businesses: Data and Policy,” Tax Foundation, January 17, 2017, at https://taxfoundation.org/pass-through-business-data-and-policy/; Aaron Krupkin and Adam Looney, “9 facts about pass-through businesses,” Brookings Institution, May 15, 2017, https://www.broookings.edu/research /9-facts-about-pass-through-businesses/#fact4
  21. Richard Prisinzano, Jason DeBAcker, John Kitchen, Matthew Knittel, Susan Nelson, and James Pearce, “Methodology to Identify Small Businesses,” Technical Paper 4 (Update), Office of Tax Analysis, Department of Treasury, November 2016, https://www.treasury.gov/resource-center/tax-policy/tax-analysis/Documents/TP4-Update.pdf
  22. To qualify for deferral, the proceeds of a section 1042 sale must be reinvested in “qualified replacement property” (QRP) defined as stock in another business. Once the QRP is sold, capital gains taxes apply
  23. Census Bureau, Annual Survey of Entrepreneurs, 2016, at https://www.census.gov/programs-surveys/ase.html (This is the latest year for which data are available)
  24. Census Bureau, Annual Survey of Entrepreneurs, 2016, at https://www.census.gov/programs-surveys/ase.html (This is the latest year for which data are available)
  25. Census Bureau, Annual Survey of Entrepreneurs, 2016, at https://www.census.gov/programs-surveys/ase.html (This is the latest year for which data are available)
  26. Phillip Swagel and Rober Carroll, “Resilience and Retirement Security: Performance of S-ESOP Firms in the Recession,” McDonough School of Business, Georgetown University, March 2010
  27. EY, “Contributions of S ESOPs to participants’ retirement security,” Paper prepared for the Employee-Owned S Corporations of America, March 2015

Ritz for Forbes, “Donald Trump’s Budget For A Declining America”

Posted on by The Progressive Policy Institute

After the president’s budget was released on Monday, House Budget Committee Chairman John Yarmuth (D-KY) called it “A Budget for a Declining America.” Unfortunately, that might be an understatement.

The Trump administration’s Fiscal Year 2020 budget proposal is a compilation of the worst ideas to come out of the Republican Party over the last decade. It would dismantle public investments that lay the foundation for economic growth, resulting in less innovation. It would shred the social safety net, resulting in more poverty. It would rip away access to affordable health care, resulting in more disease. It would cut taxes for the rich, resulting in more income inequality. It would bloat the defense budget, resulting in more wasteful spending. And all this would add up to a higher national debt than the policies in President Obama’s final budget proposal.

The most harmful aspect of Trump’s fiscal blueprint is its scheme for gutting investments in public goods that are core responsibilities of government. The administration proposes to reduce the share of gross domestic product devoted to non-defense (domestic) discretionary spending – the category of the budget that is annually appropriated by Congress and includes most federal spending on infrastructure, education, and scientific research – by more than half over the next decade. The result is deep cuts to all three of these important investments that provide the foundation for long-term economic growth.

Continue reading at Forbes.

 

 

Gerwin for Medium: “Trump Thinks ‘Trade Isn’t Tricky'”

Posted on by The Progressive Policy Institute

When economic historians recount U.S. trade policy under Donald Trump, they’ll tell a cautionary tale. Like the current consensus that the Smoot-Hawley tariffs worsened the Great Depression and tanked global trade, future analysts will detail the negative economic effects of Trump’s go-it-alone trade policies. And historians will draw from a treasure trove of quotes from the “Tariff Man,” who famously said that “trade wars are good and easy to win.”

Perhaps no quote better captures the essence — and dysfunction — of Trump’s trade policies than his claim that “trade isn’t tricky.” Trump sees trade as a straightforward, black-and-white issue. As a result, he’s pursued simplistic — often blunt-force — solutions. Trump’s failure to appreciate the complexity of the interconnected global economy is perhaps the greatest source of the long-term damage that his policies are causing to America’s economy and global standing.

 

Read the full piece on Medium by clicking here. 

Kim for Medium: “The Dangers of Big Ideas and Small Tent Politics for House Democrats”

Posted on by The Progressive Policy Institute

Emboldened by their conviction that the national zeitgeist is on their side, the progressive left is taking a harder line against House Democrats reluctant to embrace their agenda.

