The Earned Income Tax Credit (EITC) provides a refundable tax credit to lower-income working families. In 2011, the EITC reached 27.9 million tax filers at a total cost of $62.9 billion. Almost 20 percent of tax filers receive the EITC, and the average credit amount is $2,254 (IRS 2013). After expansions to the EITC in the late 1980s through the late 1990s—under Democrat and Republican administrations—the EITC now occupies a central place in the U.S. safety net. Based on the Census Bureau’s 2012 Supplemental Poverty Measure (SPM), the EITC keeps 6.5 million people, including 3.3 million children, out of poverty (Center on Budget and Policy Priorities [CBPP] 2014a). No other tax or transfer program prevents more children from living a life of poverty, and only Social Security keeps more people above poverty.

Since the EITC is only eligible to tax filers who work, the credit’s impact on poverty takes place through encouraging employment by ensuring greater pay after taxes. The empirical research shows that the tax credit translates into sizable and robust increases in employment (Eissa and Liebman 1996; Meyer and Rosenbaum 2000, 2001). Thus, the credit reduces poverty through two channels: the actual credit, and increases in family earnings. This dual feature gives the EITC a unique place in the U.S. safety net; in contrast, many other programs redistribute income while, at least to some degree, discouraging work. Importantly, transferring income while encouraging work makes the EITC an efficient and cost-effective policy for increasing the after-tax income of low-earning Americans. Yet a program of this size and impact could be more equitable in its reach. Under the current design of the EITC, childless earners and families with only one child, for instance, receive disproportionately lower refunds. 

In 2014, families with two children (three or more children) are eligible for a maximum credit of $5,460 ($6,143) compared to $3,305 for families with one child. Married couples, despite their larger family sizes, receive only modestly more-generous EITC benefits compared to single filers. Childless earners benefit little from the EITC, and have a maximum credit of only $496—less than 10 percent of the two-child credit. 

Prominent proposals seek to mitigate these inequalities. President Obama’s fiscal year 2015 budget includes an expansion of the childless EITC, a concept outlined by John Karl Scholz in 2007 in a proposal for The Hamilton Project. Notably, MDRC is currently evaluating Paycheck Plus, a pilot program for an expanded EITC for workers without dependent children, for the New York City Center for Economic Opportunity (MDRC 2014). The recent Hamilton Project proposal for a secondary-earner tax credit addresses the so-called EITC penalty for married couples (Kearney and Turner 2013). And the more generous EITC credit for three or more children was recently enacted as part of the American Recovery and Reinvestment Act of 2009, and is currently scheduled to sunset in 2017. 

Considering this broad set of EITC reforms, and recognizing the demonstrated effectiveness of the program as an antipoverty program with numerous benefits, this policy memo proposes an expansion for the largest group of  EITC recipients: families with one child. In particular, I propose to expand the one-child schedule to be on par with the two-child schedule, in equivalence scale-adjusted terms. An equivalence scale captures the cost of living for a household of a given size (and demographic composition) relative to the cost of living for a reference household of a single adult, and is a standard component in defining poverty thresholds. The proposal expands the maximum credit for one-child families to $4,641, from $3,305 under current law, an increase of about 40 percent. The expansion will lead to a roughly $1,000 increase in after-tax income for taxpayers in the bottom 40 percent of the income distribution receiving the higher credit. As this paper outlines, the expansion is justified on equity and efficiency grounds. This expansion is anchored in the equity principle in that the generosity of the credit should be proportional to the needs of families of differing sizes; I use the equivalence scale implicit in the poverty thresholds of the Census SPM as a guide for household needs. This proposal is also supported by efficiency principles given the EITC’s demonstrated success at raising labor supply among single mothers. 

The target population for the proposal is low-income working families with children. Implementing this proposal requires legislative action by the federal government; it is important to note that altering the EITC schedule requires a simple amendment to the tax code, and not a massive overhaul of our nation’s tax system. The revenue cost of the proposal derives from additional federal costs of the EITC, less the additional payroll and ordinary federal income taxes. The private benefits include increases in after-tax income and reductions in poverty. The proposal would also generate social benefits through the spillover effects that the increase in income plays in improving health and children’s cognitive skills (Dahl and Lochner 2012; Evans and Garthwaite 2014; Hoynes, Miller, and Simon forthcoming).

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• Building on the Success of the Earned Income Tax Credit - Full Text

      

British debates about welfare reform have often been influenced by American ideas. The Clinton-era welfare reforms were echoed in some of Tony Blair’s alterations to British benefits. Gordon Brown, as Chancellor, introduced a new Working Tax Credit as a direct result of studying the Earned Income Tax Credit. Brown particularly liked the political advantages of a ‘tax cut for hard-working families’, as opposed to a ‘benefit handout to welfare families’.

But now the transatlantic traffic in ideas on welfare is going the other way. The U.K.’s introduction of a single, unified system of transfer payments – the Universal Credit – is getting quite a bit of attention in the wonkier regions of D.C. politics. Paul Ryan, at a Brookings summit on social mobility, mentioned the Universal Credit (UC) as a possible inspiration for a new round of welfare reform. (Ryan is giving a speech at AEI in a couple of weeks: we’re likely to hear more about his thinking then.) When the architect of the UC, Iain Duncan Smith, visited D.C. recently, he held a series of meetings with leading Republicans to discuss his reforms.

The main attractions of the Universal Credit are fourfold:

1. Simplicity. By unifying five cash benefits and an ‘in kind’ benefit (Housing Benefit) into a single, monthly payment, the complexity of the system from the point of view of the recipient will be greatly reduced.
   
   
2. Cost control. Housing Benefit is paid directly to the landlord, which reduces the tenant’s incentive to control costs.  Add that to the crazily overheated U.K. housing market, and should come as no surprise that Housing Benefit has become a major strain on the system, quintupling in cost in real terms over the last two decades to hit £24 billion a year (c. $41bn), to become the second-biggest element of the U.K.’s system, after pensions.  By including an allowance for housing in the single cash payment in UC, the recipient will be incentivized to control their own housing costs.
    
3. Stronger work incentives. The UC has a flatter ‘taper’ than existing benefits, meaning that cash payments are reduced more slowly as earnings rise. In particular, the UC will allow benefit recipients to work part-time (less than 16 hours a week), and still keep claiming. On the downside, incentives for second earners in two-adult families will be reduced. 
   
   
4. Tighter and more targeted work requirements. The UC will contain stronger requirements to seek work than existing benefits, and importantly, has a ‘sliding scale’ of requirements, depending on the position of the recipient. For example, parents with children under the age of 1 will be exempt from work requirements; those with children aged between  1 and 5 will be obliged to attend for interviews with a case worker to prepare for a return to work; those with children at school will be required to ‘actively seek work’.

Sounds pretty good, doesn't it? And in fact it is, on paper at least. In practice the introduction of UC has been marked with huge overspend and delay on the required new IT system. The whole exercise has also been made much harder by cuts in many of the relevant cash benefits, as well as the introduction of a ‘household cap’ on total welfare receipts. The Universal Credit as an idea has a lot of support. As so often, it has been putting the idea a reality that has been difficult.

What—if anything—can the U.S. take from the UC? Short answer: not much. 

Many of the problems the UC addresses do not really apply in the U.S. Work incentives are already pretty strong in the U.S., thanks to the relative generosity of the EITC, and the relative meanness of out-of-work welfare supports. Also, there are already much stronger work requirements in the U.S. system. Some want to go further, and add work requirements to the receipt of food stamps, for example. But this would not require a major overhaul.  As Melissa Boteach and her colleagues at the Center for American Progress write,“the primary problem that the Universal Credit is supposed to address in the United Kingdom—the lack of incentive for jobless workers to enter the labor force—is far less of an issue in the United States”.

The UC also further centralizes an already highly centralized system, by getting rid of Housing Benefit, which is currently administered by Local Authorities. The U.S. system is much less centralized, with states and cities having a high degree of control over the way TANF and SNAP are administered. It is hard to see how anything like a UC could work in the U.S. at anything higher than State level. A Wisconsin Universal Credit makes sense in a way that a U.S. Universal Credit does not.  But if shifting towards block grants to states is really what this is about (see Marco Rubio’s ‘flex fund’ idea),that’s a whole different debate.

A final point. Simplicity and ease of use for the recipient is a key goal of the UC, and a worthy one. The stress and difficulties faced by low-income families just in applying for assistance is unacceptable in the 21st century. But it is not clear that the whole system has to be upended to achieve this goal. Technology ought to allow a single access point to the system, with the complexity out of sight of the user. 

In the U.K. the Universal Credit has a strong rationale, despite the implementation challenges. In the U.S., it is a solution in search of a problem. 

      

      

      

      

Each year millions of low- to moderate-income Americans supplement their income by claiming the Earned Income Tax Credit (EITC) during tax season. Last year, 1 in 5 taxpayers claimed the credit and earned an average of nearly $2,400.

This tax season, some of those eligible for the EITC may also be able to claim, for the first time, a new credit created by the Affordable Care Act (ACA) to offset the cost of purchasing health insurance for lower-income Americans. It’s called the ACA premium tax credit.

To qualify for the ACA premium tax credit, filers need first to have an annual income that falls between 100 and 400 percent of the federal poverty line (between $11,670 and $46,680 for a single-person household in 2014). Beyond the income requirements, however, filers must also be ineligible for other public or private insurance options like Medicaid or an employer-provided plan.

Why the tax credit overlap matters

Identifying the Americans eligible for both credits is important because it sheds light on how many still need help paying for health insurance even after the ACA extended coverage options.

In a recent study of the EITC-eligible population, Elizabeth Kneebone, Jane R. Williams, and Natalie Holmes estimated what share of EITC-eligible filers might also qualify for the ACA premium tax credit this year.

Below, see a list of the top 10 states with the largest overlap between filers eligible for the EITC and those estimated to qualify for the ACA premium tax credit.* Notably, none of these states has expanded Medicaid coverage to low-income families after the passage of the ACA.

Nationally, an estimated 7.5 million people (4.2 million “tax units”) are likely eligible for both the ACA premium tax credit and the EITC. Nearly 1.3 million of those tax units are from the following ten states.

1. Florida

Overlap: 22.5 percent / 405,924 tax units
State-based exchange? No Expanded Medicaid coverage? No

2. Texas

Overlap: 21.4 percent / 513,061 tax units
State-based exchange? No Expanded Medicaid coverage? No

3. South Dakota

Overlap: 20.5 percent / 15,124 tax units
State-based exchange? No Expanded Medicaid coverage? No

4. Georgia

Overlap: 19.8 percent / 186,020 tax units
State-based exchange? No Expanded Medicaid coverage? No

5. Louisiana

Overlap: 19.6 percent / 86,512 tax units
State-based exchange? No Expanded Medicaid coverage? No

6. Idaho

Overlap: 19.3 percent / 28,855 tax units
State-based exchange? Yes Expanded Medicaid coverage? No

7. Montana

Overlap: 18.9 percent / 18,138 tax units
State-based exchange? No Expanded Medicaid coverage? No

8. Wyoming

Overlap: 18.4 percent / 7,276 tax units
State-based exchange? No Expanded Medicaid coverage? No

9. Utah

Overlap: 18.1 percent / 42,284
State-based exchange? No (Utah runs a small businesses marketplace, but it relies on the federal government for an individual marketplace) Expanded Medicaid coverage? No

10. Oklahoma

Overlap: 18.0% / 63,045 tax units
State-based exchange? No Expanded Medicaid coverage? No

* For the purposes of this list, we measured the overlap in “tax units,” not people. One tax unit equals a single tax return. If a family of four together qualifies for the ACA premium tax credit, they would be counted as one tax unit, not four, since they filed jointly with one tax return.

       

When California passed its 2016 budget late last month, it joined a growing list of states that have recently adopted or expanded state versions of the federal Earned Income Tax Credit (EITC). First enacted in 1975, the EITC has become one of the country’s most effective antipoverty programs. We estimate that the federal EITC keeps millions of individuals and children out of poverty each year, reducing the national poverty rate by several percentage points. Others have shown how the EITC creates a strong incentive to work and works as a powerful tool for reducing income inequality.

How the federal EITC works

For an unmarried worker with one child in 2015, the federal EITC works like this: Up to her first $9,880 earned, the worker receives a tax credit equal to 34 cents on the dollar, for a maximum credit value of $3,359. The credit is reduced by 16 cents for each dollar earned beginning at $18,110, eventually phasing out at $39,100 in earnings. Phase-in and phase-out rates and ranges depend on a worker’s filing status and number of dependents claimed. Importantly, the EITC is refundable; a filer can still claim any credit in excess of her tax liability, contributing to refunds that can represent double-digit shares of annual income for lower-paid workers.

Most states have their own EITCs

Of the 26 states and the District of Columbia with their own EITCs, most have structured their programs to mirror the federal EITC, by simply matching some percentage of the federal credit in a given tax year (see map). This year, Massachusetts, New Jersey, and Rhode Island all increased their state EITCs’ matching percentages. In three states, the EITC is non-refundable, making it a less effective incentive for very low-income workers (Maine this year made its credit refundable). California’s EITC joins a couple of others that, while still refundable, vary in the degree to which they mirror the federal credit based on filing status and income.

State EITCs: Not perfect but increasingly important

Through our work maintaining Brookings’ EITC Interactive, we hear regularly from stakeholders around the country engaged in efforts to expand the EITC and increase local participation to strengthen low-income families and communities. Although it is difficult to determine uptake rates locally, there are several factors associated with participation. Self-employed workers are less likely to claim the credit, as are workers with low English proficiency, and those who do not claim any dependents. The availability of tax preparation assistance tends to increase participation rates. For groups who hope to expand access to the EITC in their communities, these considerations are a good place to start.

To be sure, the EITC is not a silver bullet. Because it is explicitly tied to work effort, the credit does not support low-income families who can’t find work. And because states must balance their budgets, many have had difficulty sustaining their EITCs during periods of economic downturn. (Several of the recent state EITC expansions actually represent the restoration of benefits following drastic cuts during the Great Recession.) Additionally, the federal EITC and its state analogues provide only modest support to workers who do not claim any dependents on their tax return. As such, policy makers should consider state EITCs strong complements to other interventions, such as the growing number of increases in the minimum wage occurring in states and cities.

Nevertheless, the EITC remains one of the best tools we have to fight poverty. Despite bipartisan support for the federal EITC, it is unlikely to be expanded anytime soon. In that light, recent state EITC expansions may be helping to create a more responsive, sub-national safety net that better reflects a large and diverse nation where local priorities and needs differ markedly.

       

After years of irresponsible fiscal management, Puerto Rico has few good options to address its growing debt crisis. But in most tales of bad behavior, there comes a point where continued punishment for past mistakes becomes counterproductive. We're reaching that point on Puerto Rico, and the Barack Obama administration has put forward a sensible new approach. 

(Citigroup, my employer, has various business relationships with Puerto Rico, including serving as underwriter and market maker in various securities. I've had no involvement in those activities, and this column represents my personal views, not those of Citi.)

Puerto Rico's population and its economy are about 10 percent smaller than they were a decade ago. The poverty rate is 45 percent, only about 40 percent of adults are in the labor force, and unemployment is more than 11 percent. 

Given these dire economic indicators, it's not surprising that Puerto Rico has a serious debt problem. At this point, the territory's total liabilities amount to more than 160 percent of the economy, and debt service is projected to be more than a third of government revenue. Over the next five years, the fiscal deficit looks to be $28 billion, and although the Puerto Rican government has proposed aggressive policy actions, these could, at best, only cut the deficit in half. Because the territory's fiscal dynamic is unsustainable, its uninsured debt is selling at discounts of 30 to 70 percent. 

Something has to give. Which brings us to the White House's plan.

The first imperative is to restore economic growth. For this, there are no magic bullets, but one useful strategy is to extend the Earned Income Tax Credit to Puerto Rico. The EITC is one of the most powerful, market-friendly mechanisms for encouraging labor force participation, and its absence in Puerto Rico makes no sense.

The Obama administration also proposes removing an anomaly in the Medicaid system. If Medicaid treated Puerto Rico in the same way as it does the 50 states, the federal government would pay for an estimated 83 percent of its Medicaid costs. But because Medicaid payments to the territory are capped, the federal government has generally paid only 15 to 20 percent. In addition, temporary Medicaid payments enacted as part of the Affordable Care Act are almost exhausted, posing a near-term threat to Puerto Rico's Medicaid program.

Establishing an EITC in Puerto Rico and adjusting the share of Medicaid payments paid by the federal government make sense from a fairness perspective. The EITC piece would encourage work, and the Medicaid component would attenuate fiscal pressure on the island. These steps would, though, come at a cost to the federal budget, probably in the billions of dollars per year. The administration should clarify both the amounts involved and how they would be financed. 

The island's fiscal governance also needs to be strengthened. Its accounting systems have been shoddy, and revenue estimates have been overly rosy. A period of external oversight is appropriate, to improve transparency and budgetary rigor. 

Finally, there's the hard question of what to do about the existing overhang of debt. Write-offs are inevitable; the only question is how to do them in a structured and timely way. We have bankruptcy laws precisely to handle this sort of situation, which would otherwise involve overlapping negotiations with multiple creditors (Puerto Rico has 18 different debt issuers and 20 creditor committees) and probably extended lawsuits. 

At the very least, Congress should extend Chapter 9 bankruptcy laws to Puerto Rico's cities and public corporations. Municipalities in the states enjoy this protection, and there's no reason to treat cities in Puerto Rico differently than those in Florida or Texas. This step would cover about a third of the territory's debt. 

The more controversial question, though, is whether Puerto Rico's government should also have access to bankruptcy protection. State governments do not, but the administration proposes that territories such as Puerto Rico should. 

Bankruptcy would not necessarily mean that less debt would be repaid. So it is not clear that the traditional argument against bankruptcy protection -- that it would raise future borrowing costs -- carries much force. Negotiated write-offs and default would have largely the same effect, but would probably take longer and be messier. Among the options left, the administration's is the least bad. 

The plan requires legislation, and in today's polarized Congress, that's a daunting prospect. But as former Treasury Secretary Tim Geithner once emphasized, in a crisis, "plan beats no plan." the administration has one. Its congressional opponents don't.

Editor's Note: this op-ed originally appeared on Bloomberg View.

       

This originally appeared in “Insight,” a publication of Grantmakers for Children, Youth, and Families.

