issue: Small Business & Entrepreneurship

The Australian App Economy: 2019 Update

Posted on by The Progressive Policy Institute

Apple introduced the first iPhone in 2007 just as the Global Recession was about to begin. While central bankers and national leaders struggled with a deep financial crisis and stagnation, the fervent demand for iPhones and the wave of smartphones that followed provided a rare force for growth.

The smartphone also triggered a new era for job creation around the world. Apple opened the App Store in 2008, followed by Android Market (now Google Play) and other app stores. This unexpected “side-effect” of the smartphone quickly took on a life of its own, creating a whole new class of iOS and Android developers who were writing mobile applications that could run on smartphones anywhere. 

It’s not an exaggeration to speak of a global App Economy, with an army of app developers writing mobile applications for billions of users. For businesses, apps have become the essential front door for their customers, providing access to everything from shopping to customer service to banking services to entertainment to information to essential health knowledge. 

What’s more, the App Economy still has room to grow. Internet of Things (IoT) mobile connections are estimated to reach 4.1 billion by 2024, increasing at an annual growth rate of 27 percent.2 Consumers and businesses are increasingly interfacing with physical objects and processes through their smartphones and tablets via the IoT. Companies and individuals are utilizing apps to control everyday items and processes such as smart homes, e-commerce shopping, manufacturing analytics, smart. This report updates our 2017 paper, “The Rise of the Australian App Economy”.

[gview file=”https://www.progressivepolicy.org/wp-content/uploads/2019/04/PPI_AustraliaAppEconomy_V4-1.pdf” title=”PPI_AustraliaAppEconomy_V4 (1)”]

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

America’s Skills Gap: Why it’s Real, And Why it Matters

Posted on by The Progressive Policy Institute

A common view among the left is that the “skills gap” – a shortage of workers with the skills employers want – is a mirage.

A new PPI report decisively debunks this myth. As author Ryan Craig explains, the skills gap is real: employers are having trouble finding enough workers with digital skills and “soft skills.”

Craig attributes these shortages to two factors: “Education friction” – the failure of higher education institutions to turn out job-ready graduates — and “hiring friction” – digital screening practices that cause employers to overlook qualified workers.

Craig offers a fresh take on why skills gaps persist, the consequences for economic growth and what he calls “economic alienation” among workers feeling left behind in today’s economy.

Sen. Warren’s Tech-Bashing Populism Misses the Mark

Posted on by The Progressive Policy Institute

The last time we checked, the United States was locked in a high-stakes race with China to lead the world on digital innovation.  So we’re mystified by Sen. Elizabeth Warren’s call today to break up Google, Amazon and Facebook. These are not only America’s most creative companies, but they and other large tech platforms have pioneered a global digital revolution.

They’ve grown big because they’ve been successful. That doesn’t make them perfect and, like any private enterprise large or small, they need strong public oversight and regulation. But breaking them up, absent compelling evidence that they are systematically gouging consumers or stifling competition, would be an act of stupendous economic folly.

To be sure, business consolidation and concentrated market power are real concerns.  But as PPI economist Michael Mandel has demonstrated, such worries apply less to the dynamic and fiercely competitive digital ecosystem than to America’s older and more static physical industries.

Perhaps Sen. Warren is jockeying to enter a very crowded populist “lane” in the 2020 presidential nomination contest.  But if she believes that anti-tech populism is broadly popular with U.S. voters, she’s mistaken. In fact, as a recent PPI poll makes clear,  most Americans have a favorable view of the big tech companies, and oppose breaking them up.

Our poll found that 67 percent of likely voters view the tech companies positively, as shown in Figure 1, and 55 percent oppose breaking them up. While 60 percent of voters acknowledge they are concerned about tech companies’ handling of privacy and data protection, 71 percent of voters view tech companies as “a sign that the American economy is working.” In contrast, just 32 percent view Big Tech as “too powerful.”

Sen. Warren’s call to break up America’s tech leaders may go down well with her party’s “democratic socialist” faction. It will no doubt be applauded by European regulators, who have also drawn a bead on U.S. tech companies. But to most voters, they symbolize American ingenuity and entrepreneurial prowess. Are those qualities progressives really should oppose?

 

Press Release: Americans deserve solutions, not rhetoric, to solve Net Neutrality

Posted on by The Progressive Policy Institute

For Immediate Release (3/6/19)

WASHINGTON – “Senator Edward J. Markey (D-Mass.) and Congressman Mike Doyle (PA-14) today unveiled a bill that will only continue to delay real action on net neutrality.  Congress last passed significant legislation on our communications networks in 1996 and this new proposed bill is a continuation of the DC game of rhetoric and no action as this bill has no chance of passing Congress.

“For the last two decades, different versions of net neutrality have bounced between Congress, the FCC, the courts, and most recently within states — but even with today’s proposal, many of the issues surrounding Net Neutrality will still go unsolved.

“Bipartisan compromise on strong, permanent, clean net neutrality is clearly within reach. We are confident that a practical deal that will protect consumers, strengthen the internet, grow the digital economy, and add jobs in an evolving and modern sector is on the horizon, but this proposal doesn’t pass the smell test.