Groups like the Justice Democrats, for instance, have signaled their intent to primary moderate members who don’t espouse signature liberal efforts such as the “Green New Deal” or the abolition of private insurance in favor of single-payer health care. And last week, Rep. Alexandria Ocasio-Cortez reportedly warned her colleagues in a closed-door meeting of House Democrats that they could find themselves “on a list” of primary targets if they bucked the party on certain votes.

These tactics will do the party no favors as it works to maintain a relatively fragile majority. And as the findings of a pre-election poll by the Progressive Policy Institute (PPI) show, liberals are wrong to assume that most Americans share their desire for sweeping government intervention in the economy.

 

Read the full piece on Medium by clicking here.

New Ideas for a Do-Something Congress No. 5: Make Rural America’s Higher Education Deserts Bloom

Posted on by The Progressive Policy Institute

As many as 41 million Americans live in “higher education deserts” – at least half an hour’s drive from the nearest college or university and with limited access to community college. Many of these deserts are in rural America, which is one reason so much of rural America is less prosperous than it deserves to be.

The lack of higher education access means fewer opportunities for going back to school or improving skills. A less educated workforce in turn means communities have a tougher time attracting businesses and creating new jobs.

Congress should work to eradicate higher education deserts. In particular, it can encourage new models of higher education – such as “higher education centers” and virtual colleges – that can fill this gap and bring more opportunity to workers and their communities. Rural higher education innovation grants are one potential way to help states pilot new approaches.

 

THE CHALLENGE: HIGHER EDUCATION “DESERTS” ARE HANDICAPPING RURAL AMERICA

For millions of Americans, distance is as big or bigger a barrier to higher education access as finances. According to the Urban Institute, nearly one in five American adults—as many as 41 million people—lives twenty-five miles or more from the nearest college or university, or in areas where a single community college is the only source of broad-access public higher education within that distance. Three million of the Americans in these so-called “higher education deserts” also lack broadband internet, which means they are cut off from online education opportunities as well (1).

Rural students have lower rates of college-going and completion.

More than four in five people in higher education deserts – 82 percent – live in rural areas. This could be one reason why fewer rural Americans attend or finish college.

In 2016, 61 percent of rural public school seniors went on to college the following year, according to the National Student Clearinghouse, compared to 67 percent for suburban students (2). Only 20 percent of rural young adults between 25 and 34 have four-year degrees, says the USDA’s Economic Research Service, compared to 37 percent of young adults in urban areas (3). Moreover, the urban-rural gap in college degree attainment is growing. From 2000 to 2015, the share of college-educated adults rose by 7-points in urban locales compared to 4-points in rural areas.

Less-educated rural areas are falling behind while better educated cities leap ahead.

With more and more jobs demanding ever higher levels of skill, disparities in access to higher education are translating to vast disparities in the distribution of jobs and opportunity throughout the United States, including a widening urban-rural divide. Wealthy urban areas are getting richer, while rural areas are increasingly lagging.

The Economic Innovation Group (EIG), for instance, reports that of the 6.8 million net new jobs created between 2000 and 2015, 6.5 million were created in the top 20 percent of zip codes, which were predominantly urban (4). These prosperous, job-creating zip codes are also the best-educated. EIG further finds that 43 percent of residents in the top 10 percent of zip codes has a bachelor’s degree or better, compared to just 11 percent in the bottom 10 percent. While a four-year degree is of course not a prerequisite for a good living, the heavy concentration of highly-educated workers is indicative of the imbalance in economic opportunities between rural and urban areas.

Most of the nation’s least educated and most impoverished counties are rural. 

If education and prosperity are linked, so conversely are poverty and the lack of educational attainment.

Out of 467 U.S. counties identified by the USDA as “low education” counties – places where 20 percent or more of the population has less than a high school diploma – 79 percent are rural (5). These counties tend to be clustered in the rural South, Appalachia, along the Texas border and in Native American reservations and also suffer from higher rates of poverty, child poverty and unemployment.

 

THE GOAL: ERADICATE HIGHER EDUCATION DESERTS AND ENSURE EVERY RURAL AMERICAN HAS HIGHER EDUCATION ACCESS

Better access to higher education in rural areas, especially for the many millions of “nontraditional” students who are now increasingly the norm (6), can help close the gulf in opportunity between urban and rural areas. Greater opportunities for convenient, affordable higher education would allow more rural Americans to finish their degrees or pursue occupational credentials, qualifying them for higher-skilled, better-paid jobs. Rural students would also benefit by not being forced to leave home for school – not only lowering costs for students but potentially slowing or even reversing the population declines plaguing rural areas. Institutions of higher education can also serve as engines of economic development in the communities they serve. They can work with businesses to turn out the skilled talent they need and provide research or other support.