For many in the United States, American poverty conjures images of urban blight or remote Appalachian hardship that motivated the War on Poverty in the 1960s. But the geography of poverty in the U.S. has shifted well beyond its historical confines (Kneebone and Berube, 2013). During the first decade of the 2000s, the poor population living in suburbs of the nation’s largest metropolitan areas for the first time outstripped the poor population living in central cities, and poverty continues to grow faster today in the suburbs.¹ This trend has been even more pronounced for those living below twice the federal poverty line—equivalent to $48,500 for a family of four in 2015—which roughly mirrors the population eligible to receive the federal Earned Income Tax Credit (EITC).

Although it was not originally billed as an antipoverty program, in its 40 years, the EITC has become one of the nation’s most effective tools for lifting low-income workers and their families above the poverty line. In 2013 alone, Brookings estimates that the EITC lifted 6.2 million people, including 3.1 million children, out of poverty (Kneebone and Holmes, 2014). What follows is a discussion of the EITC’s growing importance to recipients in light of the new geography of poverty, its role in boosting local economies, and how expanding participation in the program and paying the credit differently could enhance its effectiveness as a local economic stabilizer.

The shifting geography of poverty challenges traditional approaches to combat poverty through investments in place.

When President Johnson declared a War on Poverty in 1964, poverty in the U.S. was primarily urban or rural. This was also the case in 1975 when the EITC was created: Nearly a million more low-income individuals at that time lived in rural areas or big cities than in the suburbs of major metropolitan areas.² Place-based antipoverty interventions dating to the War on Poverty were thus designed with these two geographies—especially cities—in mind. Brookings estimates that today, the federal government spends about $82 billion per year across more than 80 place-focused antipoverty programs, spread across 10 agencies (Kneebone and Berube, 2013). Many are not well-suited to suburban contexts, for several reasons.

First, suburban poverty is more geographically diffuse than urban poverty. Suburban communities tend to be less densely populated than cities and larger in size, and cover more total area. Whereas centralized services might be appropriate in an urban context because they are easily accessible to many in need, it is more difficult to achieve those economies of scale in the suburbs, where residents live farther apart and have limited access to transit. Many competitive federal grant programs allocate points based on population served and population density, implicitly favoring large central cities.

Second, suburban municipalities may lack the experience and administrative capacity needed to sustain services for low-income families and communities. Cities have dealt with poverty longer, and have had more time to develop strategies and structures to support their poor populations. Some of this capacity stemmed explicitly from Community Action Agencies, one of the original War on Poverty programs, which was intended to spur local innovation. Small suburban communities by and large did not have this same experience. Because of their relatively small size, suburban governments may not be able to achieve the administrative scale needed to deliver effective safety-net programs.

Third, many suburban communities lack the economic scale and fiscal structure needed to fund services for low-income residents. Because many small municipalities are limited in how they are permitted to raise revenues—typically through a combination of property and sales taxes—they are especially prone to financial instability caused by the very economic conditions that also generate greater need for services. As poverty suburbanizes, small suburban communities simultaneously face rising demand and falling tax revenues to support those services. Moreover, tax “competition” among many small suburbs within a metro area can further erode the fiscal capacity and political will for these jurisdictions to support people in need.

The new geography of poverty makes direct investments in low-income individuals and families—like the EITC—even more important.

The mismatch between existing place-based antipoverty strategies and the places where poverty is growing fastest heightens the importance of investing directly and effectively in low-income individuals and families through programs such as the EITC. Following its expansion in the mid-1990s, the EITC became the most significant cash transfer program available to low-income working families. The Internal Revenue Service (IRS, 2014) estimates that approximately 79 percent of EITC-eligible taxpayers nationally claim the credit each year—a remarkably strong participation rate among federal safety-net programs.

The high program participation rate and growth over time in EITC expenditures reflects both increases in the credit’s generosity and growing need. In 2000, according to our analysis of IRS Stakeholder Partnerships, Education and Communities (IRS-SPEC) data, total EITC expenditures topped $42 billion (in 2013 dollars). In 2013, they approached $65 billion, equivalent to approximately 80 percent of the amount spent by the federal government on place-based poverty interventions.³

Analysis of IRS-SPEC data further suggests that the EITC’s geographic incidence closely tracks the shifting geography of need. From 2000 to 2013, the number of suburban filers claiming the EITC rose by 62 percent, compared to 33 percent in cities. Changes in the distribution of EITC claims mirrored changes in the location of poor and near-poor populations, particularly growth in the suburbs.⁴ And because lower-income suburban communities (where at least 40 percent of residents are poor or near-poor) are becoming more diverse, too—60 percent of their residents are non-white or Hispanic—the EITC also effectively reduces growing race-based income gaps in suburbs.⁵

EITC dollars support local economies.

The EITC benefits not only low-income families, but also the wider communities in which they live. Although it is widely regarded today as one of the country’s most successful antipoverty programs, the EITC was originally designed to be a temporary economic stimulus measure, in the Tax Reduction Act of 1975 (Nichols and Rothstein, 2015). During the 2000s, more local and state governments made a concerted push to expand participation in the EITC among eligible filers, in part to inject more federal dollars into their local economies (Berube, 2006a).

There are several mechanisms through which the EITC could benefit local economies. California State University researchers categorize the local economic impact of EITC refunds as the sum of direct effects (EITC recipients spending their refunds), indirect effects (business spending in response to EITC recipient spending), and induced effects (changes in household income and spending patterns caused by direct and indirect effects). Together, these effects represent the local “multiplier” effect (Avalos and Alley, 2010). Their estimates for California counties suggest that, in many cases, the credit creates local economic impacts equivalent to at least twice the amount of EITC dollars received.

Direct economic effects result from EITC recipients spending a portion of their refund locally, supporting local businesses and jobs. Consumer surveys show that low-income families spend a relatively large share of their income on groceries and other necessities, which tend to be purchased locally. Analysis of those surveys links tax refund season to increased likelihood of consumer activity as well as larger purchases (Adams, Einav, and Levin, 2009). People spend more, and more frequently, during tax refund season.

The EITC also supports local communities in less obvious ways. The concept of “tax incidence” reflects that the party being taxed, or receiving a tax credit, may not bear its full costs (or reap its benefits) because others shift their behavior in response to the tax. Along these lines, Jesse Rothstein estimates that as much as 36 cents of every dollar of EITC received flows to employers, because by enabling workers to better make ends meet on low wages, the credit effectively lowers the cost of labor. Those lower labor costs may, in turn, allow local employers to hire more local workers (Nichols and Rothstein, 2015).

Finally, emerging evidence suggests that progressive tax expenditures like the EITC can enhance intergenerational income mobility for local children, possibly by counteracting credit constraints that many low-income families face (Chetty, Hendren, Kline, and Saez, 2015). In areas with larger state EITCs, low-income children are more likely to move up the income ladder over time.

The local impact of the EITC depends on how, and how many, eligible filers claim the credit.

The local impact of the EITC also depends on whether eligible workers and families file tax returns and claim the credit. As noted above, the IRS estimates that 79 percent of those eligible to receive the EITC nationally claim it. Given local variation in characteristics associated with uptake, there is likely also considerable local variation in EITC participation (Berube, 2005). Efforts to increase participation locally can thus increase the level of investment communities receive from the program.

Research has identified several factors associated with EITC participation rates among the eligible population. Eligible filers less likely to claim the credit include those who live in rural areas, are self-employed, do not have qualifying children, do not speak English well, are grandparents, or recently changed their filing status (IRS, 2015). One study suggests that communities with moderately sized immigrant populations may exhibit lower EITC participation rates, due perhaps to less robust social networks or more dispersed/heterogeneous populations that may limit awareness of the credit (Berube, 2006b).

Recent research also suggests that EITC participation is higher in areas with more tax preparers, who may promote greater local awareness of the credit (Chetty, Friedman, and Saez, 2012). While individuals who enlist the help of tax preparers are more likely to receive the EITC, they may face significant fees that blunt the credit’s overall impact (Berube, 2006a). Expanding access to volunteer tax preparation services or simple, free online filing could help preserve more of the credit’s value for low-income families and their communities.

To maximize the EITC’s role as a local economic stabilizer, we should consider periodic payment options.

 The EITC already functions as an important antipoverty tool for low-income workers and families, and a boon to local economic stability. Communities should nonetheless be interested in efforts to connect taxpayers to a portion of their EITC throughout the year, rather than only as a lump-sum refund at tax time.

Debt features significantly on the balance sheets of EITC recipients. Recent research finds that about 95 percent of EITC recipients have debt of some kind, and that large shares of refunds are dedicated to debt payments or deferred expenses (such as car repair). Recipients do not use the majority of EITC refunds to pay for monthly expenses, despite the fact that their wages typically cover only two-thirds of those expenses (Halpern-Meekin, Edin, Tach, and Sykes, 2015).

Paying a portion of filers’ anticipated EITC periodically (and directly, rather than through employers like the defunct Advance EITC program) in smaller amounts over the course of a year could help them cope with these spending constraints and avoid taking on debt (Holt, 2008). By enabling families to better keep up with spending on regular items most often purchased locally—rent, food, vehicle maintenance—periodic payments could also support local economies. And by improving families’ liquidity, such payments could reduce reliance on high-cost financial products such as payday loans.

The EITC continues to gain importance as place-based strategies lag behind poverty’s suburbanization, and communities seek ways to maximize public investment in the face of budget constraints at all levels. The program lifts millions of working individuals and families out of poverty each year regardless of their location, and in doing so also supports community financial stability. An expanded EITC—at the federal, state, or local level—with options for periodic payment and better alternatives to high-cost tax preparation could provide even stronger support to low-income families and the places where they live.

References

Adams, W., Einav, L., and Levin, J. (2009). Liquidity constraints and imperfect information in subprime lending. American Economic Review. 99(1), 49–84. Retrieved from http://web.stanford.edu/~jdlevin/Papers/Liquidity.pdf

Avalos, A., and Alley, S. (2010). The economic impact of the Earned Income Tax Credit (EITC) in California. California Journal of Politics and Policy. 2(1). Retrieved from http://escholarship.org/uc/item/2jj0s1dn

Berube, A. (2005). Earned income credit participation—What we (don’t) know. Washington, DC: Brookings Institution. Retrieved from http://www.brookings.edu/metro/eitcparticipation.pdf

Berube, A. (2006a). Using the Earned Income Tax Credit to stimulate local economies. Washington, DC: Brookings Institution. Retrieved from http://www.brookings.edu/~/media/research/files/reports/2006/11/childrenfamilies-berube/berube20061101eitc.pdf

Berube, A. (2006b). ¿Tienes EITC? A study of the Earned Income Tax Credit in immigrant communities, Washington, DC: Brookings Institution. Retrieved from  http://www.brookings.edu/~/media/research/files/reports/2005/4/childrenfamilies-berube02/20050412_tieneseitc.pdf

Chetty, R., Friedman, J., and Saez, E. (2012). Using differences in knowledge across neighborhoods to uncover the impacts of the EITC on earnings (NBER Working Paper Series no. 18232). Retrieved from http://eml.berkeley.edu/~saez/chetty-friedman-saezNBER13EITC.pdf

Chetty, R., Hendren, N., Kline, P., and Saez, E. (2015). The economic impacts of tax expenditures: Evidence from spatial variation across the U.S. Retrieved from http://www.irs.gov/pub/irs-soi/14rptaxexpenditures.pdf

Halpern-Meekin, S., Edin, K., Tach, L., and Sykes, J. (2015). It’s not like I’m poor: How working families make ends meet in a post-welfare world, Oakland, CA: University of California Press.

Holt, S. D. (2008). Periodic payment of the Earned Income Tax Credit. Washington, DC: Brookings Institution. Retrieved from http://www.brookings.edu/research/papers/2008/06/0505-metroraise-supplement-holt

Internal Revenue Service. (2014). Statistics for tax returns with EITC. Retrieved from http://www.eitc.irs.gov/EITC-Central/eitcstats

Internal Revenue Service. (2015). About EITC. Retrieved from http://www.eitc.irs.gov/EITC-Central/abouteitc

Kneebone, E., and Berube, A. (2013). Confronting suburban poverty in America. Washington, DC: Brookings Institution Press.

Kneebone, E., and Holmes, N. Fighting poverty at tax time through the EITC. Retrieved from http://www.brookings.edu/blogs/the-avenue/posts/2014/12/16-poverty-tax-eitc-kneebone-holmes

Nichols, A., and Rothstein, J. (2015). The Earned Income Tax Credit (EITC) (NBER Working Paper Series no. 21211). Retrieved from http://www.nber.org/papers/w21211.pdf

       

From its modest beginnings in 1975, the Earned Income Tax Credit has grown into one of the nation’s most effective anti-poverty programs. Each year, the EITC supplements low-income workers’ earnings, encouraging work and lifting millions of people out of poverty.¹ It has positive lasting effects for parents, who have shown longer-run earnings increases and better health outcomes. At the same time, their children exhibit a host of benefits, from better school performance and higher rates of college enrollment to more hours worked and higher incomes in adulthood.² 

Moreover, the EITC supports economic stability in communities throughout the country where filers collectively receive millions of dollars in earnings supplements annually.³ These successes stem from a series of targeted expansions—supported by both Republicans and Democrats—over the EITC’s 40-year history, transforming it from a small credit into a significant income supplement for low-income working families.⁴

Yet more can be done to preserve and build on the effectiveness of the EITC, and a growing number of elected officials and policy experts have proposed  strengthening the credit. Three main recommendations have emerged from these proposals.

Preserve two key provisions of the EITC that are set to expire in 2017;

Expand the credit for workers without qualifying children; and

Offer filers options to receive a portion of the credit outside of tax time.

In this brief, we consider the first two recommendations, using our MetroTax model and detailed microdata from the 2014 American Community Survey to estimate the impact of these potential changes on workers and on the metropolitan areas and states where they live.⁵ A new analysis by Steve Holt will take an in-depth look at the issue of periodic payment.

If two key EITC provisions expire in 2017, 7.4 million filers would lose part or all of their EITC.

In 2009, Congress and the Obama administration enacted two targeted, but temporary, expansions to the EITC. The legislation reduced the “penalty” for married couples filing jointly by extending their eligibility for the credit $5,000 beyond that for unmarried filers, and it boosted the credit for families with three or more children (who are more likely to be low-income even when working).

If those provisions expire in 2017, the EITC would shrink for 6.7 million taxpayers, while a little under 700,000 filers would lose eligibility altogether. Two-thirds of filers who would be affected are married couples, 1.8 million of whom are also raising more than two kids (meaning they would be subject to both cuts). The remaining third are unmarried workers with at least three children. Most of these taxpayers (58 percent) have a high school diploma or less, and they are most likely to work in manufacturing, construction, and retail. The typical adjusted gross income of these filers is $28,000 a year, just above the poverty line for a family of four (roughly $24,000 in 2014).

States and metro areas in the Midwest and West would see the steepest cuts if these provisions expire. 

Every state stands to lose millions of dollars if these EITC provisions are not made permanent. States and metro areas with higher-than-average shares of married couples and larger families would be hardest hit. In the Intermountain West, Idaho and Utah could see a 10 percent drop in federal EITC dollars coming into the state (Table 1). The major population centers in those states—including metropolitan Provo and Ogden in Utah and Boise, Idaho—top the list of major metro areas that would experience the biggest cuts if these provisions expire.

While larger states like California and Texas would see their EITC claims drop by smaller percentages, the size of the EITC-eligible population in these states mean that the expiration of these two provisions would translate into a loss of more than half a billion dollars in California ($538 million) and over $400 million in Texas. Taxpayers in the Los Angeles metro area stand to lose an estimated $185 million in EITC receipts, while those in Dallas would forfeit nearly $100 million. (For detailed state and metro data see the appendix.)

Expanding the credit for workers without qualifying children would benefit more than 14.4 million filers. 

The EITC for childless workers is significantly smaller than the credit for families with children. In tax year 2013 (the most recent year for which detailed data are available), workers with qualifying dependents received $2,794 on average through the EITC, compared to the meager $281 claimed by the average childless worker.⁶ In fact, low-wage earning childless adults are the only group of taxpayers actually taxed into (or deeper into) poverty by the federal tax system.⁷

Both President Obama and House Speaker Paul Ryan have proposed expanding the EITC for these workers, as have legislators—including Sen. Patty Murray (D-Wash.), Rep. Richard Neal (D-Mass.), and Rep. Barbara Lee (D-Calif.)—and Republican presidential candidate Jeb Bush.⁸ (Republican presidential candidates Ted Cruz and John Kasich have also called for the EITC to be expanded but have not specified whom that expansion would target.⁹)

The proposals put forward by Obama, Ryan, Lee, and Bush are strikingly similar (although they differ considerably in how they would pay for it). These expansions would double the size of the credit for childless workers and the pace at which the credit phases in and out (Figure 1). They would also lower the minimum age of eligibility from 25 to 21.¹⁰

Together, these changes would boost the value of the credit for 8 million filers and extend eligibility to 6.4 million more taxpayers, increasing EITC dollars for these workers by $6.9 billion.¹¹

The filers who would benefit from these changes are largely unmarried workers (87 percent) who are most likely to be employed in service industries (retail, accommodation and food service, administrative services), health care, and construction. Half of these workers have a high school diploma or less. The typical adjusted gross income for these workers is just $8,300, well below the poverty threshold for individuals and married couples without children (e.g., $12,316 and $15,853, respectively, in 2014).

Several states and large metro areas in the Midwest and Northeast would see the number of childless workers eligible for the EITC more than double if the credit were expanded. 

The District of Columbia and Utah, each of which has above-average shares of the population between 21 and 24, would experience the largest percentage growth in the number of childless workers eligible for the EITC (135 and 134 percent, respectively). However, the bulk of states that would double their pool of eligible filers without qualifying children fall in the Midwest (North Dakota, Iowa, Nebraska, and Wisconsin) and Northeast (Rhode Island, Massachusetts, and Vermont), and tend have higher-than-average shares of one-person households and households without children.

Similarly, while the number of EITC-eligible childless workers in the Provo metro area would more than triple if the credit were expanded, most of the major metro areas that would at least double the number of eligible workers without qualifying children are in the Midwest (e.g., Grand Rapids, Milwaukee, and Toledo) and Northeast (e.g., Bridgeport, Boston, and Springfield) (Map 1).

In this era of partisan gridlock in Washington, it is rare to find a policy with the kind of bipartisan support the EITC has received—a testament to its effectiveness in encouraging work, alleviating poverty, and improving outcomes for workers and their children. By preserving key provisions of the EITC for working families and by making the EITC work better for workers without qualifying children, millions of Americans across the country stand to benefit.