“It’s not enough to hold press conferences and introduce message bills – American consumers deserve effective action that actually solves the problem of net neutrality.   The backward-looking poison pill approach we have seen so far only makes it harder to achieve.  Hopefully, Democrats and Republicans in the House and Senate will work together moving forward on changes to this legislation that can get us over the finish line and deliver a lasting solution on Net Neutrality – not just more talking points and fundraising emails.

“We continue to urge Congress to solve this problem for good by enacting a strong, pro-consumer, clean net neutrality law ensuring an open internet for all that does not apply European style regulations to a true American success story: the communications sector.”

###

Members of the news media may contact media@ppionline.org, or by phone (202) 525-3926.

New Ideas for a Do Something Congress No. 6: Break America’s Regulatory Log-jam

Posted on by The Progressive Policy Institute

Regulation plays a critical role in refereeing competition in a free market economy. But there’s a problem: Each year, Congress piles new rules upon old, creating a thick sludge of regulations – some obsolete, repetitive, and even contradictory – that weighs down citizens and businesses. In 2017, the Code of Federal Regulations swelled to a record 186,374 pages, up 19 percent from just a decade before.

The steady accumulation of regulations raises compliance and opportunity costs for businesses, especially small enterprises, putting obstacles in the way of economic innovation. Dozens of agencies in Washington issue new rules, but not one is dedicated to retiring old ones. To fill this institutional vacuum, PPI proposes a Regulatory Improvement Commission (RIC), modeled on the highly successful Defense Base Realignment and Closure (BRAC) process for closing obsolete military installations. Like the BRAC process, the proposed RIC would examine old rules and present Congress with a package of recommendations for an up-or-down vote to eliminate or modify outdated rules.

 

THE CHALLENGE: REGULATORY ACCUMULATION DAMPENS AMERICA’S ECONOMIC VITALITY

Wise regulation is essential to facilitate market competition, protect public health and safety, and keep powerful economic actors honest. But as PPI has pointed out in a series of reports, even if any particular regulation is defensible, the sheer accumulation of rules over time can dampen economic vitality (1). New regulations can interact with old ones in unintended ways, and business owners end up spending more time trying to navigate and comply with proliferating rules rather than on growing their companies.

  • Federal regulations hardly ever die, resulting in a dense thicket of rules that raise costs for America’s entrepreneurs and economy.

As shown in Figure 1, the Code of Federal Regulations has steadily grown in size over time, swelling to a record 186,374 pages in 2017 (2). Because the extent of regulation can be difficult to measure, the Code of Federal Regulations’ size is commonly used to provide a sense of the scope of regulations businesses and consumers must comply with. Measured another way, the Federal Register (where the federal government prints new rules) published 61,950 pages in 2017 alone, including proposed rules, final rules, and notices.

Spread across every sector, regulatory accumulation acts as a drag on the economy. One often-cited 2010 study for the Small Business Administration placed just the direct cost of compliance with all federal regulations at $1.7 trillion in 2008, or $15,584 per household (3). A 2012 consulting study for the Manufacturers Alliance for Productivity and Innovation estimated the cumulative cost of major regulations for manufacturers to be $164 billion in 2011 (in constant dollars), double the cost just 10 years earlier. More recently, a 2017 National Small Business Association survey estimated that the average small business owner spends at least $12,000 every year on compliance, with nearly one in three spending more than 80 hours every year dealing with federal regulation (4).

The Trump Administration’s “2-for-1” approach to deregulation fails to distinguish between vital rules and those that tax innovation and growth.

  • President Trump frequently brags about his efforts to provide business with regulatory relief, but his 2017 executive order requiring the elimination of two regulations for each new regulation is the wrong approach. It raises the bar for issuing new regulations without creating a rigorous mechanism for pruning old ones (5).

In addition, Trump’s 2-for-1 scheme fails to distinguish between the kinds of regulations that are reasonable for public health and economic stability or would enhance market competition and those that might be unnecessary or harmful to innovation and growth. Setting aside its conceptual flaws, Trump’s approach has so far not had much practical effect either. According to a Brookings Institute analysis, the Administration’s approach to regulation has largely been one of inaction, and the most consequential “deregulatory” maneuvers have actually been undertaken by the GOP Congress through the wholesale legislative reversal of important Obama-era rules, such as on environmental protection (6). Neither outcome leads to the sort of effective regulatory framework our economy needs.

 

THE GOAL: IMPROVE THE REGULATORY ENVIRONMENT TO UNLOCK ENTREPRENEURIAL GROWTH

Washington needs a mechanism for systematically eliminating regulatory obstacles to economic innovation and entrepreneurship while protecting public safety and ensuring fair competition. Improving the regulatory climate would help inventors and entrepreneurs spend less time and resources on regulatory compliance and focus instead on delivering goods and services and growing their enterprises. A smarter regulatory regime would also realize savings for taxpayers, as less money would need to be spent on enforcement.

While Democrats see the value in responsible regulation that has an important societal function, Republicans take the general view that less regulation is always preferred to more, and that too many regulations of any kind hamper economic growth and potential business investment. These differences in opinion result in incompatible ideas for what regulatory reform should look like.