 

THE PLAN: CREATE RURAL HIGHER EDUCATION INNOVATION GRANTS TO ENCOURAGE NEW MODELS OF HIGHER EDUCATION REACHING RURAL AMERICA

While it’s unrealistic to establish a new college, community college or university in every rural area that needs one, emerging models for delivering higher education potentially offer a creative, cost-effective and effective alternative. These new models can also expand the ability of workers to obtain high-quality occupational credentials, which in many instances are likely to be more practical, affordable and desirable than pursuing a two-year or four-year degree.

Some states, such as Pennsylvania, Virginia and Maryland, are pioneering new approaches, such as “higher education centers” and virtual colleges, that use technology to broaden students’ options for both traditional college education and occupational training (7). The Northern Pennsylvania Regional College, for instance, operates six different “hubs” scattered throughout the 7,000 square miles it serves, plus numerous “classrooms” using borrowed space from local high schools, public libraries and other community buildings. In addition to conferring its own degrees, it provides the infrastructure for other accredited institutions to extend their reach through “blended” offerings combining virtual and in-person teaching.

Similarly, Virginia’s five higher education centers provide physical infrastructure for colleges and community colleges offering classes as well as occupational training in fields such as welding, mechatronics and IT certification. In Maryland, the Southern Maryland Higher Education Center offers specific courses from ten different institutions, including Johns Hopkins and the University of Maryland. Though relatively new, these institutions are already establishing a track record of success. In South Boston, Virginia, for instance, the Southern Virginia Higher Education Center worked with more than 30 area industries and entrepreneurs in 2017, developed customized training for nearly 150 workers in local companies and placed 173 students into new jobs (8).

Congress should encourage all states to make rural higher education a priority and help more states experiment with new models for accessing higher education in remote areas. One way to do this is to provide seed money in the form of Rural Higher Education Innovation Grants so that states can stand up pilots, evaluate the effectiveness of new models and scale up promising approaches. These grants moreover do not need to be large – the Pennsylvania legislature initially appropriated just $1.2 million to launch what is now NPRC.

As a start, Congress should set aside $10 million in competitive grant funding for states. Funding for these grants could come from an earmark of the money collected from the 1.4 percent excise tax on large university endowments included in the 2017 tax legislation (9).

 

Read Here: New Ideas For a Do Something Congress No. 5

Bledsoe for USA Today, “Trump border emergency is fake and climate crisis is real. Guess which just got funded?”

Posted on by The Progressive Policy Institute

Donald Trump funds ’emergency’ border wall but relief for victims of wildfires, storms and other climate change-fueled catastrophes must wait.

One emergency, the border wall, is fake, invented by a rogue president desperate for a political win no matter the price. Another, the climate crisis, is real, with tens of millions of citizen victims around the country. Guess which one got funded?

President Donald Trump is risking a constitutional crisis by declaring a false national emergency to fund a border wall that his own government experts say isn’t needed and won’t work, and of which he himself says, “I didn’t need to do this.”

Meanwhile, the bill Trump signed last week to keep the government open leaves out tens of billions of dollars of relief for American citizens who are victims of hurricanes, wildfires and other disasters made worse by climate change.

This should not be a shock to anyone paying close attention. Acting White House Chief of Staff Mick Mulvaney, reacting to earlier reports, last week pointedly denied that the administration would raid relief funds designated for victims of storms and wildfires to get money for Trump’s dubious border wall.

The president, who denies basic climate science and is rolling back key climate protections, would have been taking money from its victims to escape the consequences of his own manufactured government-shutdown crisis — all to build a wall that will be ineffective and even counterproductive in improving border security.

A firestorm of criticism prevented that. Yet here we are about a month later with much the same outcome.

Continue reading at USA Today.

Mandel and Blaustein for InsideSources, “Entrepreneurs Need to Escape The Start up Trap”

Posted on by The Progressive Policy Institute

For many, becoming a small business owner has always been a part of the American Dream and for entrepreneurs launching a successful startup today is, in many ways, the 21st-century version of this ambition. But even if the business gets off the ground, it is becoming more and more challenging for company owners to scale up.