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Each year, one in five households filing a federal income tax return claims the Earned Income Tax Credit (EITC). Targeted primarily to lower-income workers with children, it is one of many credits and deductions filers take each year on their federal income tax forms. However, unlike typical credits and deductions, the EITC is a refundable credit, meaning that after offsetting what is owed to the government filers receive the remainder of the benefit as a refund.

By supplementing earnings for low- and moderate-income households, the EITC helps bridge the gap between what the labor market provides and what it takes to support a family. It encourages and rewards work and has become one of the nation’s largest and most effective anti-poverty programs. In contrast to other work support and poverty alleviation programs, it achieves this with very little bureaucracy beyond what otherwise exists to administer the tax code.

Although the EITC began in 1975 as a small credit (no more than $400), a number of targeted expansions in subsequent years mean that today the EITC’s assistance can be considerable. In 2015, a single parent with three children working full-time all year at the federal minimum wage ($7.25 an hour) is eligible for a credit of $6,242, a boost of more than 40 percent above her earnings of $15,080 (though combined it still leaves her 12 percent below the federal poverty level).

However, the only way to obtain these substantial benefits is to claim the EITC on the annual federal income tax return. While lump-sum payments have perceived benefits (such as being able to pay off debts, make larger purchases, or force savings), the EITC’s single annual disbursement can present a challenge for the working parent trying to make ends meet throughout the year. It can also be problematic for households wanting to stretch out their refund as an emergency savings reserve.

My 2008 paper, “Periodic Payment of the Earned Income Tax Credit,” proposed an option that would allow a family to receive a portion of the EITC outside of tax time, striking a balance between lump-sum delivery and the need for resources throughout the year. Specifically, half of the credit could be claimed in four payments spread out during the year, while the remaining credit would continue to be paid as part of the tax refund.

Since then, several significant developments have occurred. A little-used option for receiving some of the EITC in each paycheck ended in 2010. In 2014, the federal government initiated a new tax credit advance payment process to subsidize health insurance premiums through monthly disbursement of the Affordable Care Act’s Premium Tax Credit. Other countries providing assistance similar to the EITC have continued to innovate and offer access to benefits during the year. Finally, members of Congress and think tanks have proposed alternatives to a single lump-sum disbursement of the EITC, and others have begun to explore and experiment with alternatives, most notably in Chicago, where a 2014 pilot program made quarterly payments to 343 households.

In light of these developments, this paper reviews the author’s original EITC periodic payment proposal, examines emerging alternatives, and addresses the following key questions:

• What is the demand for periodic payment alternatives?
  
  
• What benefits will accrue from the availability of periodic payment?
  
  
• What risks are associated with periodic payment and how can they be managed?
  
  
• What is the administrative feasibility of periodic payment?

The emerging answers point a way forward for identifying different distribution options that would enhance the EITC’s value to low- and moderate-income working families.

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The Earned Income Tax Credit (EITC) supports millions of single parents and their children each year. Although the majority of these are single moms, Father’s Day provides a good reminder that single dads are also a significant part of the equation.

Using Brookings’ MetroTax model, we estimate that roughly half (49 percent) of all EITC-eligible tax filers in 2014 filed as head of household—a group that includes many single custodial parents. Of these estimated 13.1 million filers, 8.9 million were women, and 4.2 million were men. These female-headed households included an estimated 14.7 million qualifying children, while their male counterparts included 6 million qualifying children.

Although women head of household filers were more likely to be EITC-eligible (69 percent), male heads of household were not far behind, with an estimated 61 percent eligible to receive the EITC in 2014.

To learn more about the EITC-eligible population, visit Brookings’ EITC data interactive.

       

       

Executive Summary
In order to realize the world’s commitment to ensuring education for all by 2015, important innovations and reforms will be needed in the governance and financing of global education. In 2008, Presidential Candidate Barack Obama committed to making sure that every child has the chance to learn by creating a Global Fund for Education. Secretary of State Hillary Clinton has recently called for a new architecture of global cooperation that requires institutions to “combine the efficiency and capacity for action with inclusiveness.” A new Global Fund for Education should be an independent and inclusive multi-stakeholder institution that builds upon existing institutions and supports country-driven solutions. It must be capable of mobilizing the approximately $7 billion annually still needed to achieve education for all, while holding all stakeholders accountable for achieving results with these resources.

None of these objectives will be achieved without a major rethinking of the global education architecture and an evolution of current mechanisms for financing education. More than 75 million children remain out of primary school, and only 53 of the 171 countries with available data have achieved gender parity in primary and secondary education. Achieving these two Millennium Development Goals, and the broader Education for All Goals set out by 164 countries, will require more capable international institutions. A Global Fund for Education that links funding to performance, that ensures a greater share of resources reach schools and that coordinates the efforts of diverse stakeholders is essential to putting these goals within reach.

In order to realize President Obama’s vision for creating a Global Fund for Education, significant leadership by the United States on global education will be needed in the coming year. A clear commitment by the United States to leverage the contributions of other nations and work together to support country-driven strategies through a Global Fund for Education could catalyze unprecedented international energy around achieving education for all.

Policy Brief #169

Learning from Existing and Innovative Mechanisms

The Global Fund for Education should reflect an evolution of the successful elements of existing multilateral mechanisms. Seven years ago, the Fast Track Initiative (FTI) was launched as the primary financing vehicle for achieving education for all. Working with key donors and international institutions, the FTI was supposed to mobilize the resources needed to close the massive education-financing gap. Housed within the World Bank, the FTI has not yet been able to build a strong public brand, engage the support of a number of leading donors or mobilize adequate resources from major donor countries.

The FTI has not been capable of generating resources on a scale consistent with its founding vision of achieving universal education for all. Although the FTI initially focused on expanding bilateral investments in education, in 2003 it created a multilateral Catalytic Fund to mobilize additional resources with an early focus on countries without major bilateral donors. In 2006, the FTI’s multilateral Catalytic Fund represented approximately 2% of aid commitments to basic education. Although the number of countries contributing to the Catalytic Fund has increased in recent years, many of the biggest donors are still not participating, and just three countries accounted for over 70% of total pledges in 2008. As a result, the FTI faces a shortfall of $1.2 billion for the coming year, which is more than all the money it has received from donors in the last six years. Although many countries endorsed by the FTI have experienced increases in bilateral basic education funding, their share of overall assistance focused on basic education has not increased, a fact that makes it hard to rule out the possibility that overall aid trends were largely responsible for that growth.

The FTI has recently undertaken a set of internal governance reforms designed to improve its performance, but these changes alone are unlikely to overcome some of the structural challenges it still faces. Without independent capacity for action, more inclusive governance, greater attention to conflict-affected countries and stronger accountability for results the FTI will not be able to mobilize sufficient resources or deliver the results that it was set up to achieve. At the same time, the FTI’s model of requiring and supporting the development of comprehensive national education strategies and seeking to align donor funding around these strategies should be incorporated in any evolution to a Global Fund for Education. Similarly, the FTI’s ambition of aligning bilateral flows along with multilateral funding remains an important objective to ensure that all types of donor funding are being fully leveraged.

A Global Fund for Education should also draw on the successful experience of other innovative global development financing mechanisms. Among the most successful of these new institutions is the Global Fund to Fight AIDS, Tuberculosis, and Malaria (GFATM). Since its inception, the GFATM has generated commitments of over $20 billion and is now the leading source of external financing for tuberculosis and malaria. One of the keys to the GFATM’s success in resource mobilization has been the strong engagement of both civil society and developing countries as full partners with donors in its governance. Civil society representatives and developing countries have equal standing in decision-making at the global level within the GFATM. As a result, civil society stakeholders have been at the center of the largely successful drive for resource mobilization for the Fund and partner countries are more invested in its success.

Toward a Global Fund for Education

The core mission of the Global Fund for Education should be to mobilize the financing needed to achieve universal quality education. Linking successful early learning with meaningful opportunities for secondary education, the Global Fund for Education should maintain a focus on achieving universal quality basic education for all while also supporting early childhood learning and secondary schooling as part of a comprehensive approach to education. The GFE should be guided by a set of core principles, focused on key objectives, and reflect an evolution of existing mechanisms:

1. Independent Capacity for Action

Independence from any other international institution will be essential to establish the public profile necessary to succeed in this resource mobilization challenge. The independence of the Global Fund to Fight AIDS, Tuberculosis and Malaria has been a key to its success, while the lack of independence of the FTI has been a primary obstacle to its ability to mobilize sufficient resources. An independent Global Fund for Education should still leverage the expertise and commitment of other international institutions, such as UNESCO, UNICEF and the World Bank. Technical experts from these institutions can play an important role in supporting countries both in the development of national strategies and in the effective implementation of these strategies.

2. Inclusive Governance

Inclusive governance will be critical to building a multi-stakeholder constituency that is committed to mobilizing resources. Developing countries, civil society and donor countries should be equal partners in a system in which there is equal representation and the support of each constituency is necessary for major decisions. Such a requirement in the governance structure of the GFE will not only strengthen the internal decision-making process by subjecting it to the scrutiny of diverse perspectives but will also provide external legitimacy and increase the effectiveness of its implementation efforts. Without such inclusiveness, the Global Fund for Education will not be able to succeed in either mobilizing donors to make education a top priority nor in ensuring that these resources are being well-spent in partner countries.

3. Country-Driven Solutions

Developing countries should set the agenda for the best approach for themselves through the development of comprehensive national education strategies. The Global Fund for Education should build on the FTI’s ambition of aligning donor investments around comprehensive national education plans that reflect country-driven solutions. In order to ensure that strategies are truly national—not simply government plans—the Global Fund for Education should mandate that civil society and other non-governmental stakeholders are full partners in the development of these strategies at the national level. Just as inclusive participation at the global level supports effective resource mobilization, ensuring full participation at the national-level supports effective implementation by diverse stakeholders.

4. Accountability for Results

Accountability must be central to the design of the Global Fund for Education. Systems to ensure financial accountability and that money actually reaches the school level and helps students learn are essential to the effectiveness of the Fund. Performance-based disbursement, which connects continued funding with demonstrated results, is the best way to create incentives for recipient countries to deliver on promised results. In addition, key indicators including gains in enrollment, gender equity and student learning outcomes should be included among performance measures. Utilizing improved measures for assessing student learning will be critical to improving completion rates and maximizing the development gains from education. In order to ensure some reasonable predictability of financing, countries that show strong performance should be eligible for extensions of funding over significant periods.

5. Focus on Low-Income and Conflict-Affected States

Given the inevitable limits on the resources of the Global Fund for Education, it is important to establish an allocation principle for distributing funding. First, the eligibility for funding should be limited to low-income countries, or those countries that are eligible for funding under the World Bank’s IDA window. Second, there should be special attention to the challenges of states currently experiencing or emerging from conflict and mechanisms to ensure support for education in these states. Third, the GFE should prioritize those countries categorized as least-developed and that have the most limited national resources. Finally, funding should generally be linked to the level of effort by national governments in supporting education.

6. Leverage and Align Donor Resources

The Global Fund for Education holds enormous promise for mobilizing funding from a diverse array of donors. Just as the Global Fund to Fight AIDS, Tuberculosis, and Malaria has leveraged a two-to-one match of U.S. resources from the rest of the world, the Global Fund for Education could similarly leverage global resources for education. In order to ensure adequate incentives for countries to contribute their fair share, donor board seats should be allocated and adjusted with reference to donor contributions. In addition, there should be a regularized replenishment process built into the initial design that is linked to the overall resource needs for universal education and that encourages long-term commitments by donors. The GFE should also be committed to providing multiple channels for donor assistance, both bilateral and multilateral, as long as these funds are truly aligned with national strategies. While there is a clear need to expand multilateral financing for education far beyond what has been possible to date, it is also important that ongoing bilateral commitments are much better integrated with the objectives of national education strategies.

A Global Fund for Education holds the key to delivering on the world’s commitment to education for all by 2015. Evolving current mechanisms into a more independent, inclusive, and accountable institution can catalyze the resources and performance needed to achieve universal education. Since education is one of the most leveraged of all development investments, establishing a Global Fund for Education would make a major contribution to reducing global poverty, empowering women, and promoting economic growth in low-income countries around the world.

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Policy Brief #174

A nation’s education system is a pillar of its economic strength and international competitiveness. The National Bureau of Economic Research analyzed data from 146 countries, collected between 1950 and 2010, and found that each year of additional average schooling attained by a population translates into at least a two percent increase in economic output. A 2007 World Bank policy research working paper reported similar results. Based on these findings, if the United States increased the average years of schooling completed by its adult population from the current 12 years to 13 years—that is, added one year of postsecondary education—our gross domestic product would rise by more than $280 billion.

The story also can be told by focusing on the returns to education for individuals. The difference in income between Americans who complete high school and those who drop out after 10th grade exceeds 50 percent. Large income differentials extend throughout the continuum of education attainment, with a particularly huge gap occurring between an advanced degree and a four-year college degree.

Although education clearly pays, the education attainment of the nation’s youth has largely stagnated, falling substantially behind that of countries with which we compete. In 1960, the United States led the world in the number of students who graduated from high school. Today young adults in many countries, including Estonia and Korea, exceed their U.S. counterparts in education attainment.

	RECOMMENDATIONS
	America’s economic productivity and competitiveness are grounded in education. Our public schools and our higher education institutions alike are falling behind those of other nations. Four policy proposals offer substantial promise for improving American education, are achievable and have low costs: Choose K–12 curriculum based on evidence of effectiveness. Evaluate teachers in ways that meaningfully differentiate levels of performance. Accredit online education providers so they can compete with traditional schools across district and state lines. Provide the public with information that will allow comparison of the labor market outcomes and price of individual postsecondary degree and certificate programs.

The problem of low education attainment is particularly salient among students from low-income and minority backgrounds. The graduation rate for minorities has been declining for 40 years, and majority/minority graduation rate differentials have not converged. Hispanic and black students earn four-year or higher degrees at less than half the rate of white students.

The economic future of the nation and the prospects of many of our citizens depend on returning the United States to the forefront of education attainment. Simply put, many more of our students need to finish high school and graduate from college.

At the same time, graduation standards for high school and college must be raised. Forty percent of college students take at least one remedial course to make up for deficiencies in their high school preparation, and a test of adult literacy recently given to a random sample of graduating seniors from four-year U.S. institutions found less than 40 percent to be proficient on prose and quantitative tasks.

Barriers to Innovation and Reform

Our present education system is structured in a way that discourages the innovation necessary for the United States to regain education leadership. K-12 education is delivered largely through a highly regulated public monopoly. Outputs such as high school graduation rates and student performance on standardized assessments are carefully measured and publicly available, but mechanisms that would allow these outputs to drive innovation and reform are missing or blocked. For example, many large urban districts and some states are now able to measure the effectiveness of individual teachers by assessing the annual academic growth of students in their classes. Huge differences in teacher effectiveness are evident, but collective bargaining agreements or state laws prevent most school district administrators from using that information in tenure or salary decisions.

Further complicating K-12 reform is the fact that authority for education policy is broadly dispersed. Unlike countries with strong national ministries that can institute top-down reforms within the public sector, education policy and practice in the United States are set through a chaotic network of laws, relationships and funding streams connecting 16,000 independent school districts to school boards, mayors, and state and federal officials. The lack of central authority allows the worst characteristics of public monopolies to prevail—inefficiency, stasis and catering to interests of employees—without top-down systems’ offsetting advantage of being capable of quick and coordinated action.

The challenges to reforming higher education are different. The 6,000-plus U.S. postsecondary institutions have greater flexibility to innovate than do the public school districts—and a motive to do so, because many compete among themselves for students, faculty and resources. However, while output is carefully measured and publicly reported for public K-12 schools and districts, we have only the grossest measures of output for post secondary institutions.

Even for something as straightforward as graduation rates, the best data we have at the institutional level are the proportion of full-time, first-time degree-seeking students who graduate within 150 percent of the normal time to degree completion. Data on critical outputs, including labor market returns and student learning, are missing entirely. In the absence of information on issues that really matter, postsecondary institutions compete and innovate on dimensions that are peripheral to their productivity, such as the winning records of their sports teams, the attractiveness of their grounds and buildings, and their ratio of acceptances to applications. Far more information is available to consumers in the market for a used car than for a college education. This information vacuum undermines productive innovation.

Examining Two Popular Reforms

Many education reformers across the political spectrum agree on two structural and governance reforms: expanding the public charter school sector at the expense of traditional public schools and setting national standards for what students should know. Ironically, the evidence supporting each of these reforms is weak at best.

Charter schools are publicly funded schools outside the traditional public school system that operate with considerable autonomy in staffing, curriculum and practices. The Obama administration has pushed to expand charter schools by eliminating states that don’t permit charters, or capping them, from competition for $4.35 billion in Race to the Top funding. Both President Obama and Education Secretary Arne Duncan have proposed shuttering poorly performing traditional public schools and replacing them with charters.

What does research say about charter schools’ effects on academic outcomes? Large studies that control for student background generally find very small differences in student achievement between the two types of public schools.

For example, on the 2005 National Assessment of Educational Progress (the “Nation’s Report Card”), white, black and Hispanic fourth graders in charter schools performed equivalently to fourth-graders with similar racial and ethnic backgrounds in traditional public schools. Positive findings do emerge from recent studies of oversubscribed New York and Boston area charter schools, which use lotteries to determine admission. But these results are obtained from children whose parents push to get them into the most popular charter schools in two urban areas with dynamic and innovative charter entrepreneurs.

What about common standards? Based on the belief that high content standards for what students should know and be able to do are essential elements of reform and that national standards are superior to individual state standards, the Common Core State Standards Initiative has signed up 48 states and 3 territories to develop a common core of state standards in English-language arts and mathematics for grades K-12. The administration has praised this joint effort by the National Governors Association and Council of Chief State School Officers, made participation in it a prerequisite for Race to the Top funding, and set aside $350 million in American Recovery and Reinvestment Act funding to develop ways to assess schools’ performance in meeting common core standards.

Does research support this approach? The Brown Center on Education Policy at Brookings examined the relationship between student achievement outcomes in mathematics at the state level and ratings of the quality of state content standards in math. There was no association. Some states with strong standards produce high-achieving students, such as Massachusetts, while other states with strong standards languish near the bottom in terms of achievement, such as California. Some states with weak standards boast high levels of achievement, such as New Jersey, while others with weak standards experience low levels of achievement, such as Tennessee.