The answer to outdated, conflicting, or costly rules isn’t deregulation, but the constant updating, streamlining, and improving of our regulatory system. PPI’s proposal for a Regulatory Improvement Commission (RIC) bridges the stale, gridlocked debate on the merits of regulation between Democrats and Republicans, presenting a measured and bipartisan mechanism for improving the regulatory environment to catalyze innovation while also protecting public interests. The RIC would fill an institutional vacuum in regulation policy by creating a mechanism for the periodic clearing out of obsolete rules. Importantly, the RIC has no mechanism by which it can inhibit policymakers’ ability to create critical new rules to address threats to competition or public health and safety. Rather, the RIC would be designed to address only existing regulations that have accumulated over time and are now obsolete.

 

THE PLAN: ESTABLISH REGULATORY IMPROVEMENT COMMISSION TO DEAL PERIODICALLY WITH THE BUILD-UP OF OLD RULES

Washington has dozens of agencies that issue new rules, but not one institution dedicated to streamlining the accumulated body of regulations. To fill that vacuum, Congress should set up a regulatory version of the Defense Base Realignment and Closure Commission (BRAC), which has resulted in the successful closure of more than 350 obsolete installations since the late 1980s. That panel offers a rare example of bipartisan success in accomplishing a politically difficult mission – shutting down old military bases that the Pentagon deemed no longer necessary, but which had influential constituencies in communities around the country.

The RIC would be an independent commission of eight members, appointed by the President and Congress, with regulatory expertise across industry and government. It would meet as authorized by Congress to review and, following a public comment period of 60 days, draw up a list of 15 to 20 rules for elimination or modification. The package would be sent to Congress for an up-or-down vote, and the RIC would be disbanded. If the proposed changes pass Congress, they would go to the president’s desk for signature or veto. The RIC would need to be re-authorized each time Congress would like to repeat this process. Such continued re-authorization is important, as it provides an inexpensive method to solve the problem of regulatory accumulation compared to a standing committee and avoids the creation of a new government bureaucracy.

In 2015, bipartisan groups of lawmakers introduced bills in the House and Senate to establish a Regulatory Improvement Commission based on the BRAC model. House cosponsors included Mick Mulvaney (R-SC), now acting White House Chief of Staff, and Kyrsten Sinema (D-AZ), now a Democratic Senator from Arizona. Unfortunately, the incoming Trump administration ignored the bipartisan RIC bills in favor of anti-regulation bills supported only by Republicans.

The RIC offers an alternative to the witless binary approach to regulation poised by extreme partisans on both ends of the spectrum. Obviously, America’s massive and complex economy needs smart regulation to function properly, and we need institutions charged with constantly improving our regulatory environment, rather than simply piling new rules atop old ones.

In this way, the RIC would fill a vacuum in Washington for a politically viable regulatory improvement mechanism that can inspire confidence across our partisan and ideological divides. And it would create a court of appeal where anyone—business, consumers, labor, civic groups—could challenge existing rules and propose changes.

[gview file=”https://www.progressivepolicy.org/wp-content/uploads/2019/03/PPI_Break-Americas-Regulatory-Log-jam_V4-1.pdf” title=”PPI_Break America’s Regulatory Log-jam_V4 (1)”]

 

ENDNOTES

1) Michael Mandel, “A Progressive Approach to Regulation”, Progressive Policy Institute, February 2011: https://www.progressivepolicy.org/2011/02/reviving-jobsand-innovation-a-progressive-approach-to-improving-regulation/

2) Federal Register: The Daily Journal of the United States Government, “Federal Register and CFR Publication Statistics – Aggregated Charts (XLS)”: https://www.federalregister.gov/reader-aids/understanding-the-federal-register/federal-register-statistics

3) Small Business Administration, “The Impact of Regulatory Costs on Small Firms,” September 2010: https://www.sba.gov/sites/default/files/The%20Impact%20of%20Regulatory%20Costs%20on%20Small%20Firms%20(Full).pdf.

4) “2017 NSBA Small Business Regulations Survey,” National Small Business Association, 2017. https://www.nsba.biz/wp-content/uploads/2017/01/Regulatory-Survey-2017.pdf

5) “Reducing Regulation and Controlling Regulatory Costs,” Executive Order 13771, Federal Register, January 30, 2017. https://www.federalregister.gov/documents/2017/02/03/2017-02451/reducing-regulation-and-controlling-regulatory-costs

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) Connor Raso, “How has Trump’s deregulatory order worked in practice?,” Brookings Institute, September 6, 2018. https://www.brookings.edu/research/how-has-trumps-deregulatory-order-worked-in-practice/.

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

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.

Escaping the Startup Trap: Can Policymakers Help Small Companies Grow to Major Employers?

Posted on by The Progressive Policy Institute

Starting a new business is hard. Scaling it up to a significant size is harder. Europeans have long fretted about their lack of ‘unicorns’— privately held startups with a valuation of more than $1 billion. More generally, there is a sense that European startups either fail to grow or are bought out by larger companies before they go public or create a significant number of new jobs.

A January 2019 analysis by CB Insights showed only 33 European unicorn companies, compared to 83 in China and 150 in the United States. For example, SoundCloud, an online audio platform, was founded in 2007 in Stockholm and later moved to Berlin. By 2016, it was valued around $700 million, and at one point sought a $1 billion valuation to be sold. However, by 2017, the company was on the verge of bankruptcy, abruptly fired 40 percent of its staff, and closed two offices. By August 2017, the company was valued at just $150 million. Or consider restaurant delivery firm Take Eat Easy, founded in Brussels in 2012. After a year, the company expanded to Paris and raised two rounds of venture capital funding in 2015. Take Eat Easy scaled from 10 to 160 employees and from 2 to 20 cities. But in 2016 Take Eat Easy shut down, citing revenue not yet covering fixed costs and an inability to raise a third round of funding.