To put it in perspective, “young” businesses — 6 to 10 years — were half as likely to employ 1,000 workers or more in 2014 compared to 20 years ago. That’s based on an analysis of Census Bureau data in research released this month from the Progressive Policy Institute and Allied for Startups.

Large companies have been blamed for acquiring small companies before they can grow. However, there’s another explanation for the scaling-up trap that deserves more attention: the unintentional tax and regulatory cliff created by decades of policies favoring small businesses.

In the United States, small businesses are often exempt from obligations to provide certain employee benefits and comply with certain regulatory rules if the company is small enough. While these “carve-outs” are beneficial for companies who stay below the relevant thresholds, the threat of losing these exemptions can make entrepreneurs think twice before expanding. In fact, sometimes, selling small businesses to larger rivals is more lucrative for owners than scaling their own businesses.

Continue reading at InsideSources.

New Ideas for a Do-Something Congress No. 4: “Expand Access to Telehealth Services in Medicare”

Posted on by The Progressive Policy Institute

America’s massive health care industry faces three major challenges: how to cover everyone, reduce costs, and increase productivity. Telehealth – the use of technology to help treat patients remotely – may help address all three. Telehealth reduces the need for expensive real estate and enables providers to better leverage their current medical personnel to provide improved care to more people.

Despite its enormous potential, however, telehealth has hit legal snags over basic questions: who can practice it, what services can be delivered, and how it should be reimbursed. As is the case with any innovation, policymakers are looking to find the right balance between encouraging new technologies and protecting consumers – or, in this case, the health of patients.

Telehealth policy has come a long way in recent years, with major advances in the kinds of services that are delivered. Yet a simple change in Medicare policy could take the next step to increase access and encourage adoption of telehealth services. Currently, there are strict rules around where the patient and provider must be located at the time of service – these are known as “originating site” requirements – and patients are not allowed to be treated in their homes except in very special circumstances. To expand access to telehealth, Congress could add the patient’s home as an originating site and allow Medicare beneficiaries in both urban and rural settings to access telehealth services in their homes.

 

THE CHALLENGE: LEGAL BARRIERS LIMIT THE POTENTIAL FOR TELEHEALTH TO INCREASE ACCESS TO PATIENT CARE.

Under Medicare, telehealth is defined as “the use of electronic information and telecommunications technologies to support long-distance clinical health care” (1). Each program in Medicare – traditional Medicare, Medicare Advantage, and Medicare demonstration projects – has unique rules limiting when and how telehealth can be used. Because Medicare Advantage has different rules governing telehealth, this brief is specifically focused on the roughly 39 million seniors enrolled in traditional fee-for-service Medicare (2).

In traditional, fee-for-service Medicare, the Social Security Act defines how telehealth services may be covered. As amended in 1997, the law limits telehealth to services that are furnished to beneficiaries in certain types of geographic areas: either a rural health professional shortage area (HPSA) or a county outside of a Metropolitan Statistical Area (MSA). Besides being in a qualifying rural area, the originating site – or where the patient is located – is required to be at a physician office, hospital, rural health center, skilled nursing facility, federally qualified health center, community mental health center, or a hospital-based dialysis facility. In those facilities, patients can receive care remotely from 10 types of distant site clinicians qualified to deliver telehealth services. In other words, traditional Medicare beneficiaries, except in special circumstances, cannot receive telehealth services in their homes.

Though the Centers for Medicare and Medicaid Services (CMS) cannot authorize new originating sites without Congress, it does have the authority to decide which telehealth services are payable under the Medicare Physician Fee Schedule. In 2019, that schedule includes roughly 100 billing codes covering consultations, psychiatric care, smoking cessation, end-stage renal disease management, nutrition counseling, new and existing patient evaluation and management services, and post-nursing facility care. It’s clear that many of these services – particularly psychiatric care and smoking cessation – should not require the patient to drive into a qualifying medical facility and could be effectively delivered in the home.

More beneficiaries could benefit from increased access to telehealth.