Four Ideas

For every complex problem there is one solution which is simple, neat, and wrong. — H. L. Mencken

I will avoid Mencken’s approbation by proposing four solutions rather than one. Although education has far too many moving parts to be dramatically reformed by any short list of simple actions, we can start with changes that are straightforward, ripe for action and most promising, based on research and past experience.

Link K-12 Curricula to Comparative Effectiveness

Little attention has been paid to choice of curriculum as a driver of student achievement. Yet the evidence for large curriculum effects is persuasive. Consider a recent study of first-grade math curricula, reported by the National Center for Education Evaluation and Regional Assistance in February 2009. The researchers randomly matched schools with one of four widely used curricula. Two curricula were clear winners, generating three months’ more learning over a nine-month school year than the other two. This is a big effect on achievement, and it is essentially free because the more effective curricula cost no more than the others.

The federal government should fund many more comparative effectiveness trials of curricula, and schools using federal funds to support the education of disadvantaged students should be required to use evidence of effectiveness in the choice of curriculum materials. The Obama administration supports comparative effectiveness research in health care. It is no less important in education.

Evaluate Teachers Meaningfully

Good education outcomes for students depend on good teachers. If we have no valid and reliable system in place to identify who is good, we cannot hope to create substantial improvements in the quality of the teacher workforce.

A substantial body of high-quality research demonstrates that teachers vary substantially in effectiveness, with dramatic consequences for student learning. To increase academic achievement overall and address racial, ethnic and socioeconomic achievement gaps, we must enhance the quality of the teacher workforce and provide children from poor and minority backgrounds with equitable access to the best teachers.

Despite strong empirical evidence for differences in teacher performance—as well as intuitive appeal, demonstrated when we remember our own best and worst teachers—the vast majority of public school teachers in America face no meaningful evaluation of on-the-job performance. A recent survey of thousands of teachers and administrators, spanning 12 districts in four states, revealed that none of the districts’ formal evaluation processes differentiated meaningfully among levels of teaching effectiveness, according to a 2009 report published by The New Teacher Project. In districts using binary ratings, more than 99 percent of teachers were rated satisfactory. In districts using a broader range of ratings, 94 percent of teachers received one of the top two ratings, and less than one percent were rated unsatisfactory. In most school districts, virtually all probationary teachers receive tenure—98 percent in Los Angeles, for example—and very small numbers of tenured teachers are ever dismissed for poor performance.

Conditions of employment should be restructured to recruit and select more promising teachers, provide opportunities for them to realize their potential, keep the very best teachers in the profession, and motivate them to serve in locations where students have the highest needs. The precondition for these changes is a valid system of evaluating teachers.

The federal government should require school districts to evaluate teachers meaningfully, as a condition of federal aid. Washington also should provide extra support to districts that pay substantially higher salaries to teachers demonstrating persistently high effectiveness and serving in high-needs schools. But, because many technical issues in the evaluation of on-the-job performance of teachers are unresolved, the federal government should refrain, at least for now, from mandating specific evaluation components or designs. The essential element is meaningful differentiation—that is, a substantial spread of performance outcomes.

Accredit Online Education Providers

Traditional forms of schooling are labor-intensive and offer few economies of scale. To the extent that financial resources are critical to education outcomes, the only way to improve the U.S. education system in its current configuration is to spend more. Yet we currently spend more per student on education than any other country in the world, and the appetite for ever-increasing levels of expenditure has been dampened by changing demographics and ballooning government deficits. The monies that can be reasonably anticipated in the next decade or two will hardly be enough to forestall erosion in the quality of the system, as currently designed. The game changer for education productivity will have to be technology, which can both cut labor costs and introduce competitive pressures.

Already, at the college level, online education (also termed “virtual education” or “distance learning”) is proving competitive with the classroom experience. Nearly 3.5 million students in 2006—about 20 percent of all students in postsecondary schools and twice the number five years previously—were taking at least one course online, according to a 2007 report published by the Sloan Consortium.

In K-12, online education is developing much more slowly. But, the case for online K–12 education is strong—and linked to cost control. A survey reported on page one of Education Week (March 18, 2009) found the average per-pupil cost of 20 virtual schools in 14 states to be about half the national average for a traditional public school.

Local and state control of access to virtual schooling impedes the growth of high-quality online education and the competitive pressure it contributes to traditional schooling. Development costs are very high for virtual courseware that takes full advantage of the newest technologies and advances in cognitive science and instruction—much higher than the costs for traditional textbooks and instructional materials. These development costs can only be rationalized if the potential market for the resulting product is large. But, states and local school districts now are able to determine whether an online program is acceptable. The bureaucracy that may be most disrupted by the introduction of virtual education acts as gatekeeper.

To overcome this challenge, K-12 virtual public education would benefit from the model of accreditation used in higher education. Colleges and universities are accredited by regional or national bodies recognized by the federal government. Such accrediting bodies as the New England Association of Schools and Colleges and the Accrediting Council for Independent Colleges and Schools are membership organizations that determine their own standards within broad federal guidelines. Once an institution is accredited, students residing anywhere can take its courses, often with the benefit of federal and state student aid.

Federal legislation to apply this accreditation model to online K-12 education could transform public education, especially if the legislation also required school districts to cover the reasonable costs of online courses for students in persistently low-performing schools. This approach would exploit—and enhance—U.S. advantages in information technology. We are unlikely to regain the international lead in education by investing more in business as usual; but we could leapfrog over other countries by building new, technology-intensive education systems.

Link Postsecondary Programs to Labor Market Outcomes

On a per-student basis, the United States spends two and one-half times the developed countries’ average on postsecondary education. Although our elite research universities remain remarkable engines of innovation and are the envy of the world, our postsecondary education system in general is faltering. The United States used to lead the world in higher education attainment, but, according to 2009 OECD data, is now ranked 12th among developed countries. We have become a high-cost provider of mediocre outcomes.

Critical to addressing this problem is better information on the performance of our postsecondary institutions. As the U.S. Secretary of Education’s Commission on the Future of Higher Education concluded in 2006:

Our complex, decentralized postsecondary education system has no comprehensive strategy, particularly for undergraduate programs, to provide either adequate internal accountability systems or effective public information. Too many decisions about higher education—from those made by policymakers to those made by students and families—rely heavily on reputation and rankings derived to a large extent from inputs such as financial resources rather than outcomes. Better data about real performance and lifelong working and learning ability is absolutely essential if we are to meet national needs and improve institutional performance.

Ideally, this information would be available in comparable forms for all institutions through a national system of data collection. However, achieving consensus on the desirability of a national database of student records has proved politically contentious. One of the issues is privacy of information. More powerful is the opposition of some postsecondary institutions that apparently seek to avoid accountability for their performance.

The way forward is for Congress to authorize, and fund at the state level, data systems that follow individual students through their postsecondary careers into the labor market. The standards for such state systems could be recommended at the federal level or by national organizations, to maximize comparability and eventual interoperability.

The public face of such a system at the state level would be a website allowing prospective students and parents to compare degree and certificate programs within and across institutions on diverse outcomes, with corresponding information on price. At a minimum, the outcomes would include graduation rates, employment rates and average annual earnings five years after graduation. Outcomes would be reported at the individual program level, such as the B.S. program in chemical engineering at the University of Houston. Price could be reported in three ways: advertised tuition,average tuition for new students for the previous two years, and average tuition for new students for the previous two years net of institutional and state grants for students eligible for federally subsidized student loans. These different forms of price information are necessary because institutions frequently discount their advertised price, particularly for low-income students. Students and families need information about discounts in order to shop on the basis of price.

Many states, such as Washington, already have data that would allow the creation of such college search sites, at least for their public institutions. The primary impediment to progress is the federal Family Educational Rights and Privacy Act (FERPA), which makes it very difficult for postsecondary institutions to share data on individual students with state agencies, such as the tax division or unemployment insurance office, in order to match students with information on post-graduation employment and wages. Congress should amend FERPA to allow such data exchanges among state agencies while maintaining restrictions on release of personally identifiable information. To address privacy concerns, Congress also should impose substantial penalties for the public release of personally identifiable information; FERPA currently is toothless.

Creating a higher education marketplace that is vibrant with transparent and valid information on performance and price would be a powerful driver of reform and innovation. Easily addressed concerns about the privacy of student records and political opposition from institutions that do not want their performance exposed to the public have stood in the way of this critical reform for too long. America’s economic future depends on returning the United States to the forefront of education attainment. Simply put, many more of our students need to finish high school and graduate from college. Investments in improved data, along with structural reforms and innovation, can help restore our leadership in educational attainment and increase economic growth.

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Policy Brief #181

The new normal for local, state and federal governments is fiscal austerity. Although President Obama supported education during his State of the Union address and in his budget proposal to Congress, cash-strapped localities and states—which foot most of the bill for educating America’s children—may have to balance their budgets with cuts to schools and teachers. The recession exposed a long-developing structural imbalance between public expenditure versus raising the revenue for public services. Especially on education, reality has set in, with a vengeance.

Cutting public expenditure is not necessarily a bad thing. There are, however, some activities that have become so fundamentally governmental and so critically important to the nation’s future that they require special care during a period of severe budget trimming. Education is one such example.

The Brown Center on Education Policy at Brookings has recently developed proposals to ensure that federal investments in education have impact. These proposals present the dual advantage of low costs of implementation at the federal level coupled with the promise of considerable leverage at the state and local level. Two of those proposals are presented in this brief: increasing digital and virtual education and expanding consumer information on higher education.

	RECOMMENDATIONS
	One important path to individual opportunity is higher levels of educational attainment. The U.S. economy is marked by an increasing economic divide between those who are educated and those who are not. In a time of fiscal austerity, every federal dollar invested in education must have a return. Congress should: Increase digital and virtual education. In reauthorizing the No Child Left Behind Act, provide that parents of economically disadvantaged students who are eligible for federal Title I funding should be able to direct that the funding associated with their child be spent to cover the costs of enrolling their child in virtual courses or in a virtual school.   Expand consumer information in higher education. Amend the Higher Education Act (HEA) to require that states that receive federal funds for statewide longitudinal data systems provide information on completion rates, employment levels, and annual earned income for each degree or certificate program and for each degree-granting institution that operates in the state. This information could be disseminated on the Internet.

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Editor's Note, Oct. 12, 2011: Congress has passed a trio of trade agreements negotiated during the George W. Bush administration and recently submitted by President Obama. The authors of this policy brief say the pacts with South Korea, Colombia and Panama will boost U.S. exports significantly, especially in the key automotive, agricultural and commercial services sectors.

Policy Brief #183

A trio of trade agreements now pending before Congress would benefit the United States both economically and strategically. Carefully developed accords with South Korea, Colombia and Panama will boost U.S. exports significantly, especially in the key automotive, agricultural and commercial services sectors.

Among the other benefits are:

• increased U.S. competitiveness
• enhancement of U.S. diplomatic and economic postures in East Asia and Latin America
• new investment opportunities
• better enforcement of labor regulation and
• improved transparency in these trading partners’ regulatory systems.

The pacts are known as Free Trade Agreements, or FTAs. The Korean agreement (KORUS) was negotiated in 2006-2007 and revised in 2010. The Colombian agreement (COL-US, sometimes known as COL-US FTA) was signed in 2006. The agreement with Panama (PFTA, sometimes known as the Panama Trade Promotion Agreement) was signed in 2007. All have the support of the Obama administration.

	RECOMMENDATIONS
	The three FTAs will substantially reduce these trading partners’ tariffs on U.S. goods, opening large markets for U.S. commerce and professional services. In combination, they will increase the size of the U.S. economy by about $15 billion. Furthermore, they will help reverse a slide in U.S. market influence in two important and increasingly affluent regions of the globe. Approval of all three agreements is in the national interest. To move forward, both Congress and the administration should take these appropriate steps: Congress should approve the trade agreements with Korea (KORUS), Colombia (COL-US) and Panama (PFTA) without additional delays.   To maximize the trade and investment benefits of KORUS, the administration should actively engage in the KORUS working groups, such as the Professional Services Working Group.   Similarly, the U.S. Trade Representative should participate in the Joint Committee’s scheduled annual meetings, in order to maintain a highlevel focus on U.S.-Korea trade, drive further trade liberalization and enable the committee to serve as a forum for broader discussions on trade in East Asia.   The Colombia-U.S. Joint Committee should include representatives of Colombia’s Trade and Labor Ministers with their US counterparts. The presence of the Labor minister should facilitate progress under the FTA through strengthened labor standards and timely implementation of all elements of the agreed-upon action plan. This Committee and specialized working groups could increase the pace of bilateral interaction and help officials identify important areas for discussion, negotiation and agreement.   Panama has ratified the Tax Information and Exchange Agreement which entered into force on April 2011. Panama and the US should strengthen bilateral communication so that collaboration in the battle against money laundering is pushed even further with greater cooperation.

Economic Effects of the Korea Agreement

The economic benefits to the United States from KORUS are especially significant, as the agreement will provide preferential market access to the world’s 11th largest—and a fast-growing—economy. In 2010, U.S.-Korea trade was worth $88 billion, comprising U.S. exports of $39 billion and imports of $49 billion, making Korea the United States’ seventh largest trading partner. According to the independent, quasi-judicial U.S. International Trade Commission (ITC), exports resulting from KORUS will increase the U.S. gross domestic product (GDP) by up to $12 billion. This constitutes a remarkable gain in both real and percentage terms.

To the United States, KORUS offers diverse economic advantages. Most strikingly, KORUS will open Korea’s service market to U.S. exports, allowing the United States to exploit its competitive advantages in financial services, education and information and communications technologies. The agreement also will lead to increased imports from Korea, which in turn will help the United States achieve greater economic specialization. The likely effects of more specialization—and of increased Korean investment in the United States—include greater U.S. efficiency, productivity, economic growth and job growth. Meanwhile, U.S. investors will gain new opportunities in the increasingly active Asia-Pacific region.

Lately, passage of KORUS has assumed enhanced importance with the impasse in the World Trade Organization’s Doha Round. No longer can the United States reasonably anticipate that Doha will lead to improved access to the Korean market. Moreover, an FTA between Korea and the European Union (EU) that took effect July 1st confers preferential access to European exporters, undermining the competitiveness of U.S. businesses in Korea. Even before the European FTA, the United States had been losing valuable ground in Korea. Between 2000 and 2010, the United States fell from first to third in the ranking of Korea’s trading partners (reversing positions with China), as U.S. products declined from 18 to only 9 percent of Korean imports. Failure to approve the agreement can be expected to lead to a further decline. These moves will strongly assist U.S. producers of electronic equipment, metals, agricultural products, autos and other consumer goods. For example, agricultural exports are expected to rise $1.8 billion per year.

On the services front, KORUS will increase U.S. businesses’ access to Korea’s $560 billion services market. Financial services providers, the insurance industry and transportation firms stand to benefit substantially. KORUS usefully builds on the link between investment and services by improving the ability of U.S. law firms to establish offices in Korea. In addition, the agreement establishes a Professional Services Working Group that will address the interests of U.S. providers of legal, accounting and engineering services, provided that U.S. representatives engage actively in the group. KORUS also requires that regulations affecting services be developed transparently and that the business community be informed of their development and have an opportunity to provide comments, which the Korean government must answer.

On the investment front, KORUS affords a chance to strengthen a bilateral investment relationship that probably is underdeveloped. In 2009, the U.S. foreign direct investment flow to Korea was $3.4 billion, while there was a net outflow of Korean foreign direct investment to the United States of $255 million. KORUS supports market access for U.S. investors with investment protection provisions, strong intellectual property protection, dispute settlement provisions, a requirement for transparently developed and implemented investment regulations and a similar requirement for open, fair and impartial judicial proceedings. All this should markedly improve the Korean investment climate for U.S. business. It will strengthen the rule of law, reducing uncertainty and the risk of investing in Korea.

On the governance side, KORUS establishes various committees to monitor implementation of the agreement. The most significant of these is the Joint Committee that is to meet annually at the level of the U.S. Trade Representative and Korea’s Trade Minister to discuss not only implementation but also ways to expand trade further. KORUS establishes committees to oversee the goods and financial services commitments, among others, and working groups that will seek to increase cooperation between U.S. and Korean agencies responsible for regulating the automotive sector and professional services. These committees and working groups, enriched through regular interaction between U.S. and Korean trade officials, should increase levels of trust and understanding of each county’s regulatory systems and help officials identify opportunities to deepen the bilateral economic relationship.

Strategic Effects of the Korea Agreement

Congressional passage of KORUS will send an important signal to all countries in the Asia-Pacific region that the United States intends to remain economically engaged with them, rather than retreat behind a wall of trade barriers, and is prepared to lead development of the rules and norms governing trade and investment in the region. KORUS will provide an important economic complement to the strong, historically rooted U.S. military alliance with Korea. It also will signal a renewed commitment by the United States in shaping Asia’s economic architecture.

The last decade has seen declining U.S. economic significance in Asia. Just as the United States has slipped from first to third in its ranking as a trading partner of Korea, similar drops are occurring with respect to Japan, Indonesia, Malaysia and other Asia-Pacific economic powers. In all of Northeast and Southeast Asia, the United States has only one FTA in effect, an accord with the Republic of Singapore. Passage of KORUS now would be particularly timely, both as a sign of U.S. engagement with Asia and as a mechanism for ensuring robust growth in U.S.-Asia trade and investment.

To illustrate how KORUS might affect U.S. interests throughout the region, consider regulatory transparency. The KORUS transparency requirements could serve as a model for how countries can set and implement standards. They might for example, influence the unfolding Trans-Pacific Partnership negotiations, talks that could set the stage for a broader Asia-Pacific FTA. U.S. producers, investors and providers of commercial and professional services could only benefit from a regional trend toward greater transparency and the lifting of barriers that would ensue. Other KORUS provisions favorable to the United States could function as similar benchmarks in the development of U.S. relations with Asia-Pacific nations and organizations.

Effects of the Colombia Agreement

COL-US will also strengthen relations with a key regional ally and open a foreign market to a variety of U.S. products. Bilateral trade between Colombia and the United States was worth almost $28 billion in 2010. COL-US is expected to expand U.S. GDP by approximately $2.5 billion, which includes an increase in U.S. exports of $1.1 billion and an increase of imports from Colombia of $487 million.

COL-US offers four major advantages:

• It redresses the current imbalance in tariffs. Ninety percent of goods from Colombia now enter the United States duty-free (under the Andean Trade Promotion and Drug Eradication Act). COL-US will eliminate 77 percent of Colombia’s tariffs immediately and the remainder over the following 10 years.
   