Even in the relatively successful United States, it seems that new companies are scaling up less frequently than they used to. The Progressive Policy Institute analyzed Census Bureau data on business dynamics over time, focusing on “young” businesses—aged 6-10 years after being founded. We found that in 2014, 0.05% of young businesses were major employers, defined as having 1,000 or more workers. That’s half the 1994 rate when 0.1% of young businesses were major employers.

 

Investment Heroes 2018: Encouraging and Diffusing Innovation Throughout the Economy

Posted on by The Progressive Policy Institute

Despite the low unemployment rate, productivity growth is still stuck in slow gear. Non-farm business output per hour increased by 1.3 percent from the third quarter of 2017 to the third quarter of 2018 – well below the post- war average of 2.2 percent.1 Other countries around the world are also grappling with this slowdown in productivity growth.2 Productivity growth is the primary factor in boosting wages and living standards.

The continued lack of productivity growth arises from several causes. One important issue is a growth shortfall in the amount of capital relative to the amount of labor, where capital represents investment in equipment, structures, software, and other intellectual property.

The Bureau of Labor Statistics (BLS) calculates a measure it calls “capital intensity,” which measures the services produced by capital assets relative to the number of labor hours worked in the non-farm business sector. As shown in Figure 1, capital intensity has grown much more slowly over the past 10 years than in previous 10-year periods.

There has been much debate over the reasons for this shortfall. Some have suggested that corporate managers and stock market investors have become myopic and too focused on short-run returns. Others blame excessive regulation.

But, no matter the reason for the investment shortfall, we think it’s important to identify those companies that are bucking the trend. Starting with our 2012 “Investment Heroes” report, and continuing through this report, we have focused on identifying those companies making the largest capital investments in the United States. By expanding the capital stock, these companies are helping boost productivity and wages, and creating new jobs.

The Progressive Policy Institute’s (PPI) Investment Heroes report provides an exclusive estimate of domestic capital spending for major U.S. companies. Currently, accounting rules do not require companies to report their U.S. capital spending separately. To fill this gap in the data, we created a methodology using publicly-available financial statements from non-financial Fortune 150 companies to identify the top companies that were investing in the United States. That methodology, with small modifications, has been used in each year’s report since the first in 2012.

 

New Ideas for a Do-Something Congress No. 3: “End The Federal Bias Against Career Education”

Posted on by The Progressive Policy Institute

As many as 4.4 million U.S. jobs are going unfilled due to shortages of workers with the right skills. Many of these opportunities are in so-called “middle-skill” occupations, such as IT or advanced manufacturing, where workers need some sort of post-secondary credential but not a four-year degree.

Expanding access to high-quality career education and training is one way to help close this “skills gap.” Under current law, however, many students pursuing short-term career programs are ineligible for federal financial aid that could help them afford their education. Pell grants, for instance, are geared primarily toward traditional college, which means older and displaced workers – for whom college is neither practicable nor desirable – lose out. Broadening the scope of the Pell grant program to shorter-term, high-quality career education would help more Americans afford the chance to upgrade their skills and grow the number of highly trained workers U.S. businesses need.

 

THE CHALLENGE: THE AMERICAN ECONOMY DESPERATELY NEEDS MORE SKILLED TALENT.

For years, U.S. businesses have complained of a “skills gap” – the inability to find the right talent for the positions they are seeking to fill. Though some have questioned the existence of these shortages, new research finds that, while some lower-skilled sectors have a surfeit of workers, other industries do indeed face a real – and dire – need for skilled employees.

Healthcare, finance, and information technology are among the fields with the
greatest shortages of skilled workers.
A study by the U.S. Chamber of Commerce Foundation and Burning Glass Technologies finds that as many as 4.4 million American jobs are going vacant because companies can’t find the right employees. More than 1.1 million of these openings are in healthcare, followed by business and financial operations, office and administrative support, sales, and computers and math.

Many openings are in so-called “middle-skilled” jobs that require specialized training or education but not a four-year degree.
The vast majority of in-demand positions require some sort of post-secondary education beyond high school. In fact, the economy is shedding low-skill jobs even as demand for higher-skill occupations is rising. The Georgetown Center on Education and the Workforce, for instance, estimates that as many as 6.3 million jobs for workers without a high school diploma have permanently disappeared since the recession (2).

While some of the fastest-growing occupations require advanced schooling and extensive training – such as occupational therapy, physician’s assistant, and nurse practitioner – many well-paying jobs don’t require a four-year degree (3). These so-called “middle-skill” jobs currently account for more than half of all U.S. jobs (4) and include such fields as cybersecurity, welding and machining, truck driving, and home health (5). These jobs might demand an associates’ degree, but, in many cases, instead require a certificate, certification, license, or other industry-recognized credential attainable without attending a traditional college.

Federal financial aid for higher education is largely unavailable for career education and training.
Despite the need for middle-skill workers, current federal policy is tilted heavily in favor of traditional college over career and occupational education. In 2016, for instance, the federal government spent more than $139 billion on post-secondary education, including loans, grants and other financial aid for students. Yet, of this amount, just $19 billion went toward career education and training (6).