To modernize telehealth delivery, Congress directed CMS under the 21st Century Cures Act and the Bipartisan Budget Act of 2018 to start relaxing some telehealth rules in 2019. Thanks to this legislation, beneficiaries under traditional Medicare now have access to a range of telehealth services that fall outside the parameters listed above, including at home. These include:

  • Allowing Accountable Care Organizations (ACOs) to furnish telehealth services in the beneficiary’s home regardless of geographic location
  • Permitting ACOs to use teledermatology and teleophthalmology services provided through asynchronous store-and-forward telehealth* technologies
  • Expanding coverage of telestroke services – a service where emergency department clinicians can consult with stroke specialists in distant locations – to all geographic areas
  • Providing individuals with end-stage renal (ESRD) disease monthly ESRD-related clinical assessments via telehealth at home after first receiving a face-to-face appointment

Despite these advances, there are still many instances where Medicare beneficiaries
could benefit from telehealth from home but are not permitted to do so under current rules.

It is no surprise that telehealth utilization in traditional Medicare remains low. Though utilization increased between 2014 and 2016, only 90,000 traditional Medicare beneficiaries used 275,199 telehealth services in 2016. This represents roughly a quarter of 1 percent (0.25 percent) of the more than 35 million fee-for-service Medicare beneficiaries included in CMS’s telehealth analysis. Interestingly, growth was highest among the oldest group – those beneficiaries over 85. The data show that 85.4 percent of the traditional Medicare beneficiaries using telehealth services had at least one mental health diagnosis – and that psychotherapy was one of the most used telehealth services. The data also show that telehealth use is higher in states with large rural areas or HPSA. This, no doubt, reflects the legal requirement that patients must be in such areas to receive telehealth services (3).

By adding the patient’s home as an originating site in traditional Medicare, patients in urban or other underserved areas could also benefit from using telehealth services in their homes. Roughly 80 percent of seniors have one chronic disease and 68 percent have two or more (4). Telehealth can help patients better manage their conditions in the convenience of their own home. According to a 2017 GAO report, a Veterans Health Administration’s (VHA’s) program – that provided home-based telehealth services to veterans with chronic conditions – resulted in a 40 percent reduction in hospitalizations (5).

Telehealth could reduce costs.

In addition to expanding access to high-quality medical services to people in underserved areas, telehealth may also save money. This is crucial because, as Medicare’s Trustees warn year after year, the nation’s health-care program for seniors faces serious financial challenges that threaten its ability to meet its obligations to future beneficiaries. Though it used to have budget surpluses, now, each year, the hospital insurance (HI) fund, which covers Medicare Part A, runs a chronic deficit (6).

Virtual visits are cheaper than in-person care, on average, in the commercial insurance market. In the commercial market, telehealth visits cost roughly $100 less per visit than in-person visits. Generally, virtual consultations are priced at $40–50, while office visits check in at $136–$176 (7). In Medicare, however, online visits are priced the same as in-person visits and usually involve a facility fee to cover the patient’s visit to a medical facility. Savings could be realized from serving patients in home and eliminating redundant facility fees (8).

 

THE GOAL: EXPAND ACCESS TO TELEHEALTH SERVICES AS A WAY TO IMPROVE ACCESS AND POTENTIALLY REDUCE MEDICARE COSTS

Commercial plans generally permit telehealth originating sites in both rural and urban areas, though they vary with coverage of services provided while the patient is at home. While expanding the coverage of telehealth services in Medicare may increase costs initially, those extra costs could be justified by both the expanded access and the better outcomes telehealth services could deliver. Moreover, in the long run, helping patients manage chronic conditions, avoid hospitalizations, and reduced facility fees will save money.

For example, one program focused on providing acute care at home for older, vulnerable patients with one of nine conditions – exacerbations of congestive heart failure, chronic obstructive pulmonary disease, community-acquired pneumonia, cellulitis, deep venous thrombosis, pulmonary embolism, complicated urinary tract infection or urosepsis, nausea and vomiting, and dehydration – found a 38 percent reduction in mortality for patients treated at home. Appropriately titled “Hospital at Home” outpatients had comparable or better clinical outcomes and saved an average of 19 percent relative to similar hospital inpatients. Among the important components of this program were “telehealth nurses,” who monitored patients’ vital signs remotely via telehealth units installed in patients’ homes (9).

There is an ongoing debate between advocates of telehealth who argue that expanding services increases access to care and other policymakers who caution that telehealth may not act as a substitution for in-person services and instead increase unnecessary utilization without improving outcomes. Because telehealth has been limited to-date, the data are mixed. However, there is clear potential to improve access and convenience, and, over time, that could improve outcomes.