• It guarantees a more stable legal framework for doing business in Colombia. This should lead to bilateral investment growth, trade stimulation and job creation.
   
• It supports U.S. goals of helping Colombia reduce cocaine production by creating alternative economic opportunities for farmers.
   
• It addresses the loss of U.S. competitiveness in Colombia, in the wake of Colombian FTAs with Canada and the EU as well as Latin American sub-regional FTAs.

With respect to trade in goods, U.S. chemical, rubber and plastics producers will be key beneficiaries of COL-US, with an expected annual increase in exports in this combined sector of 23 percent, to $1.9 billion, relative to a 2007 baseline according to the ITC. The motor vehicles and parts sector is expected to see an increase of more than 40 percent. In the agriculture sector, rice exports are expected to increase from a 2007 baseline of $2 million to approximately $14 million (the corresponding increases would be 20 percent for cereal grains and 11 percent for wheat).

These and other gains will result from the gradual elimination of tariffs and from provisions that reduce non-tariff barriers as well. Among the latter, the most important changes would be increased transparency and efficiency in Colombia’s customs procedures and the removal of some sanitary and phytosanitary (or plant quarantine) restrictions. With respect to trade in services, Colombia has agreed to a number of so-called "WTO-plus" commitments that will expand U.S. firms’ access to Colombia’s $166 billion services market. For instance, the current requirement that U.S. firms hire Colombian nationals will be eliminated, and many restrictions on the financial sector will be removed.

On the investment front, the potential advantages to the United States also are substantial. In 2009, the U.S. flow of foreign direct investment into Colombia was $1.2 billion, which amounted to 32 percent of that nation’s total inflows. COL-US improves the investment climate in Colombia by providing investor protections, access to international arbitration and improved transparency in the country’s legislative and regulatory processes. These provisions will reduce investment risk and uncertainty.

COL-US presents significant improvements in the transparency of Colombia’s rule-making process, including opportunities for interested parties to have their views heard. COL-US also requires that Colombia’s judicial system conform with the rule of law for enforcing bilateral commitments, such as those relating to the protection of intellectual property. In addition to access to international arbitration for investors, COL-US includes dispute settlement mechanisms that the two governments can invoke to enforce each other’s commitments. Taken as a whole, these provisions offer an important benchmark for further developments in Colombia’s business environment. The transparency requirement alone could reduce corruption dramatically.

Labor rights have been a stumbling block to congressional approval of COL-US. The labor chapter of the agreement guarantees the enforcement of existing labor regulations, the protection of core internationally recognized labor rights, and clear access to labor tribunals or courts. In addition, in April 2011, Colombia agreed to an Action Plan strengthening labor rights and the protection of those who defend them. In the few months the plan has been in effect, Colombia has made important progress in implementation. It has reestablished a separate and fully equipped Labor Ministry to help protect labor rights and monitor employer-worker relations. It has enacted legislation authorizing criminal prosecutions of employers who undermine the right to organize or bargain collectively. It has partly eliminated a protection program backlog, involving risk assessments. And, it has hired more labor inspectors and judicial police investigators.

Besides economic benefits, COL-US offers sizable strategic benefits. It would fortify relations with an important ally in the region by renewing the commitment to the joint struggle against cocaine production and trade. Under the agreement, small and medium-sized enterprises in labor-intensive Colombian industries like textiles and apparel would gain permanent access to the U.S. consumer market. With considerable investments, Colombia would be able to compete with East Asia for these higher quality jobs, swaying people away from black markets and other illicit activities.

While Congress deliberates, the clock is ticking. Colombia is also looking at other countries as potential trade and investment partners in order to build its still underdeveloped infrastructure and reduce unemployment. Complementing its FTAs with Canada, the EU, and several countries in the region, Colombia has initiated formal trade negotiations with South Korea and Turkey and is moving toward negotiations with Japan. A perhaps more telling development is China’s interest in building an inter-oceanic railroad in Colombia as an alternative to the Panama Canal: on July 11th President Juan Manuel Santos signed a bilateral investment treaty with China (and the UK) and is expected to meet Chinese President Hu Jintao in the fall.

Effects of the Panama Agreement

Although Panama’s economy is far smaller than Korea’s or even Colombia’s, the PFTA will deliver important economic and strategic benefits to the United States. Considerable gains will take place in U.S. agriculture and auto manufacturing. Moreover, the PFTA will strengthen the U.S. presence in the region, allowing for the stronger promotion of democratic institutions and market-based economies.

U.S. merchandise exports to Panama topped $2.2 billion in 2009. The PFTA’s elimination of tariffs and reduction in non-tariff barriers will cause this figure to grow. For example, rice exports are expected to increase by 145 percent, pork exports by 96 percent and beef exports by 74 percent, according to the ITC. Exports of vehicles are expected to increase by 43 percent. The PFTA also guarantees access to Panama’s $21 billion services market for U.S. firms offering portfolio management, insurance, telecommunications, computer, distribution, express delivery, energy, environmental, legal and other professional services.

Panama’s trade-to-GDP ratio in 2009 was 1.39, highlighting the preponderance of trade in Panama’s economy and the international orientation of many of its sectors. Following passage of the PFTA, Panama will eliminate more than 87 percent of tariffs on U.S. exports immediately. The remaining tariffs will be removed within 10 years for U.S. manufactured goods and 15 years for agricultural and animal products.

PFTA protections to investors—similar to protections accorded under KORUS and COL-US—are especially valuable, as Panama receives substantial investments associated with sectors that will benefit from both from the expansion of the canal and from other infrastructure projects. A fair legal framework, investor protections and a dispute settlement mechanism, all features of the PFTA, are almost certain to increase U.S. investments in Panama. Panama’s Legislature also recently approved a Tax Information Exchange Agreement with the United States and amended current laws to foster tax transparency and strengthen intellectual property rights. These are crucial steps in preventing the use of Panamanian jurisdiction as a haven for money laundering activities.

Panamanian laws and regulations prohibiting strikes or collective bargaining were a concern that initially delayed implementation of the PFTA. But, these laws have been changed, with the exception of a requirement that 40 workers (not the recommended 20) are needed to form a union; the 40-worker requirement has been kept partly because labor groups in Panama support it. The PFTA’s labor chapter protects the rights and principles outlined in the International Labor Organization’s 1998 Declaration on Fundamental Principles and Rights at Work.

Besides offering economic advantages to the United States, the PFTA is a strategic agreement. Strengthening economic links with Panama should bolster the U.S. capacity to address cocaine trafficking in the region, in light of Panama’s location as Colombia’s gateway to North America. The importance of the canal, now undergoing an expansion that will double its shipping capacity, further underscores the U.S. need to strengthen bilateral relations with Panama.

The time to act is now. Like Colombia, Panama has been negotiating with economic powerhouses other than the United States. It recently signed a trade agreement with Canada and an Association Agreement with the EU. Delaying passage of the PFTA would generate a loss of market share for a variety of sectors of the U.S. economy.

Conclusion

All three FTAs encourage trade by removing tariff and non-tariff barriers. All the agreements provide access to large services markets, foster transparency and offer significant strategic advantages to the United States. Congress should approve each of them now.

The authors would like to thank Juan Pablo Candela for his assistance with this project.

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EXECUTIVE SUMMARY

A few influential Americans have begun to suggest that the United States should reduce its long-standing security commitment to Taiwan. Some say that Taiwan itself has chosen to improve relations with China, so the island has less need for advanced U.S. weaponry and a defense pledge. Others argue that Washington, to avoid unnecessary tensions with a rising China, should accommodate Beijing on the most neuralgic issue—Taiwan.

The first group overstates the limits of the ongoing Taiwan-China détente. True, progress has been made in normalizing, liberalizing, and institutionalizing the economic relationship. But, to the disappointment of many Chinese, none has occurred on political and security issues, because the Taiwan public is not ready to go there and serious conceptual differences exist on how to get there anyway. So the prospects for cross-Strait relations in the near-term are for modest, incremental progress only, or a stall.

The second group misunderstands the benefits and costs of a significant American accommodation to China regarding Taiwan (e.g. by sharply cutting back arms sales). In fact, Washington has frictions with China on a growing list of issues. Conceding to Beijing on Taiwan will not help us elsewhere. Moreover, our friends and allies (e.g. Japan and Korea) will worry that the United States might sacrifice their interests next for the sake of good relations with China. Finally, the primary reason China has failed to incorporate Taiwan on its terms is not U.S. arms sales but because its negotiating position is unacceptable to the Taiwan public.

As China rises and seeks to reshape East Asia more to its liking, how the United States responds will be a critical variable. It needs the right mix of accommodation and firmness. Giving way on Taiwan will neither pacify Beijing nor assure our allies.

---

Introduction

Should the United States abandon Taiwan? Until recently, even to pose such a question would have been unthinkable in Washington. While the U.S. relationship with Taiwan may have had its ups and downs over the past six decades, but the strong American commitment has endured. But now, individuals who previously served in senior positions in the U.S. government are calling it into question. Theirs is not a modest proposal, and it deserves careful examination.

Some observers believe that Taiwan has become a strategic liability. They remind us that China regards the settlement of the Taiwan problem as its internal affair, yet the United States continues to provide the island with advanced weaponry and at least an implicit pledge to come to its defense. They echo Chinese diplomats who argue that our arms sales are the major obstacle to good U.S.-China relations. (These diplomats also assert that U.S. arms sales both discourage Taipei to negotiate seriously with Beijing and encourage Taiwanese politicians who have separatist agendas.) Therefore, it is argued, the United States needs to reconsider fundamentally its security support for Taiwan.

The most prominent voice for this point of view is Zbigniew Brzezinski, Jimmy Carter’s national security adviser. He argues that the hostility that arms sales foster in Beijing precludes whatever strategic cooperation a declining United States can secure from a rising China. Moreover, he says, “it is doubtful that Taiwan can indefinitely avoid a more formal connection with China,” and points to some version of the unification formula Beijing used for Hong Kong as a possible basis. That in turn would end the island’s need to depend on the United States for its security.[1] Others in this camp, more or less, include retired admiral Bill Owens, retired ambassador Chas Freeman, Charles Glaser of George Washington University, and the members of a policy panel assembled by the Miller Center of the University of Virginia.[2]

To make the conversation even more interesting, there are two other versions of this abandonment idea, ones that start with how Taiwan has changed since 2008:

• At least one conservative Congressman, a long-time supporter of Taiwan, believes that Taiwan was now working with an “autocratic China,” and since he opposes autocracy, the island’s government no longer deserved his support.[3] That is, Taiwan has abandoned U.S. values, which is bad, so he has abandoned Taiwan.
   
• A Portland State University scholar has argued that Taiwan seems to have decided that its own best interests require it to accommodate to China and rely much less on the United States (as Finland accommodated the Soviet Union during the Cold War). But in his view, this is good for Washington because it eliminates a long-time burden.[4]  And a Taiwan scholar recently argued that it was in the island’s own interest to get out of the middle of the China-U.S. rivalry.[5]

In the abstract, it should not be surprising that some Americans are rethinking U.S. support for Taiwan. We live in a new world. China’s power and international role are growing. It is in the interest of the United States to maximize areas of cooperation and mutual benefit with Beijing where possible, even as we demonstrate firmness when it overreaches (as it has). It is not in the U.S. interest to act in ways that lead Chinese leaders to conclude that America pursues a policy of containment. So, this logic goes, perhaps Washington should end commitments that are so offensive to China that it will not cooperate with the United States on projects of strategic value to us. Moreover, as the People’s Liberation Army (PLA) becomes more capable, America may find it harder operationally to honor its commitments to Taiwan, even if it wished to do so.

Taiwan Shifts Strategy

To sort through these competing ideas, it is necessary to understand how U.S.-China-Taiwan relations have changed in the last five years and what it means for U.S. policy.

For twenty-five years, Taiwan has faced a serious dilemma. On the one hand, many Taiwan companies benefit from investing in China to produce goods for the Chinese and international markets. On the other hand, China wishes to end Taiwan’s separate political status on terms similar to that used for Hong Kong, which most Taiwan people oppose. From around 1995 to 2008, Taiwan’s response to China’s political goals was to emphasize the island’s sovereignty, which only led Beijing to fear that Taiwan’s leaders intended to create a totally independent country. China in turn built up military capabilities to deter what it feared, which only made Taiwan more anxious. Washington worried that this action-reaction spiral might lead to war, and it periodically opposed some of Taipei’s initiatives.

Ma Ying-jeou won Taiwan’s 2008 presidential election by articulating a different vision: that the island could better preserve its prosperity, freedom, dignity, and security by engaging China rather than provoking it. Engagement would focus first on enhancing economic cooperation, thus avoiding contentious and unproductive political arguments. Expanding business ties would yield concrete benefits for both sides of the Taiwan Strait. Opening Taiwan universities to Mainland students would fill out enrollments and expose Chinese young people to a democratic society. In short, Ma believed, Taiwan could give China such a large stake in peace that it would not dare to risk that stake by coercing the island into submission. He made significant progress during his first term in removing obstacles to business and liberalizing trade, most notably in reaching an Economic Cooperation Framework agreement with China in 2010, the first step toward creating a free-trade area. Taiwan bounced back fairly quickly from the global economic crisis and had 4 percent growth in 2011. A growing stream of Chinese tourists buoyed some sectors of the Taiwan economy, and the number of Mainland students grew steadily.

Ma had another reason for engaging China: the United States. Taipei’s relations with Washington had suffered before 2008 because U.S. officials feared Taiwan’s political initiatives would spark a Chinese over-reaction, creating a conflict that might require American intervention. The reduction of tensions that Ma’s policies brought about calmed Washington’s fears and increased U.S. confidence that Taiwan’s intentions were constructive. The Bush and Obama administrations responded by improving U.S.-Taiwan relations, by approving three large arms-sales packages and extending other benefits.

Yet Ma’s China policy was not a total accommodation to Chinese wishes. Even though Beijing in 2009 exerted pressure on Taiwan to move toward political and security talks, Ma pushed back, and for good reason. The Taiwan public was not yet ready to support them, particularly the approximately 25 percent who retain the goal of total independence. In any case, there were serious conceptual differences between the two sides, specifically whether Taiwan was a sovereign entity for purposes of cross-Strait relations and the island’s international role. On the security side, China continued to build up its military capabilities relevant to Taiwan—particularly ballistic and cruise missiles. According to one think-tank’s analysis, an intensive missile barrage by the PLA can now ground Taiwan’s air force in the very early stages of a conflict, and Taiwan’s current defense strategy depends on its aircraft getting off the ground.[6] So Ma has spurned Chinese proposals for a peace accord because he does not see how it would improve Taiwan’s security, and his caution has persisted to this day.

In effect, Ma has pursued a mixed or hedging strategy toward China: engage it in areas that both benefit Taiwan and encourage Chinese restraint (economics and education); deflect Beijing on proposals that are not in the island’s interests (politics and security); and preserve a good relationship with the United States (to guard against the worst). A significant part of the Taiwan public—known as the Green Camp—was not happy with Ma’s mix of engagement and firmness. They feared he had put the island on a slippery slope to subordination and unification on China’s terms. The Greens would have preferred more firmness and less engagement. Yet so far, Ma’s strategy has the backing of the majority of island’s public, usually known as the Blue Camp. In the last election apparently, around 55 percent of voters approved of his approach while 45 percent remained skeptical or deeply opposed. 

Back to the Question of Abandonment

The fact that Ma is hedging the island’s bets should be reassuring to Americans who worry that Taiwan is, in effect, “abandoning the United States” for the sake of relations with China. Such strategic appeasement would only be happening if Taipei were willing to concede to Beijing on political and security matters. Yet Taiwan has been unwilling to abandon its claim that it is a sovereign entity and accept a solution similar to that applied to Hong Kong. Instead, it asserts what Ma calls “the sovereignty of the Republic of China.” Moreover, Taipei sees a continuing need for a deterrent against China’s use of its growing military capabilities. Even as it sees the value of enhancing Beijing’s stake in peace, it does not fully trust statements of peaceful intentions. And it is certainly not prepared to terminate its special security relationship with the United States.[7]

The more difficult question is whether the United States, for the sake of its own relationship with China, should, in effect, abandon Taiwan. China believes that U.S. political and security support for Taiwan is the primary reason it has not achieved its unification goal, because it fortifies the confidence of the island’s leaders that they can get away with refusing to negotiate on PRC terms. So Beijing believes that if it could induce Washington to end arms sales to Taiwan’s military, drop even an implicit commitment to defend the island if attacked, and support unification, its problem would be solved. So China would be very pleased if the United States abandoned Taiwan, and has suggested that if only Washington ended arms sales, U.S.-China relations would be problem free.

American analysts have offered several compelling reasons why the United States should not dissociate itself from Taiwan as long as Taiwan desires American support:[8]

• Although Taiwan has at times been the most important source of U.S.-China conflict, it is not the only one. For example, Beijing’s goals in East Asia are not limited to bringing the island back into the PRC fold. In addition, it seeks to expand its security perimeter away from its eastern and southern coast, where it was for decades. That in turn has meant that the PLA navy and air force are operating increasingly in the traditional domain of U.S. and Japanese forces.[9] Removing Taiwan as a problem would in no way end or reduce this mutual impingement; it would only change its location. Taiwan aside, Beijing would still regard American “socialization” as negative.
   
• U.S. allies and partners—Japan, the Republic Korea, and others not necessarily in the Asian region—have have much at stake in Washington’s future approach to Taiwan. Simply put, a United States that would abandon Taiwan could abandon them. Of course, there may be hypothetical reasons why America might withdraw support that stem from Taiwan’s policies rather than its own commitment. So the reasons for any abandonment would be important. But the fear remains.
   
• Whatever China says, U.S. arms are actually not the reason that Beijing has been unable to bring Taiwan “into the embrace of the Motherland.” More to the point, China has not been able to persuade Taiwan’s government and public to accept its formula, which is called “one country, two systems” and was the one used for Hong Kong. If China were to make an offer that was actually to Taiwan’s liking, it would not refuse because of U.S. arms sales. Of course, a weak and friendless Taiwan might conclude that it had no choice but to settle on whatever terms it could extract. But that is not an outcome to which Washington should be a party (nor is it really in China’s interest to gain Taiwan through intimidation).
   
• Finally, how a status quo United States and a reviving China cope with each other—their key foreign policy challenge for the rest of the century—will be played out over the next few decades in a series of test cases. North Korea, maritime East Asia, and Iran are a few of them. Taiwan is another. While active U.S. opposition to Taiwan’s unification with the Mainland would understandably lead Beijing to infer that our intentions are hostile across the board, supporting Beijing’s approach when Taipei objects would be a serious demonstration of weakness.