THE GOAL: EXPAND AFFORDABLE ACCESS TO HIGH-QUALITY CAREER EDUCATION – ESPECIALLY FOR OLDER AND NONTRADITIONAL STUDENTS
Restrictions in federal financial aid programs – that shut out many career-focused programs – are a major source of the disparity in federal support for traditional college versus career education and training. Federal Pell grants for low-income students, for example, can be used only for credit-bearing programs offered by accredited schools that last over 600 clock hours and run at least 15 weeks (7). Many high-quality coding “boot camps,” for instance, often don’t meet this standard; nor do many other occupational courses, such as programs aimed at helping students earn a welding certification or a commercial drivers’ license.

For example, Delaware’s Zip Code Wilmington, a non-profit coding school, offers an intensive computer skills program that has helped students’ salaries jump from an average of $30,173 to $63,071. Yet, because Zip Code Wilmington is not a college or university and the coursework is only 12 weeks long, the $3,000 course is ineligible for Pell funding – which could it make it unaffordable for many students (8).

 

THE PLAN: BROADEN THE AVAILABILITY OF PELL GRANTS TO INCLUDE HIGH-QUALITY SHORTER-TERM CAREER EDUCATION
Congress should expand the federal Pell grant program to include high-quality career education and training programs in fields with demonstrated demand for workers. Making career education more affordable through so-called “workforce Pell” would increase the pipeline for skilled talent, thereby diminishing the “skills gap” among U.S. companies. It would also open new opportunities for older and displaced workers for whom going to college or returning to school is neither practicable nor desirable. And, given the growing recognition that higher education is a lifelong endeavor (rather than one limited to the young adult years), this shift would help modernize federal higher education policy to better suit the needs of students, workers and businesses.

One promising approach is the Jumpstart Our Businesses by Supporting Students (JOBS) Act, proposed in the 115th Congress by Senators Rob Portman (R-OH) and Tim Kaine (D-VA), which would shorten the number of course hours required for Pell eligibility to 150 clock hours over eight weeks but also require that programs lead to an industry-recognized credential and meet other requirements for quality (9). Quality safeguards would help ensure that fly-by-night credential providers cannot exploit students – helping steer students toward top-flight programs.

Growing the Pell grant program need not come at the expense of higher education funding more broadly; potential sources for funding a Pell expansion include earmarking revenues from the excise tax on large university endowments (included in the 2017 tax bill), or limiting tax-preferred 529 college savings accounts, whose benefits overwhelmingly accrue to the upper middle class (10).

Although expanding Pell grants to more career education could ultimately make the program more costly, occupational credentials are typically much cheaper to acquire than college degrees, and the ultimate return – more workers in better jobs with better wages – makes the investment worthwhile.

 

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ENDNOTES

1) Restuccia, Dan, Bledi Taska, and Scott Bittle, Different Skills, Different Gaps, Burning Glass Technologies, 2018, available at https://www.burning-glass.com/wp-content/uploads/Skills_Gap_Different_Skills_Different_Gaps_FINAL.pdf.

2) Anthony P. Carnevale, Tamara Jayasundera and Artem Gulish, Six Million Missing Jobs: The Lingering Pain of the Great Recession, Georgetown Center on Education and the Workforce, December 2015, https://1gyhoq479ufd3yna29x7ubjn-wpengine.netdna-ssl.com/wp-content/uploads/Six-Million-Missing-Jobs.pdf.

3) Chamber of Commerce Foundation and Burning Glass Technologies.

4) National Skills Coalition, United States’ Forgotten Middle, available at https://www.nationalskillscoalition.org/resources/publications/2017-middle-skills-fact-sheets/file/United-States-MiddleSkills.pdf.

5) Burning Glass Technologies, “Which Middle Skill Jobs Will Last a Lifetime?” June 20, 2018, available at https://www.burning-glass.com/blog/which-middle-skill-jobs-will-last-lifetime/. See also Anthony P. Carnevale, Jeff Strohl, Neil Ridley, and Artem Gulish, Three
Educational Pathways to Good Jobs: High School, Middle Skills and Bachelor’s Degree, Georgetown Center on Education and the Workforce, 2018, available at https://1gyhoq479ufd3yna29x7ubjn-wpengine.netdna-ssl.com/wp-content/uploads/3ways-FR.pdf.

6) Opportunity America/AEI/Brookings Working Class Study Group, Work, Skills, Community: Restoring Opportunity for the Working Class, Opportunity America, 2018, available at https://1gyhoq479ufd3yna29x7ubjn-wpengine.netdna-ssl.com/wp-content/uploads/3ways-FR.pdf.

7) 20 U.S. Code § 1088, accessed at https://www.law.cornell.edu/uscode/text/20/1088.

8) Anne Kim, Forget free college. How about free credentials? Progressive Policy Institute, October 2017, https://www.progressivepolicy.org/wp-content/uploads/2017/10/PPI_FreeCredentials_2017.pdf.

9) Office of Sen. Tim Kaine, “Kaine, Portman Introduce Bipartisan JOBS Act to Help Workers Access Training for In-Demand Career Fields,” Jan. 25, 2017, https://www.kaine.senate.gov/press-releases/kaine-portman-introduce-bipartisan-jobs-act-to-help-workers-access-training-for-in-demand-career-fields.