 

THE PLAN: EXPAND ACCESS TO TELEHEALTH BY ALLOWING REIMBURSEMENT UNDER TRADITIONAL MEDICARE FOR APPROVED TELEHEALTH SERVICES DELIVERED TO PATIENTS’ HOME

Rather than slowly increasing the sites and services allowed under telehealth, Congress should allow CMS to authorize a patient’s home as an originating site so clinicians can deliver medically necessary services via telehealth to patients’ homes.

There’s a precedent for abolishing originating site rules. In 2016, the Department of Defense (DoD) announced that a patient’s home would qualify as an originating site as long as the provider worked at a military treatment facility. Additionally, California has recently proposed abolishing originating site rules in its Medicaid program, saying telehealth originating sites can include, but are not limited to, “a hospital, medical office, community clinic, or the patient’s home.” By expanding the definition of “originating site,” California is moving to allow clinicians to provide more telehealth services. These changes are too recent to have garnered data, but it is clear that other agencies are looking to expand access to telehealth.

Congress should follow suit. Lawmakers could significantly expand access to services by amending the Social Security Act clause that governs originating site rules and expanding the definition to include the patient’s home as a qualifying originating site.

Telehealth has come a long way since it was first authorized under Medicare in 1997. But the laws governing telehealth from 20 years ago are outdated. It’s time to allow Medicare recipients to get telehealth services in their home.

 

* When health-care providers review patient medical information like lab reports, imaging studies, videos, and other records at another location and at a time that is convenient for them. The service is not delivered in real time.

 

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ENDNOTES

1) Health Resources and Services Administration Federal Office of Rural Health Policy. Available from: https://www.hrsa.gov/ruralhealth/telehealth/

2) Medicare Enrollment Dashboard, “Hospital/Medical Enrollment,” Centers for Medicare and Medicaid Services, October 2018. https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/Dashboard/Medicare-Enrollment/Enrollment%20Dashboard.html.

3) “Information on Medicare Telehealth,” Centers for Medicare & Medicaid Services, 2018.
https://www.cms.gov/About-CMS/Agency-Information/OMH/Downloads/Information-on-Medicare-Telehealth-Report.pdf.

4) “By the Numbers: The Impact of Chronic Disease on Aging Americans,” CVS Health, January 2017.
https://cvshealth.com/thought-leadership/by-the-numbers-the-impact-of-chronic-disease-on-aging-americans.

5) “Information on Medicare Telehealth,” Centers for Medicare & Medicaid Services, 2018.
https://www.cms.gov/About-CMS/Agency-Information/OMH/Downloads/Information-on-Medicare-Telehealth-Report.pdf.

6) “OASDI and HI Annual Income Rates, Cost Rates, and Balances,” Social Security Administration, 2018. https://www.ssa.gov/oact/tr/2018/lr6g2.html.

7) Daniel H. Yamamoto, “Assessment of the Feasibility and Cost of Replacing In-Person Care with Acute Care Telehealth Services,” Red Quill Consulting, December 2014.
https://www.connectwithcare.org/wp-content/uploads/2014/12/Medicare-Acute-Care-Telehealth-Feasibility.pdf.

8) Ibid.

9) Lesley Cryer, Scott B. Shannon, Melanie Van Amsterdam, and Bruce Leff, “Costs For ‘Hospital At Home’ Patients Were 19 Percent Lower, With Equal Or Better Outcomes Compared To Similar Inpatients,” Health Affairs 31, no. 6 (2012): 1237-1243, https://content.healthaffairs.org/content/31/6/1237.full.

Bledsoe for Forbes, “Green New Deal Must Grow Up Fast To Influence Bills Congress is Already Writing”

Posted on by The Progressive Policy Institute

Little noticed in the media circus surrounding the mere introduction of a non-binding Congressional resolution on the Green New Deal was the deletion of much-criticized and plainly unachievable mandates contained in previous GND versions.

Gone was the impossible diktat requiring 100% renewable energy for the entire economy by 2030. Missing was the politically suicidal and practically infeasible flat-out prohibition on fossil fuels in little more than a decade. Even extraneous language on guaranteed jobs in the resolution had been watered down from earlier texts, and would of course never be a legal requirement in actual climate legislation that passes Congress in any event.

In fact, the more extreme provisions in the GND have served largely to provide Trump and other Republican anti-climate action forces with irresistible political fodder. Republicans hope to scare the American people into opposing sensible climate actions by invoking GND extremism, and have already produced ads with these themes.

Continue reading at Forbes.