Should the United States concede to China on Taiwan, the lessons that Beijing would learn about the intentions of the United States would likely discourage its moderation and accommodation on other issues like Korea or maritime East Asia; in that respect, America’s friends and allies are right. Continuity of U.S. policy toward Taiwan will not guarantee that China’s actions in other areas will support the status quo, but it increases the likelihood that it will. Conversely, a China that addresses its Taiwan problem with creativity and due regard to the views on the island says something positive about what kind of great power the PRC will be. A more aggressive approach, one that relies on pressure and intimidation, signals reason for concern about its broader intentions. In this regard, Taiwan is the canary in the East Asian coal mine.

A Slippery Slope?

Even if Taipei does not make a proactive strategic decision to appease Beijing, and even if Washington does not seek to curry Chinese favor by sacrificing Taiwan’s interests, there remains the possibility that Taiwan might undermine itself through inattention or neglect. That is, Taiwan might assume that Beijing’s intentions are so benign that it is prepared to accept some version of the status quo over the long term. Yet China has a different objective—ending Taiwan’s de facto independence more or less on its terms—and it may not have infinite patience. The danger is, therefore, that a frustrated China might seek to exploit the power asymmetry between the two sides of the Strait and intimidate Taiwan into accepting “an offer it can’t refuse.”

So what can Taiwan do to forestall that day? The first thing is to not create the impression in Beijing that the door on unification is closing forever—which Taiwan is currently doing. In addition, there are things it can do at the margin to strengthen itself and therefore increase the confidence needed to resist PRC pressure.

• Economically, sustain the island’s competitiveness in shifting to a knowledge-based economy, and by liberalizing its economic ties with all its major trading partners, not just China. This will require eliminating some protectionist barriers, but the structural adjustment thus created will work to Taiwan’s benefit.
   
• Politically, reform the political system so that it does a better job of addressing the real challenges that Taiwan faces (rather than focusing on relatively superficial issues).
   
• Also politically, foster a clearer sense of what it means to say that Taiwan or the ROC is a sovereign entity, not just for its role in the international system but also regarding cross-Strait relations.
   
• Militarily, enhance the deterrent capabilities of Taiwan’s armed forces in ways that raise the costs and uncertainties for Beijing if it were ever to mount an intimidation campaign.

None of these forms of self-strengthening will be easy. But they will buoy Taiwan’s psychological confidence and reduce the chances of PRC pressure in the first place.

Because the United States has an interest in China approaching its Taiwan “test case” in a constructive manner—that is, avoiding intimidation and accommodating Taiwan’s concerns—it should help Taiwan where it can to improve its odds. The most obvious ways are economically, by drawing Taiwan into the circle of high-quality liberalization, and militarily, by supporting innovative and cost-effective ways to enhance deterrence.

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Missouri's population is spreading out, adding to the costs of providing services and infrastructure across the state, according to a new study released today by the Brookings Institution Center on Urban and Metropolitan Policy.

The 84-page study, Growth in the Heartland: Challenges and Opportunities for Missouri, reports that Missouri's population is quickly dispersing, with smaller metropolitan areas experiencing some of the state's fastest growth and residency in unincorporated areas on the rise. Though new residents and jobs fueled prosperity in the 1990s, the report finds that growth has slowed in the past year, and suggests that the state's highly decentralized development patterns could become troublesome as Missouri contends with a slowing economy and serious budget deficits.

Sponsored by the Ewing Marion Kauffman Foundation, Growth in the Heartland provides the most comprehensive and up-to-date body of research and statistics yet assembled analyzing the direction, scope, and implications of development in Missouri. In addition to assessing the consequences of those trends for the state's fiscal health, economic competitiveness, and quality of life, the report addresses the potential role of state and local policy in shaping those trends in the future. Specific findings of the report conclude that:

• Growth in the Columbia, Springfield, Joplin, and St. Joseph metropolitan areas strongly outpaced that of the Kansas City and St. Louis metropolitan areas in the 1990s. Altogether the four smaller areas captured fully one-quarter of the state's growth and doubled the growth rate of the Kansas City and St. Louis areas.
  
  
• Population and job growth also moved beyond the smaller metro areas and towns into the state's vast unincorporated areas. Overall, residency in these often-outlying areas grew by 12.3 percent in the 1990s—a rate 50 percent faster than the 8.1 percent growth of towns and cities.
  
  
• Most rural counties reversed decades of decline in the 1990s, with eight in ten rural counties experiencing population growth and nine in ten adding new jobs. By 2000, more rural citizens lived outside of cities and towns than in them, as more than 70 percent of new growth occurred in unincorporated areas.

"Missouri experienced tremendous gains during the last decade, but the decentralized nature of growth across the state poses significant fiscal challenges for the future," said Bruce Katz, vice president of Brookings and director of the policy center. "The challenge for Missouri is to give communities the tools, incentives, and opportunities to grow in more efficient and fiscally responsible ways."

The Brookings Institution Center on Urban and Metropolitan Policy is committed to shaping a new generation of policies that will help build strong neighborhoods, cities, and metropolitan regions. By informing the deliberations of state and federal policymakers with expert knowledge and practical experience, the center promotes integrated approaches and practical solutions to the challenges confronting metropolitan communities. Learn more at www.brookings.edu/urban.

      

*A slightly modified version of this commentary appeared in The Springfield News-Leader on October 24, 2004.

The Missouri gubernatorial race is going down to the wire, and guess what? Contentious social and moral issues are predominating.

Last week Republican Matt Blunt questioned McCaskill's values, saying his stand against gay marriage matched the values of mainstream Missourians.

For her part, McCaskill, the Democratic state auditor, has parried Blunt on gays, guns, and abortion by insisting that Republicans don't have a lock on values just because Democrats like her don't wear religion on their sleeves.

Look for more sniping on gays, guns, and abortion as the campaigns careen toward election day.

Which would be too bad.

Missouri—and particularly the Springfield region—needs to talk about some other things this fall.

In a major statewide report, "Growth in the Heartland: Challenges and Opportunities for Missouri," after all, we argued that Missouri today faces an outright land-use, environmental, and competitive crisis that has little to do with gay marriage or concealed-carry gun rules.

The crisis is not new—we described it two years ago—but the fact remains that Missouri's chaotic style of low-density development is gobbling up the state's rural heritage, gutting towns and cities, and exacting a heavy toll on Missourians' pocketbooks and quality of life just when the state needs to compete at a higher level on exactly those factors.

Just look around the Springfield area:

Forty-five percent of the region's growth in the 1990s took place in the unincorporated "open country," the exurban places often least equipped to manage it.

Strip malls and home sites are chewing up the region's beautiful Ozarks scenery.

And all the while newcomers are flocking to small outlying towns like Willard, Republic, Clever, Niza, and Ozark—all of which hit "hypergrowth" in the 1990s and struggle to keep up.

As to the results, they have been predictably mixed: New jobs and vitality have been accompanied by the water-quality problems that have fouled Lake Taneycomo and Table Rock Lake. Taxes are increasing as local governments strain to provide the necessary roads, services, or sewer hook-ups. And with more sprawl coming, more traffic and mini-malls could soon undercut the region's reputation as the quaint heartland of rural America.

Why do these trends matter? For some the concern is cultural. They fear the state is losing its rural heritage. For others the threat is environmental. They are disturbed by the degradation of the Ozark lakes and other nearby natural areas.

However, for us the concern is mostly economic: By remaining virtually laissez faire on growth and development issues, we fear the Show Me State is undercutting its ability to parlay its very real assets into a broader prosperity.

Spread-out development patterns, for example, raise costs in the state for businesses and individual taxpayers. That's because highly dispersed development often increases the capital and operations costs of roads, sewer lines, schools, and police or fire services.

Similarly, Missouri's dispersed development adds to the size of the state's enormous—and crumbling—highway system. Missouri taxpayers consequently struggle with a maintenance backlog that will require half a billion dollars a year over the next 10 years—some $200 million more than current finding will provide.

And likewise, we suspect that the state's spread-out, low-quality development diminishes Missouri's appeal to highly educated workers—that critical factor if the state is going to appeal to entrepreneurs, well-educated retirees, and leading-edge techies and scientists.

This is especially important in the Springfield region, where the recent boom has clearly been built on the appeal of the region's improving downtown and cultural facilities, high quality of life, and stunning natural beauty.

And so we say it again—Missouri and the gubernatorial candidates need to face up to some tough realities this fall:

• Missouri can't afford to keep sprawling, even with tax revenues stronger this year. So Blunt and McCaskill need to tell Missourians how they will foster more efficient, less chaotic growth that doesn't break the bank

Or take the highway issue: Notwithstanding rural pleas for new blacktop, Missouri can't afford to keep building new roadways as it tries to dig itself out of the maintenance hole it's paved itself into. Blunt and McCaskill should also say how they will modernize the state's flagging transportation system while aligning it with the principles of sound land-use and fiscal sanity

And what about the whole connection of economic energy to strong cities and higher education? Growth now depends on brainpower and quality of life. For that reason, the candidates owe it to Missourians to detail how they will bolster the quality and accessibility of Missouri's colleges and universities, given the state's inadequate state fiscal system. And they should likewise explain how they plan to revive the state's flagging town and city centers both for the benefit of residents and to attract and retain the best and the brightest for the future

Missouri, in sum, stands at a crossroads.

Other heartland states, like Michigan and Pennsylvania, now recognize the links between educated workers, strong urban and rural centers, and economic competitiveness—and are taking action. Missouri needs to face up to the challenge.

Similarly, other states are moving to reap the fiscal benefits of nudging development into more sensible patterns, so Missouri should think about that too.

As to the agitations of wedge issues like abortion and concealed weapons or gay marriage, Missourians should take them in stride. "Values" are important, sure, but at the same time, there's a land-use and competitive crisis underway in Missouri that both the candidates and voters ignore at their peril this election.

       

Earlier this month, Missouri voters overwhelmingly rejected a 10-year, 3/4 cent sales tax increase to boost statewide transportation investment. With local referendums an increasingly popular method to raise transportation funding in an era of federal uncertainty, the result has lessons for Missouri’s transportation interests and the country as a whole.

Like many states, Missouri has a clear infrastructure deficit. A legislatively-mandated citizens committee found the state needs an additional $600 million to $1 billion in investment per year. The problem is finding the money. Outside of federal funds, the state primarily relies on a 17.3 cent gasoline tax and local property taxes to fund transportation projects, plus location-specific revenue streams like a half-cent sales tax in St. Louis city and county. Yet with Missouri residents driving less in recent years—down 5 percent per capita between 2000 and 2012-—there is less money available to fund critical projects.

This vote offered one remedy. The statewide bump in sales tax would’ve generated upwards of $5 billion over the ten-year period. The new monies would go to 800 projects across Missouri, primarily for roadways. The governance was a similarly unequal split, with the state department of transportation directly controlling all but 10 percent of the new revenue.

And this is where the referendum’s problems become clear. While each of the state’s seven transportation districts managed their own project list, there was no guarantee local sales taxes would be spent on local projects. There were also legitimate questions whether a heightened focus on roadways made sense in the face of falling statewide driving. This was at the heart of the opposition argument, led by Missourians for Better Transportation Solutions.

In many ways, the Missouri results reflect what happened in a failed 2012 Atlanta referendum. That transportation package contained a hodgepodge of road and rail projects, barely increased connectivity across the sprawling metro region and couldn’t align local interest groups. Much like Missouri, Atlanta has clear transportation needs—but voters sensed the current plan wouldn’t do enough to adequately improve their commutes and livability.

As Missouri’s transportation leaders regroup, they’d be wise to follow the “economy-first” lesson of successful referendums in places like Los Angeles, Denver and Oklahoma City. The common thread in all three was a great job proving the need for greater infrastructure investment. But as my colleagues outlined in a recent report, they also captured how transportation could support industrial growth and metro-wide economic health. Americans have proven time and again they’ll pay for transportation projects, but they want to know what they’re getting and how it will benefit their communities.

In this sense, I’m heartened by a recent Kansas City Star editorial related to their failed streetcar vote the same day. Even with a failed vote, the metro area still needs a better infrastructure network. The key is for public, private and civic leaders to continue working with the public to determine which transportation investments will best support regional economic growth for decades to come.

Ballot measures may fail, but they’ll always provide lessons to improve the plans that will pass.

       

The full story of the killing of Michael Brown, a young, black, unarmed man shot by a policeman in Ferguson, Missouri, is still unfolding—and the truth will not be known for some time. It is only after full investigations are completed that an objective evaluation of the incident can be made. Nonetheless, there is no doubt that the killing of the young man was unfortunate and has generated a serious debate about race relations in America, and on the relations between police and the communities that they are supposed to protect. The riots and massive looting portrayed not only the extent of criminality in America’s inner cities, but also the economic marginalization of the minority communities.

Coming not long after the successful U.S.-Africa Leaders Summit held in Washington, the Ferguson incident and the follow-up demonstrations have been rather unfortunate in as far as how Africans view America—in a way questioning America’s standing as a protector of human rights. The hostility towards the United States in regard to its treatment of African-Americans has dominated social media with claims that the incident shows that America should not claim leadership when it comes to human rights. Such criticisms by many other countries, including Russia and China, are widespread.

I was particularly surprised by the comments in the Kenyan media coverage of this topic. Here are some statements on the topic by readers of the most popular paper there—the Daily Nation:

(This is an apparent reference to the fact that the United States government issues travel advisories to countries like Kenya when such incidents occur and there are riots.)

(This statement is in reference to the U.S. government’s actions following the 2007-2008 post-election violence in Kenya.)

       

Nigeria is facing a confluence of troubles: dramatically reduced oil prices have pummeled a country that depends on oil exports for two-thirds of its national revenues; the Boko Haram insurgency continues to wreak havoc particularly in the north of the country, where suicide bombings (many of which are now carried out by kidnapped girls) have killed hundreds; and corruption remains a drain on the country, which ranked 136th out of 168 countries on Transparency International’s 2015 Corruptions Perceptions Index.

But amidst this, Nigeria completed its first peaceful transition of power nine months ago—to Muhammadu Buhari, who has since made some progress in reforming the military, sacking corrupt leaders, and injecting energy into the counter-Boko Haram campaign. 

On February 29, the Africa Security Initiative at Brookings hosted a discussion on the current state of Nigeria, featuring EJ Hogendoorn of the International Crisis Group, Madeline Rose of Mercy Corps, Mausi Segun of Human Rights Watch, and Amadou Sy from Brookings. Brookings’s Mike O’Hanlon moderated the conversation.

As O’Hanlon argued at the start, Nigeria is one of the most important countries in the world, but appears little in policy debates. Nigeria is sub-Saharan Africa’s largest economy, and security risks emanating in the country can have spillover effects. All of the participants stressed that Nigeria should factor more centrally in conversations about international security, economic development, and humanitarian issues.

Nigeria’s ups and downs

O’Hanlon started by framing three overlapping challenges in Nigeria:

• The struggle against Boko Haram, which is more complicated than a pure terror group, but has also pledged loyalty to ISIS.
• The question of reform, to include the army, the police, and the entire government.
• The state of the economy, since Nigerian livelihoods need to be improved if there is any hope to handle the first two situations. 

Hogendoorn praised the peaceful transition of power to President Buhari, calling it a “stunning achievement” for the country and those who helped from the outside. However, the problems facing Nigeria—namely the insurgency in the Niger Delta, declining oil prices, and corruption and government mismanagement (at state and federal levels)—are large, he said. He argued that declining oil prices and income are impacting the government’s ability to fulfill promises, and that state governments are powerful and difficult to reform. He praised some anti-corruption institutions in Nigeria, as well as a number of effective governors who have changed corruption situation dramatically over a short period of time. But in the end, he said, it comes down to good leadership. The Nigerian people must demand accountability. 

Rose detailed how things have changed in Nigeria since Mercy Corps became heavily involved in the area in 2012. Mercy Corps’ main missions there include violence reduction, education, and creating opportunity for young girls, as well as humanitarian response. While there has been progress on chronic violence in Nigeria, particularly in the northeast of the country, Rose stressed that there is much to be done. She concluded that there is not enough attention to the human element of the crisis. For example, Rose noted that displacement is common across the Northeast. The displaced are mainly women and children. In the displaced groups, the eldest becomes de facto head of household—sometimes forcing leading adolescent girls to turn to selling sex for food or money for food. Rose called on the government to address this. 

Segun agreed that the focus needs to change regarding crisis response in Nigeria. In the past, the focus has been almost entirely on a military response. This has not been a workable plan, she said, partly because the “military operates above the law.” The reforms in Nigeria must have a social component, Segun argued. Lack of access to opportunity, economic problems, and desertification of major water bodies have all combined to drive farmers and fisherman from the Northeast and into the heart of the conflict. 

Sy returned to the importance of economic interests in resolving the crises in Nigeria. He reminded the audience that the country is the largest economy of sub-Saharan Africa, and that is important for the entire continent. Since two-thirds of the government revenue comes from oil, the oil shock has dealt a huge blow. But there is hope for Nigeria, Sy noted. One reason is stimulus via investment outside the oil sector. There has been an increase in infrastructure spending, as well as on human development (namely in education and health). In both cases, he said the biggest issue will be implementation. Sy gave four recommendations to the Nigerian government: 1) increase infrastructure expenditure, 2) make government more lean and cost-effective, 3) increase taxation in non-oil revenue items, and 4) reduce corruption. 

Overall, the participants expressed cautious hope for Nigeria despite the problems it faces. The government there still has a long list of to-do’s, but there is reason to believe that it is on the right general track.

      

We are kicking off the new Millions Learning video series with a spotlight on Teach For All, one of the 14 case studies examined in the Millions Learning report. Teach For All is an international network of local, independent partner country organizations dedicated to improving educational opportunities for children and youth around the globe. From China to Bulgaria to Peru to Ghana, each partner organization recruits and trains recent top-performing graduates and professionals to teach in their country’s underserved communities for two years, with the ultimate goal of developing a cadre of education leaders, both inside and outside of the classroom.

In this video, Wendy Kopp, CEO and co-founder of Teach For All, discusses Teach For All’s unique approach to building a pipeline of future “learning leaders and champions” and the role that a supportive policy environment plays in enabling this process. Kopp then explains how Teach For All grew from the original Teach For America and Teach First in the United Kingdom to an international network of 40 partner countries, sharing her own lessons learned along the way.