10) Kim.

New Ideas for a Do-Something Congress No. 2: Jumpstart a New Generation of Manufacturing Entrepreneurs

Posted on by The Progressive Policy Institute

The number of large U.S. manufacturing facilities has dropped by more than a third since 2000, devastating many communities where factories were the lifeblood of the local economy.

One promising way to revive America’s manufacturing might is not by going big but by going small – and going local. Digitally-assisted manufacturing technologies, such as 3D printing, have the potential to launch a new generation of manufacturing startups producing customized, locally-designed goods in a way overseas mega-factories can’t match. To jumpstart this revolution, we need to provide local manufacturing entrepreneurs with access to the latest technologies to test out their ideas. The Grassroots Manufacturing Act would create federally-supported centers offering budding entrepreneurs and small and medium-sized firms access to the latest 3D printing and robotics equipment.

 

THE CHALLENGE: NEXT-GENERATION U.S. MANUFACTURING NEEDS A JUMPSTART.

The collapse in manufacturing employment and wages drove a stake through the heart of America. Conventional factories making commodity high-volume products could not compete with mega-sized plants in low-wage countries. That’s why many of America’s largest and most productive plants have closed or shrunk sharply since 2000, devastating many less dense areas where local factories were the main source of jobs.

Yet, for all the talk of an intangible data-driven economy, physical industries such as manufacturing and agriculture are still essential to prosperity – especially outside our largest cities. These are, however, precisely the industries where investment, incomes, and jobs have lagged behind, hurting millions of working Americans across the country.

U.S. manufacturing productivity is lagging.

One problem is that many small and medium-size factories have been stuck with old technologies and aging equipment because the owners don’t have the funds to modernize. As a result, productivity in U.S. factories has lagged, the price charged by domestic factories has risen, and the penetration of Chinese products into domestic markets has continued to increase. In 2017, imports from China, adjusted for inflation, rose by 9.4 percent. By comparison, the gross output of U.S. factories rose by only 2.2 percent.

Digitally-assisted manufacturing is the wave of the future, but investment in these technologies is also lagging.

Digitally-assisted manufacturing technologies are potentially game changers for U.S. manufacturing. Local factories using 3D printing, robotics, or similar advances could,for instance, produce customized and locally-designed products – better-fitting clothing, more-comfortable furniture, and customized equipment for businesses – at a price overseas mega-factories can’t match.

Moreover, there’s increasing evidence that digitization can open up new markets and create new jobs. Even the most automated technologies require loads of skilled workers to do the more complicated tasks machines can’t handle. Indeed, the newest term is “cobots” – collaborative robots designed to work with humans (rather than replace them).

Despite these potential rewards, however, the U.S. risks falling behind in this crucial race for next-generation manufacturing. The America Competes Act of 2010 authorized federal loan guarantees for small or medium-sized manufacturers for the use or production of innovative technologies. But no such loan guarantees have been issued.

The Manufacturing Extension Partnership is an excellent program, but its FY2018 funding of $140 million is 15 percent lower, in real terms, than its funding in 1998. The American Innovation and Competitiveness Act of 2017, signed in the last days of the Obama Administration, does offer limited funding for a couple of centers to explore automated manufacturing. However, that’s not enough for a country the size of the United States – not when Japan and Germany are putting much more money into pushing their manufacturing sectors into the future.

Now is the time to beef up our current support for local manufacturing entrepreneurs and create a new wave of digitally-assisted, high-wage manufacturing jobs around the country.

 

THE GOAL: CREATE 50,000 ADDITIONAL MANUFACTURING STARTUPS OVER THE NEXT FOUR YEARS USING DIGITALLY-ASSISTED TECHNOLOGIES – AND ONE MILLION NEW JOBS.

Digitally-assisted manufacturing technologies will boost productivity, cut costs, and increase flexibility. In the process, that will open up new markets for customized and semi-customized goods.
We advocate a national push to create 50,000 new manufacturing startups across the country to encourage the rebirth of American manufacturing ingenuity at the local level. If each startup employs 20 people, on average, that will mean one million new jobs. The goal is to get scale on new production technologies across the country – not just in one or two centers. We are not talking about industrial policy, or protectionism, or bringing back old and dying industries. Rather, the goal is to help accelerate the next wave of manufacturing prosperity.

 

THE PLAN: SEED THE CREATION OF STATE AND LOCAL DIGITAL MANUFACTURING CENTERS AND SUPPORT BUDDING MANUFACTURING ENTREPRENEURS.

We advocate a three-part program:

1. Increase access to technology.

It’s essential to provide local manufacturing entrepreneurs access to the latest technologies to test out their ideas. We propose a Manufacturing Grassroots Act that would offer state and local governments funds to set up centers with the latest 3D printing and robotics equipment – along with all the necessary software and training. Budding entrepreneurs and small businesses can apply for access on an “all-comers” basis, to give everyone an opportunity to get in on the ground floor of wealth creation.

2. Guarantee federal loans.

Existing small and medium-size manufacturers need help getting funding for the adoption of the new technologies. That means federal loan guarantees, based on the existing but unutilized program mentioned earlier from the 2010 America Competes Act. It may also mean setting up a new program for low-interest loans to manufacturers who want to digitize.