To learn more about Millions Learning, please visit our interactive report, Millions Learning: Scaling up quality education in developing countries, and/or visit our webpage.

Video

• Getting millions to learn: Interview with Wendy Kopp of Teach For All

       

Extreme poverty around the world has decreased from around 2 billion people in 1990 living under $2 per day to 700 million today. Further, nine out of 10 children are now enrolled in primary schools, an increase over the last 15 years. Progress in both areas since 2000 has been part of the United Nations Millennium Development Goals, which set targets for reducing extreme poverty in eight areas, and which were the guiding principles for global development from 2000 to 2015. Today, the global community, through the UN, has adopted 17 Sustainable Development Goals to continue these poverty reduction efforts. 

In this new episode of Intersections podcast, host Adrianna Pita engages Brookings scholars Laurence Chandy and Rebecca Winthrop in a discussion of how digital technologies can be harnessed to bring poverty reduction and education to the most marginalized populations.

Listen:

Chandy, a fellow in the Global Economy and Development program at Brookings, says that the trends in getting people digitally connected "are progressing at such speed that they’re starting to reach some of the poorest people in the world. Digital technology is changing what it means to be poor because it’s bringing poor people out of the margins.”

Winthrop, a senior fellow and director of the Center for Universal Education at Brookings, says that "I think [education] access is crucial. And I do think that’s almost the first wave because without it we could work on all the ed tech—fabulous apps, great language translated content—but if you do not have the access it’s not going to reach the most marginalized."

Listen to this episode above; subscribe on iTunes; and find more episodes on our website.

Chandy was a guest on the Brookings Cafeteria Podcast in 2013; Winthrop has been a guest on the Cafeteria a few times to discuss global education topics, including: access plus education; investing in girls' education; and getting millions learning in the developing world.

       

       

       

       

       

       

       

       

       

Event Information

The Brookings Doha Center (BDC) hosted a panel discussion on April 19, 2016, about the ongoing reconstruction of the Gaza Strip. The panelists included Omar Shaban, director of Pal-Think, a research institution based in Gaza; and Naglaa Elhag, head of rehabilitation and international development at the Qatar Red Crescent Society (QRCS). Sultan Barakat, the BDC’s director of research, moderated the event, which was attended by members of Qatar’s diplomatic, academic, and media community.

Barakat opened by noting the slow progress of reconstruction in Gaza. Almost two years since the cessation of hostilities between Hamas and Israel, the rebuilding process has stalled for a number of reasons. First, the distribution of aid money pledged by donor countries during the October 2014 Cairo Conference has slowed. According to the World Bank, as of March 31, 2016, donor countries had dispersed only 40 percent of the pledged money. At the current rate, the fulfillment of all pledges will not occur until 2019, two years after the target date. Second, construction materials only enter Gaza from one border crossing. As a result of the sluggish rebuilding process, only 9 percent of totally damaged houses and 45 percent of partially damaged houses in Gaza have been repaired, leaving over 14,800 families internally displaced. Additionally, job opportunities promised by various construction projects have failed to materialize, leading to increased feelings of desperation and frustration among Gaza’s population.

Shaban expanded on these developments, expressing the notion that the people in Gaza feel neglected. Due to the high levels of frustration, he feels that a new round of hostilities between militants and Israel could happen at any moment. He explained further by highlighting the volatility of the area and mentioning how previous conflicts were easily ignited by an array of incidents: a kidnapping, a cross-border raid, an assassination, continuous rocket fire. Since frustration among Gazans continues to mount, arguably to its highest level, renewed conflict seems almost certain. Consequently, Shaban argued, fear of another round of conflict between Hamas and Israel has instilled a sentiment of donor fatigue. Donors do not want to see their support go to waste in another round of destruction, turning the delivery of assistance into an exercise of futility.

Shaban attributed this attitude among some donors to the lack of a political solution to the crisis in Gaza. Hamas, the de-facto governing authority in Gaza, does not work for the people, nor does the Palestinian Authority (PA), based in Ramallah. Neither body provides economic opportunities for Gazans, as those employed by either the PA or Hamas often do not receive their salaries. Reconciliation talks between both groups failed to establish a unity government. Egypt, Israel, and the United States would feel more comfortable negotiating with a unity government, presumably dominated by the PA, not Hamas, which each of the aforementioned countries designate as a terrorist organization. If the PA does reach an agreement with Hamas, Egypt has implied that it would open its border with Gaza at Rafah, as long as the PA stations a security presence at the crossing. This could enhance the slow trickle of construction materials into Gaza, allow for the increased export of commercial goods, and also enable Gazans to leave and return at a higher rate than currently permitted. According to Shaban, opening another access point for Gaza to the outside world would temporarily ease the burden faced by Gaza’s citizens, but the current crisis requires a solution to ameliorate the economic and political situation in the long term.

Elhag opened her remarks by reviewing the difficulties of implementing aid projects in Gaza. While working in Gaza for the QRCS, she noticed little progress from international agencies, as they do not address the main problems, typically taking short cuts, which she highlighted by stating, “We don’t treat the wounds, we cover it with a bandage.” To elaborate on this point she mentioned that lack of access in and out of Gaza and the Israeli naval blockade as two factors hindering reconstruction. Due to these restrictions, aid workers have difficulty entering Gaza. Elhag surmised that the lack of accountability on the part of international agencies and the Israelis and the fear of aid projects being destroyed again because of the political situation both contribute to the stalled reconstruction, producing grim realities in Gaza.

Furthermore, Elhag explained that a resolution to the Gaza crisis does not rest on the distribution of money. She believes that only solutions from both sides of the conflict will end the suffering in Gaza. To exemplify the frustrations felt by donors, Elhag noted that since 2008, QRCS invested $100 million in housing units and other aid projects in Gaza, but some of these projects were destroyed during the 2014 war. QRCS observed this and shifted their focus to securing food sources and enhancing the education and health sectors in Gaza.

At the conclusion of Elhag’s observations, Barakat asked the panel where the money donated for reconstruction goes and how the Gaza reconstruction mechanism (GRM) works. Shaban described how the money actually gets funneled through the PA’s ministry of finance in Ramallah, before it reaches Gaza. Hamas officials or members of Gaza’s civil society do not oversee any aspect of aid distribution. So from the start, the distribution of funds lacks transparency, as the PA gives the money to the U.N. office in Gaza, which administers the GRM. From there, the United Nations composes a list of people in Gaza that require construction materials. The Israeli administrative body in the ministry of defense, the Coordination of Government Activities in the Territories (Cogat), must approve the names on the list. Construction materials can then be distributed through the GRM. Shaban concluded his explanation of the GRM by noting the many levels of bureaucracy involved have created a slow distribution process for a populace in desperate need.

From the regional perspective, some Arab states’ past political differences with Hamas has stymied political progress in Gaza, but the panel agreed that some of these relationships, especially with Saudi Arabia, are on the mend. The work of regional actors like Egypt, Qatar, Saudi Arabia, and Turkey could help push a reconciliation deal between Fatah and Hamas. Shaban proposed allowing some Hamas members to take part in any future coalition government, as some of their relationships in Sinai could help Egypt secure the troubled region. Cooperation on security matters between Egypt and Hamas could inspire enough confidence in the Egyptians for them to open the Rafah crossing.

Ending the discussion, Barakat clarified the proposals of the panel by reiterating the need for donors to fulfill aid pledges. The GRM needs reform, especially through the inclusion of Gaza’s civil society in the reconstruction process. Finally, reconciliation between Fatah and Hamas, as well as Egypt and Hamas, would help foster security cooperation at the borders.

Video

• Reviving the stalled reconstruction of Gaza

Transcript

• Event Transcript (.pdf)

Event Materials

• gaza transcript

       

“We are not buildings artists; we are buildings leaders in society.” 

These stirring words of Juliano Mer Khamis, the charismatic founder of The Freedom Theatre (TFT) in Jenin refugee camp in Palestine, are coming true, despite his assassination five years ago. 

Against all odds, The Freedom Theatre, a beacon of creativity, discipline, and vision located in the heart of Jenin refugee camp, recently celebrated its tenth anniversary. Known for its fierce fighters and its conservatism, Jenin refugee camp, where over 16,000 live on one square kilometer, increasingly is known as well for its art. 

Juliano Mer Khamis returned to Jenin during the second Intifada to find his mother’s Stone Theatre (Arna’s Children tells her story) reduced - like so much of the camp—to rubble by Israeli tanks, and many of his mother’s student actors killed. In 2005 he joined forces with Jonatan Stanczak, currently Managing Director of TFT and Zakaria Zbeidi, a “Stone Theatre child” turned head of the Al-Aqsa brigades in Jenin, who later renounced militancy for cultural resistance. Together they rebuilt a theater in the camp, which evolved into The Freedom Theatre. 

Mer Khamis urged his acting students to wage a cultural intifada, warning that the occupation of the mind was more dangerous than the occupation of the body. Unlike many charismatic leaders, Mer Khamis developed an institution, not a cult of personality (even though he was adored). Following Juliano’s untimely and unsolved murder in 2011 — he was shot sitting in his car just outside the theater, with his infant son in his lap - the devastated theater soldiered on, a living testament to the powerful impact of his teaching and vision.

“When Juliano died he gave us the strength to continue and he showed us the strength we had in ourselves, so we kept going,”

Ahmad Matahen, age 24, a typical “child of The Freedom Theatre”, explained to me. Matahen joined in 2006; first as an actor, then as Juliano encouraged him to discover and exploit his individual talents, he moved into technology, engineering and stage design. He now studies stage design in Bethlehem, with the support of TFT, where he hopes eventually to work.

What a different future than Matahen might have had, if Mer Khamis had not invited in this street youth who had mocked the theater, and expressed his anger and frustration by throwing rocks at Israeli tanks. Matahen described the common attitude in Jenin:

“When you go to the camp and ask people what they want, they say they want to die. They have no jobs, no hope.”

When asked what he missed most after Juliano’s death, Matahen said “hugs”, something no one besides Juliano gave him. As a teenager, Ahmad, like so many of his contemporaries, saw his friends killed by the invading/occupying Israelis. Considered against the backdrop of trauma that pervades the camp, hugs are no small thing. They form the foundation for the self-confidence and sense of purpose that Matahen has gained from The Freedom Theatre.

High school dropout Ameer Abu Alrob defied his family and left his village to live and work at The Freedom Theatre. He traveled to India last year with a TFT group that also included two female acting students, for a ground-breaking, three-month Palestinian-Indian collaboration and tour with Janam Theater. Ameer and half of the other Palestinian student actors had never previously traveled outside Palestine, much less flown in a plane.

Through his experiences Ameer is not only broadening the horizons of his family and village, but, importantly, also introducing them to their own history through The Freedom Theatre productions such as The Siege. (One of the reasons Ameer dropped out was that school taught him nothing about his own environment and history).

Performed to date in Palestine and Great Britain, The Siege brings to life on stage the incident in 2002 during the second Intifada when armed Palestinian fighters along with some two hundred Palestinian civilians escaped the onslaught of Israeli gunfire and tanks by taking refuge in Bethlehem’s renowned Church of the Nativity. The trapped Palestinians - without food, water, or medical supplies - struggled to remain “steadfast”. After thirty-nine days, they surrendered, responding to the plea of a young mother whose baby’s life was at risk because the siege prevented her taking the infant to the hospital.

This decision, which reflected the fighters’ firm belief that the goal of their struggle was to help the Palestinian people, cost the insurgents dearly. In a European-brokered deal, they were exiled immediately upon exiting the Church — some to Europe and some to Gaza — with no hope of return (even though the European exile was supposed to last one year).

Nabil Al-Raee, The Freedom Theatre’s artistic director, explained that he wanted to re-open this important incident to present the Palestinian side, absent in the media. “This is the first time that we speak about these freedom fighters and tell their stories.” One and a half years of research, with travel to Europe and skype conversations with Gaza to interview those in exile, including personal friends of Al-Raee’s, were distilled into a visually stunning and dramatically taut production.

“The lesson of The Siege was putting weapons down,” 

according to one of the actors, Faisal Abu Alhayjaa, referring to the essential humanity of the Palestinian fighters, who would not harm a sick child for the sake of their cause.

This powerful message apparently was lost on New York’s acclaimed Public Theater which cancelled the production scheduled for this May. This alarming trend of performances cancelled/censored (take your pick) for political reasons will be examined at a conference at Georgetown University this June, where Al-Raee will speak.

Undeterred, The Freedom Theatre and its resolute supporters currently are seeking other American venues for The Siege. While some may see Palestinians on stage with machine guns, others, including sold-out audiences during The Siege‘s recent British tour, see, in the words of the Guardian review, “an unexpectedly compelling theatrical experience with a rough and ready energy, and in the very act of its telling, speaks for the voiceless and forgotten”.

In the tinderbox that is Israel-Palestine, The Freedom Theatre defies its seemingly hopeless environment, and is making a tangible difference in Jenin camp and beyond. Another child of the Theatre, an actor in The Siege and in the forthcoming feature film The Idol, Ahmed Al Rokh, described the change.

“We can feel the difference in the camp. Our audience is growing because the kids who first came now have families, and bring them. Now they understand that the theatre works for us and with us.”

In contrast to the situation in the developed world, where art is often considered discretionary, Faisal Abu Alhayjaa described art and culture in Palestine as “essential like water and bread”. Inspiring as it is, The Freedom Theatre’s story is not unique. The Palestinian Performing Arts Network (PPAN) includes many ensembles and organizations striving for dignity and agency through art.

Abu Alhayjaa sees the education and empowerment that comes through working in the arts generally, and The Freedom Theatre specifically, as vital to Palestine’s future.

“If there will be a liberation for Palestine, it will come with a generation that knows what they want, and that knows to think critically.”

That generation is being trained at The Freedom Theatre.

This piece was originally published by The Huffington Post.

       

Two years after Hamas and Israel agreed to a cessation of hostilities, reconstruction in Gaza has been painfully slow. This was the focus of a panel discussion at the Brookings Doha Center on April 19. As Senior Fellow and Director of Research Sultan Barakat explained, rebuilding has stalled in part because the distribution of aid money pledged by donor countries during the October 2014 Cairo Conference has slowed; according to the World Bank, donor countries had dispersed only 40 percent of the pledged money as of the end of March. At this rate, the pledged funds will not be dispersed until 2019, two years after the target date.

Moreover, construction materials only enter Gaza through one border crossing and must be cleared by layers of bureaucracy. As Omar Shaban—director of Pal-Think, a research institution in Gaza—explained, money for Gaza reconstruction is funneled through the PA’s ministry of finance in Ramallah, which transfers it to the U.N. office in Gaza. The United Nations composes a list of people in Gaza that require construction materials, and the Coordination of Government Activities in the Territories (Cogat)—an Israeli administrative body in the ministry of defense—must approve the names on the list. The U.N. then distributes construction materials. Shaban emphasized that the bureaucratic nature of this process has slowed reconstruction considerably, adding that the process isn’t transparent enough, since neither Hamas officials nor members of Gaza’s civil society oversee any aspect of aid distribution.

As a result of the sluggish rebuilding process, Barakat said, only 9 percent of totally damaged houses and 45 percent of partially damaged houses in Gaza have been repaired, leaving over 14,800 families internally displaced. Meanwhile, promised job opportunities in construction projects have failed to materialize, exacerbating feelings of desperation and frustration among Gaza’s population.

[T]he process isn’t transparent enough [said Shaban], since neither Hamas officials nor members of Gaza’s civil society oversee any aspect of aid distribution.

Shaban agreed that people in Gaza feel neglected. With high levels of frustration, he expressed fear that a new round of hostilities between militants and Israel could begin at any time. Previous conflicts were easily ignited—by a kidnapping, a cross-border raid, an assassination, or continuous rocket fire. Shaban argued that the volatility of the situation may be heightening fatigue among donors, who do not want to see their support go to waste in another round of destruction.

Naglaa Elhag, head of rehabilitation and international development at the Qatar Red Crescent Society (QRCS), discussed the difficulties of implementing aid projects in Gaza. She argued that international agencies do not always address the main problems and typically take shortcuts, saying of her own organization and others: “We don’t treat the wounds, we cover it with a bandage.” She highlighted various factors slowing reconstruction, including the lack of accountability on the part of international agencies, fears of renewed conflict, and the Palestinian political stalemate. Since 2008, according to Elhag, QRCS invested $100 million in housing units and other aid projects in Gaza, but some were destroyed during the 2014 war. As a result, QRCS shifted its focus away from physical reconstruction and towards food security, education, and health. 

A related problem is the Palestinian political stalemate. According to Shaban, neither Hamas (the de-facto governing authority in Gaza) nor the Palestinian Authority (PA, based in Ramallah) provides economic opportunities for Gazans, and those nominally on Palestinian government payrolls often do not receive their salaries. Reconciliation talks have failed to establish a unity government, making Egypt, Israel, and the United States reticent to negotiate. Egypt has indicated that if the PA does reach an agreement with Hamas, it would open its border with Gaza at Rafah (presuming the PA has a security presence there). This could increase the flow of construction materials into Gaza, allow for the increased export of commercial goods, and enable Gazans to come and go more frequently. But while opening another crossing for Gaza would temporarily ease the burden faced by the people there, Shaban stressed that a long-term political and economic solution is needed. Elhag, too, emphasized that a resolution to the Gaza crisis isn’t about the distribution of money—rather, she believes a joint Israeli-Palestinian solution is needed to end the suffering in Gaza. 

In the past, tensions between some Arab states and Hamas have also hampered progress in Gaza, but the panelists agreed that some of these relationships—especially with Saudi Arabia—are on the mend. Regional actors like Egypt, Qatar, Saudi Arabia, and Turkey could help push a reconciliation deal between Fatah and Hamas, which would help improve the situation in Gaza. And as Barakat stressed in conclusion, there is an urgent need for donors to fulfill aid pledges and for the Gaza reconstruction mechanism to become more inclusive, so that Gazans themselves can more fully participate in rebuilding their neighborhoods. 

       

As the two-year anniversary of the last round of conflict in Gaza approaches, the inhumane conditions to which 1.8 million Palestinians are being subjected threaten to reach boiling point by the summer months, when the lack of access to water and electricity - available for a maximum of eight hours a day - combined with the oppressive heat and the lack of a reconstruction progress, could exacerbate frustrations, culminating in a new cycle of violence.