3. Fund federal research.

At the national level, Congress should budget $300 million to fund federal research to develop the underlying standards for online manufacturing platforms, just like the government developed the underlying standards for the Internet. This work is already going on, but it needs to be accelerated.

ENDNOTES

Michael Mandel, “The Rise of the Internet of Goods: A New Perspective on the Digital Future for Manufacturers,” Progressive Policy Institute and Manufacturers Alliance for Productivity and Innovation, August 2018.

PPI Launches Series of New Ideas for a ‘Do-Something’ Congress

Posted on by The Progressive Policy Institute

Dear Democratic Class of 2018,

Congratulations on your election to the U.S. House of Representatives! In addition to winning your own race, you are part of something larger – the first wave of a progressive resurgence in U.S. politics.

The midterm elections gave U.S. voters their first opportunity to react to the way Donald Trump has conducted himself in America’s highest office. Their verdict was an emphatic thumbs down. That’s an encouraging sign that our democracy’s antibodies are working to suppress the populist virus of demagoguery and extremism.

Now that Democrats have reclaimed the people’s House, what should they do with it? Some are tempted to use it mainly as a platform for resisting Trump and airing “unapologetically progressive” ideas that have no chance of advancing before the 2020 elections. We here at the Progressive Policy Institute think that would be huge missed opportunity.

If the voters increasingly are disgusted with their dissembling and divisive president, they seem even more fed up with Washington’s tribalism and broken politics. For pragmatic progressives, the urgent matter at hand is not to impeach Trump or to embroil the House in multiple and endless investigations. It’s to show Democrats are determined to put the federal government back in the business of helping Americans solve their problems.

We think the House Democratic Class of 2018 should adopt this simple mantra: “Get things done.” Tackle the backlog of big national problems that Washington has ignored: exploding deficits and debt; run-down, second-rate infrastructure; soaring health and retirement costs; climate change and more. And yes, getting things done should include slamming the brakes on Trump’s reckless trade wars, blocking GOP efforts to strip Americans of health care, as well as repealing tax cuts for the wealthiest Americans.

PPI, a leading center for policy analysis and innovation, stands ready to help. We’re developing an extensive “Do Something” Agenda. Today, we are releasing the first in a series of concrete, actionable ideas designed expressly for Democrats who come to Washington to solve problems, not just to raise money and smite political enemies.

As you get settled into your new office, we’ll look for opportunities to acquaint you and your staff with these pragmatic, common-sense initiatives, and to discuss other ways we might be of service to you. That’s what we’re here for.

Regards,

 

 

Will Marshall
President
Progressive Policy Institute

New Ideas for a Do-Something Congress No. 1: “A Check on Trump’s Reckless Tariffs”

First and foremost, it’s time for Congress to start doing its job on trade. A key step is enacting the Trade Authority Protection (TAP) Act. This balanced legislation would rein in Trump’s abuse of delegated trade powers, require greater presidential accountability, and enable Congress to nullify irresponsible tariffs and trade restrictions.

A Radically Pragmatic Idea for the 116th Congress: Take “Yes” for an Answer on Net Neutrality

For the last two decades, different versions of net neutrality have bounced between Congress, the Federal Communications Commission, the courts – and most recently the states – but the issue remains unresolved.

It is time for Congress to solve this problem for good by enacting a strong, pro-consumer net neutrality law – an outcome that is politically possible even in this era of maximalist gridlock and deeply divided government, given the broad consensus that has formed around the vital issue of ensuring an open internet.

New Ideas for a Do-Something Congress No. 2: “Jumpstart a New Generation of Manufacturing Entrepreneurs”

The number of large U.S. manufacturing facilities has dropped by more than a third since 2000, devastating many communities where factories were the lifeblood of the local economy.

One promising way to revive America’s manufacturing might is not by going big but by going small – and going local. Digitally-assisted manufacturing technologies, such as 3D printing, have the potential to launch a new generation of manufacturing startups producing customized, locally-designed goods in a way overseas mega-factories can’t match. To jumpstart this revolution, we need to provide local manufacturing entrepreneurs with access to the latest technologies to test out their ideas. The Grassroots Manufacturing Act would create federally-supported centers offering budding entrepreneurs and small and medium-sized firms access to the latest 3D printing and robotics equipment.

New Ideas for a Do-Something Congress No. 3: “End The Federal Bias Against Career Education”

As many as 4.4 million U.S. jobs are going unfilled due to shortages of workers with the right skills. Many of these opportunities are in so-called “middle-skill” occupations, such as IT or advanced manufacturing, where workers need some sort of post-secondary credential but not a four-year degree.

Expanding access to high-quality career education and training is one way to help close this “skills gap.” Under current law, however, many students pursuing short-term career programs are ineligible for federal financial aid that could help them afford their education. Pell grants, for instance, are geared primarily toward traditional college, which means older and displaced workers – for whom college is neither practicable nor desirable – lose out. Broadening the scope of the Pell grant program to shorter-term, high-quality career education would help more Americans afford the chance to upgrade their skills and grow the number of highly trained workers U.S. businesses need.

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

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.

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

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.

New Ideas for a Do-Something Congress No. 6: Break America’s Regulatory Log-jam

Regulation plays a critical role in refereeing competition in a free market economy. But there’s a problem: Each year, Congress piles new rules upon old, creating a thick sludge of regulations – some obsolete, repetitive, and even contradictory – that weighs down citizens and businesses. In 2017, the Code of Federal Regulations swelled to a record 186,374 pages, up 19 percent from just a decade before. PPI proposes a Regulatory Improvement Commission (RIC), modeled on the highly successful Defense Base Realignment and Closure (BRAC) process for closing obsolete military installations. Like the BRAC process, the proposed RIC would examine old rules and present Congress with a package of recommendations for an up-or-down vote to eliminate or modify outdated rules.

New Ideas for a Do-Something Congress No. 7: Winning the Global Race on Electric Cars

Jumpstarting U.S. production and purchase of Electric Vehicles (EVs) would produce an unprecedented set of benefits, including cleaner air and a reduction in greenhouse gas emissions; a resurgence of the U.S. auto industry and American manufacturing; the creation of millions of new, good, middle class manufacturing jobs; lower consumer costs for owning and operating vehicles; and the elimination of U.S. dependence on foreign oil. U.S. automakers are already moving toward EVs, but the pace of this transition is lagging behind our foreign competitors. A dramatic expansion of tax credits for EV purchases could go a long way toward boosting the U.S. EV industry as part of a broader agenda to promote the evolution of the transportation industry away from carbon-intensive fuels.

New Ideas for a Do-Something Congress No. 8: Enable More Workers to Become Owners through Employee Stock Ownership

More American workers would benefit directly from economic growth if they had an ownership 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.

 

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

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.

Mandel for Forbes, “Why 2019 Will Be The Year Of The Manufacturing Platform”

Posted on by The Progressive Policy Institute

The big tech platforms get all the attention these days. But the biggest tech news of 2019 may turn out to be the rise of the manufacturing platforms—companies that rewrite the rules of production and product development, and in the process create new opportunities for local manufacturing.

The economic backdrop is the looming threat of an all-out U.S-China trade war, which places a new premium on domestic sourcing. If trade tensions get worse, highly-scaleable manufacturing platforms will make it much easier for companies and entrepreneurs to open up new factories in the United States and plug them right into the platform.

In many ways manufacturing platforms are the logical outgrowth of existing trends towards outsourcing and factoryless production. Manufacturers have been increasingly separating product design and marketing from the actual production process for years.

Continue reading at Forbes.

New Jersey Democrats Propose Legislation to Strengthen Small Business Borrower Safeguards

Posted on by The Progressive Policy Institute

Online finance providers have supplied an innovative source of capital for small businesses after a credit gap opened up in the wake of the Great Recession. However, while disclosures such as annual percentage rate (APR) are required by federal law for consumer loans, they are not for small business loans and credit products. The result has been costly for small business owners, with some providers charging exorbitant but undisclosed rates. Research by Opportunity Fund found the average monthly payment for some small businesses was about double what they could afford to pay.

New Jersey has an opportunity to be a leader in extending commonsense consumer protections to the small business credit market. Proposed legislation currently being debated calls for standardized terms such as APR, the payment schedule, and the minimum payment to be applied to small business loans or credit products up to $100,000.

Access to financing is often one of the biggest hurdles small business owners face, particularly for the smaller loan amounts many new or very small businesses seek: 86 percent of minority-owned businesses and 88 percent of woman-owned business bring in less than $100,000 per year.[i] Supporting the financial health of these businesses is often critical to supporting the financial health of the communities they serve as well.

That’s why the Progressive Policy Institute (PPI) commends State Senator Troy Singleton and Representative Clinton Calabrese for introducing this important legislation requiring greater transparency in the small business lending market. California was recently the first state in the nation to enact a similar law. The New Jersey bill closely tracks a proposal detailed in a recent PPI policy report, “Shining a Light on Small Business Credit: Promoting a Transparent Marketplace” by Jessica Milano, the former Deputy Assistant Secretary for Small Business, Community Development, and Housing Policy at the Treasury Department under the Obama Administration.

Milano calls for legislation to extend the Truth in Lending Act disclosure requirements to small business loans or credit products under $100,000. While no one likes reading fine print and filling out loan documentation, a recent poll by Small Business Majority found that 74 percent of small business owners support regulating online lending to ensure small businesses are protected from predatory practices. Simple disclosures including a few key metrics—especially APR—would allow a small business owner to “comparison shop” and easily analyze loan prices and terms across multiple credit providers, whether they are a bank, a payment processor, or an online lender.

According to the research by Opportunity Fund, some online lenders charge businesses average APRs of 94 percent, without ever disclosing those rates to the borrower. These companies argue that disclosing APR will discourage customers from taking their loans, causing the small business credit gap to widen further. That’s like arguing that if your doctor told you smoking was dangerous you might not do it, which in turn would hurt tobacco companies, so better not to know. If your doctor kept information that was vital to your health from you, he could be accused of malpractice, so why doesn’t the same principle apply to financial health as well?

As Singleton and Calabrese recognize, disclosing APR at the time of offering and acceptance of a loan would equip small business owners with a transparent metric to make an apples-to-apples comparison between products and choose the best option for them.

[i] Kate Bahn, Regina Willensky Benjamin, and Annie McGrew, “A Progressive Agenda for Inclusive and Diverse Entrepreneurship,” Center for American Progress, October 2016. https://cdn.americanprogress.org/wp-content/uploads/2016/10/13000159/ProgressiveAgenda.pdf