Despite the relative calm since the August 26, 2014 ceasefire between Israel and Hamas, there have been more than 20 serious incidents that involved incursions, air raids, and missile exchanges with 23 Palestinians killed in the Gaza Strip since December 2015.

As antagonistic verbal exchanges between Hamas and Israel continued over the past few months, scenes of rising violence in the West Bank and Jerusalem - seemingly outside the control of Hamas and the Palestinian Authority (PA) - started to further fuel people's frustration, thus adding to the volatility of the situation.

Reconstruction of Gaza

The Israeli/Palestinian question has become notorious for the international community's inaction.

Nevertheless, the reconstruction of Gaza is one area where action is not only possible but is also badly needed from both strategic and humanitarian perspectives.

The estimates for how much construction has been completed vary depending on the source, and range from about 17 percent (3,000) of the approximately 18,000 homes destroyed or severely damaged in July/August 2014 according to the UN Office for the Coordination of Humanitarian Affairs; to 9 percent by the World Bank, or to "nothing" by the average Gazan.

Regardless of the exact figure, the fact remains that more than 75,000 people remain displaced across Gaza as a direct result of the July/August 2014 war, a problem made worse by insufficient funding.

There are many factors to explain the slow progress. Chief among them is the continued Israeli blockade; the underlying cause of all the wars in Gaza since Israel’s unilateral withdrawal in 2005.

Egypt's refusal to open the Rafah border crossing without the presence of the PA, along with the Palestinians' inability to activate a unity government, makes the situation even worse.

However, one controversial factor that has received little attention is the UN's Gaza Reconstruction Mechanism (GRM).

The GRM is a complicated system of surveillance intended to: "a. Enable the GoP to lead the reconstruction effort; b. Enable the Gazan private sector; c. Assure donors that their investments in construction work in Gaza will be implemented without delay; d. Address Israeli security concerns related to the use of construction and other 'dual use' material" (UN, October 2014).

By attempting to be both the humanitarian and the jailer at the same time, the UN has fast become the recognizable face of the blockade.

Moral legitimacy

Two years into the reconstruction process, it is now clear that the GRM not only poses difficulties for the people of Gaza seeking to rebuild their homes - as it forces them to wait for a long time before they receive any construction materials - but also, more importantly, erodes the moral legitimacy of the role of the United Nations in Gaza.

For more than 70 years, the UN in Gaza has been associated largely with the work of the United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA).

While the Palestinian people have come to accept that the UN cannot resolve their problems, they still expect that it should at least attempt to take an impartial position, and on occasions adhere to its own values by acting as a witness and speaking up against the atrocities that Palestinians face.

With the GRM, the role of the UN changed. The humanitarian imperative that the UN clings to as it delivers aid in the occupied Palestinian territory is no longer neutral.

In fact, in order to facilitate the flow of construction material under the GRM, the UN is increasingly seen as favoring the status quo and siding with the one with power - Israel.

Arguably, among the four main objectives behind the establishment of the GRM, the one related to Israel's security interest seems to take precedence all the time.

Under the current arrangements, a person seeking construction materials must first go to the GRM administrator to be placed on a list. Once their name reaches the top of the list, the Israeli Coordinator of Government Activities in the Territories (COGAT) must approve of the request before the distribution of any materials. The process between COGAT and the GRM can take weeks.

The sight of UN personnel in armored vehicles accompanying sacks of cement (to ensure delivery and use as proposed) incenses the population of Gaza, as they view this practice as the UN placing a higher value on the protection of construction commodities than on human life.

Complex politics of occupation

The inability of the GRM to engage the local population has alleviated tensions over the past two years. During the conception of the GRM, the civil society of Gaza did not participate in the formation of policies governing the distribution of reconstruction materials.

Only the United Nations, the Israeli government, and the PA devised the plan to rebuild Gaza. Due to their pre-determined position to deny Hamas any opportunity of engagement, the process effectively resulted in excluding citizens and civil society organizations, which was a big mistake.

Nickolay Mladenov and other senior UN officials understand well that the GRM has fallen victim to the complex politics of occupation and resistance.

It is being used every day to punish or "incentivize" Hamas and/or to frustrate any possibility of reaching an understanding between Gaza and the West Bank.

It has also provided a fig leaf to the Egyptian President Abdel Fattah el-Sisi which allowed him to close his borders while pursuing a doomed-to-fail securitization agenda in Sinai.

Its lack of effectiveness has also provided many donors with the excuse to not honor their pledges, thus compounding the suffering.

In short, the situation in Gaza requires immediate action. Regardless of whose fault it is that the GRM has not been able to alleviate the suffering of the people of Gaza, it seems appropriate for the United Nations to admit to the failure of the mechanism and even to withdraw its services.

In fact, a walkout by the UN from administering the crossing and use of construction material is not only the right thing to do morally, but might also force constructive action from Israel, EU governments, the Gulf states, and the US as well as Hamas and the PA.

Given the security concerns in Iraq, Syria, Egypt, and elsewhere, the international community would not stand by and allow for a complete meltdown in Gaza.

The alternative is to continue to deny the reality of the mechanism and to watch the grievances of Palestinians in Gaza reaching an unresolvable level that explodes into another violent round of conflict, worse than the last.

This piece was originally published on Al Jazeera English.

       

On May 17, Egyptian President Abdel-Fatah el-Sissi did something Egyptian presidents have done many times before: he urged Israel and the Palestinians to renew negotiations for peace, this time by backing an international conference promoted by the French foreign minister.

But what made Sissi’s call particularly interesting is that he called on not just the leaders but also political "parties" to seize what he called “a real opportunity to find a long-awaited solution.” Sissi's call offered Israeli Prime Minister Benjamin Netanyahu an opportunity to accommodate Israel's newest best friend, Sissi, rather than the French themselves. It would not have brought peace, of course: though an international conference would offer a glimmer of hope to change some of the worst aspects of the current diplomatic deadlock, it would not solve any of the outstanding substantive issues between Israelis and Palestinians.

Sissi's reference to political parties was no coincidence: it fit perfectly with the domestic political needs of Netanyahu and of Opposition Leader Isaac Herzog, who were angling to bring the Zionist Union joint list into the government and give Netanyahu a much-needed parliamentary cushion beyond his current razor-thin coalition. 

Herzog first had to convince his own highly-reluctant party of the need to join its rival Netanyahu—and if peace was about to break out, how could they refuse? For about 48 hours it seemed like Herzog was indeed about to announce his decision to join the coalition, face the battle in his party, and become Israel's foreign minister.

Then something else happened. Rather than appointing Herzog as foreign minister, Netanyahu is now poised to bring back Avigdor Lieberman, a former foreign minister and Israel's least diplomatic politician. Lieberman won't be returning to diplomacy, however. Instead, he will get a significantly more powerful position, second only to the prime minister: minister of defense. In response, current Minister of Defense Moshe Ya’alon today resigned from the cabinet and the Knesset, refusing to take another cabinet position. He gave a scathing speech, saying that "[E]xtremist and dangerous forces have taken over Israel and the Likud movement."

In what can only be considered brilliant politicking—and reckless policy—Netanyahu jettisoned Ya’alon and Herzog in favor of his former associate and bitter personal rival, Lieberman.

In what can only be considered brilliant politicking—and reckless policy—Netanyahu jettisoned Ya’alon and Herzog in favor of his former associate and bitter personal rival, Lieberman. Herzog is left wounded and humiliated, played for a fool—the gravest sin in Israeli political culture. Netanyahu finds himself at the helm of an enlarged coalition (Lieberman brings with him five members of Knesset, after one member of his faction left the party today in protest of the move), safer from parliamentary shocks and from attacks from the right (the whole right wing is now inside the coalition. Lieberman will still likely criticize Netanyahu from within the government, but not quite as fiercely). 

A cynics’ cynic

Lieberman's pending appointment has been met with astonishment by the opposition in Israel, by many in the military which he will oversee, and indeed here in Washington—and with good reason.

Just these past few months, Lieberman has viciously attacked both Netanyahu and the military brass for what he claimed was a weak response to terrorist attacks. In but one example of many, Lieberman came to the defense of a soldier who the Israel Defense Forces (IDF) had decided to prosecute for killing a Palestinian assailant who had already been thoroughly subdued. The contrast to current Minister of Defense Moshe Ya’alon is striking: Ya’alon defended the military's decision and stressed the importance of ethical norms and of rules of engagement in the military. Ya’alon is very right wing on the Palestinian issue, but he has consistently shown an honorable stance in the face of attacks on democratic norms. 

Lieberman is ostensibly less right-wing on the Palestinian issue—sometimes. Though he is a settler himself, he has endorsed a two-state solution in very general theory, noting he would even move if peace necessitated it. His endorsement, however, has always been couched in the toughest language possible and in utter mistrust of Palestinian intentions or the chances of peace ever materializing. On the niceties of democratic norms, including military law, he is a cynics' cynic. Benny Begin, another former Likud minister and an avowed hawk, has called Lieberman's appointment “delirious.”

As minister of defense, these positions will be highly consequential. Not only will he be in charge of the military brass and its promotion, but he will have statutory authority over many affairs in the West Bank, which is under military rule. Any attempt to improve the daily lives of Palestinians (such as a project just announced to streamline checkpoints for Palestinians) will be under his purview. His open calls to bring down Hamas through a ground invasion of Gaza if there is another round of fighting with Hamas—voiced even while he was a cabinet member during the last round of fighting—will now carry the weight of the minister of defense.

What was Herzog thinking? 

For the past year, since Netanyahu formed his fourth government, Herzog had denied time and again that he was aiming to join Netanyahu rather than replace him. He bemoaned the cynicism of those who simply would not believe him. This week the masks came off. Negotiations between the sides were accelerated and Herzog began a difficult intra-party fight to justify such a move. "National unity" governments are quite common in Israel, starting with the emergency cabinet of 1967, on the eve of the Six-Day War, when a sense of imminent doom swept the country. 

These governments, however, are usually justified by either an acute crisis, like in 1967, or in order to resolve a political deadlock, such as between Shimon Peres' Labor and Yitzhak Shamir's Likud in 1984. Peres and Shamir even "rotated" the post of prime minister. Though the government was incapable of any meaningful diplomatic advances, on which it was divided, it succeeded in tackling hugely important challenges in the economy—bringing inflation down from an annual rate of over 444 percent (not a typo) in 1984, and in defense—extricating Israel from most of Lebanon, following the first Israeli Lebanon War. 

What would be the logic this time? Herzog was promising three things to his party members: a host of portfolios (jobs and titles but also influence on a range of domestic policy issues); a veto on some aspects of policy which Labor finds most damaging, including remote settlement construction and legislation seen as limiting democratic discourse in Israel; and a leading role in any negotiations with the Palestinians, staring with the French peace conference. 

The jobs for Labor would have been real. A veto on policy could have been important—Tzipi Livni, Herzog's non-Labor partner in the Zionist Union, played a crucial role in protecting democratic norms as minister of justice in Netanyahu's previous government. 

On peace, however, Herzog was offering fool's gold. Put it this way: if you think Herzog would have real autonomy to run negotiations with the Palestinians while Netanyahu is prime minister, I have two suggestions. First, ask Tzipi Livni, who had that exact task in the previous government and was accompanied to every negotiation by Netanyahu’s personal lawyer, Yitzhak Molcho. Livni, incidentally, was strongly opposed to joining Netanyahu this time around. 

Second, I have some great real-estate in a swamp in Florida I'd like to discuss with you.

Herzog had a political rationale as well. He is a natural minister and backroom politician: smart, hardworking and prone to pragmatic compromises. He is not a natural public politician. As Leader of the Opposition he has wowed no one with his charisma or ability to stand up to Netanyahu and offer a bold alternative. Better to be in the halls of power than in the open arena. With the prospects of a fierce leadership challenge in his own Labor Party, moreover, he would have bolstered his bona fides as a national leader and therefore give himself a bit more time—the most a politician in Israel can really hope for. 

If there was a political benefit to Herzog personally, the outlook for his Labor Party would have been dismal.

If there was a political benefit to Herzog personally, the outlook for his Labor Party would have been dismal. Having joined Netanyahu, it would have been very hard to present the party as an alternative to his rule. 

What now?

Netanyahu can now feel slightly more secure in his coalition, though once again at the mercy of the mercurial Lieberman. Lieberman will enjoy a powerful post that usually bestows its occupant with new popularity in Israel (the converse is true of the finance ministry). Finance Minister Moshe Kahlon will enjoy a wider coalition to pass his domestic legislation and budget; indeed he'd been pushing for enlarging the coalition since it was formed. 

In the opposition, Herzog is weaker than ever. After being led on by Netanyahu for months, breaking his own word on the negotiations and then losing his gamble, he is severely exposed to challenges within Labor. His party's image has taken a serious hit as well.

Herzog's weakness will allow others in the opposition to claim the mantle of alternative to Netanyahu. Already, Yair Lapid’s centrist Yesh Atid party is the main beneficiary, but others may emerge as well, especially from the ranks of former generals like Gabi Ashkenazi. 

Most importantly, Israel's actual policy may be affected significantly by this move. Of all the governmental posts, defense is the one that has the most effect on the crucial questions of security for Israelis (and on the daily lives of Palestinians). Instead of grand peace plans Herzog was selling, Netanyahu's political brilliance has wrought one of the most hardline governments Israel has ever had.

       

In a lively and wide-ranging debate that aired earlier this month on Al Jazeera English, Brookings Executive Vice President Martin Indyk sparred with Head to Head presenter Mehdi Hasan about American efforts to resolve the Israeli-Palestinian conflict and the United States’ relationship with Israel.

Indyk began by stressing that American support for Israel is what gives the United States an influential role in the peace process and the leverage to encourage Israel to move towards peace. Indyk added that this does not mean that the United States should act as “Israel’s attorney” in the negotiations, and cited a promise he made to Palestinian leaders during the 2013-2014 peace talks led by Secretary of State John Kerry that Washington would not coordinate positions with Israel in advance. 

Brookings Executive Vice President Martin Indyk in a Head to Head interview with Al Jazeera English's Mehdi Hassan.

He pointed out that the United States has traditionally relied on its close relationship with Israel to encourage its leaders to take steps for peace and make offers to the Palestinians, and that no other potential mediator has been able to produce serious offers from Israel. “[The United States is] not neutral, we don't claim to be neutral. We have an alliance with Israel,” Indyk said. “But in order to achieve another interest that we have, which is peace in the region…and a settlement that provides for the legitimate national rights of the Palestinians, we need to be able to influence Israel.”

In responding to questions from Hasan and the audience, Indyk explained that he believes that both Israelis and Palestinians had made important concessions for peace, citing Israel’s acceptance of the Clinton Parameters in 2000, and the Palestinian Liberation Organization’s historic recognition of Israel as part of the Oslo Accords. Indyk also described the dramatic shifts in the way the United States has addressed the Palestinian issue over the past few decades, “from treating it only as a refugee issue and insisting that it be dealt with through Jordan to recognizing Palestinian national rights.” 

When asked about U.S. support for Israel at the United Nations, Indyk responded that this support is definitely warranted given the history of hostility towards Israel at the UN. However, he added that he personally wouldn’t oppose a carefully-worded resolution condemning Israeli settlements “so that the settlers in Israel understand that [settlement expansion] isn’t cost free.” Indyk rejected the notion that Israel has turned from a U.S. strategic asset in the Middle East into a burden, but explained that “making progress on the Palestinian issue enhances America’s credibility in the region and failing to make progress…hurts America’s credibility in the region.” 

Indyk concluded the discussion by reiterating his commitment to achieving Israeli-Palestinian peace and emphasizing that he would “never give up on trying to resolve this conflict in a way that meets Palestinian legitimate national aspirations to an independent and viable contiguous state living alongside Israel, a Jewish state, in peace.” 

       

       

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As policy agendas for 2015 come into sharper focus, much of the national conversation is aimed at tackling challenges in biomedical innovation. The first two months of the year alone have seen landmark proposals from Congress and the Obama Administration, including the House’s 21^st Century Cures initiative, a bipartisan Senate working group focused on medical progress, President Obama’s Precision Medicine Initiative and a number of additional priorities being advanced by federal agencies and other stakeholders.

On March 13, the Engelberg Center for Health Care Reform hosted the State of Biomedical Innovation Conference to provide an overview of emerging policy efforts and priorities related to improving the biomedical innovation process. Senior leaders from government, academia, industry, and patient advocacy shared their thoughts on the challenges facing medical product development and promising approaches to overcome them. The discussion also examined the data and analyses that provide the basis for new policies and track their ultimate success.

 Join the conversation by following @BrookingsMed or #biomed

Video

• State of biomedical innovation conference: Panel 1
• State of biomedical innovation conference: Panel 2

Audio

• State of biomedical innovation conference

Transcript

• Uncorrected Transcript (.pdf)

Event Materials

• 20150313_biomed_transcript
• 313 MASTER DECK2

      

Editor's note: This article appears in the April 2015 issue of Global Forum. Click here to view the full publication.

Since passage of the Affordable Care Act in 2010, the last several years have seen a groundswell in physician payment and delivery reforms designed to achieve higher value health care through incentivizing higher quality care and lower overall costs. Accountable care models, for example, are achieving marked progress by realigning provider incentives toward greater risk-sharing and increased payments and shared savings with measured improvements in quality and cost containment. Medical homes are introducing greater care coordination and team-based care management, while the use of episode-based or bundled payments is removing perverse incentives that reward volume and intensity.

These reforms are coming just as the number of highly targeted, highly priced treatments continues to expand. The U.S. Food and Drug Administration (FDA) approved a decade-high 41 novel new drugs in 2014, many of them targeted therapies approved on the basis of increasingly sophisticated progress in genomics and the understanding of disease progression. In areas like oncology, such targeted treatments have grown as a percentage of global oncology market size from 11% in 2003 to 46% in 2013. New brand specialty drug spending in the U.S. is estimated to have been $7.5 billion in 2013, or 69% of total new drug spending. The growing prevalence of these drugs and their cost to the health system are setting the stage for significant flashpoints between industry, payers, and providers, seen most clearly in the debate over hepatitis C treatment costs that roiled stakeholder interactions for most of the past year. 

More of these targeted treatments are in the development pipeline, and a growing number of public policy efforts taking shape in 2015 are focused on accelerating their availability. The House of Representatives' 21st Century Cures Initiative, for example, has released a slew of legislative proposals aimed at promoting breakthrough innovation by increasing the efficiency of drug development and regulatory review. These efforts have significant downstream implications for the pace at which targeted and specialty therapies will become available, their associated costs, and the growing importance of demonstrating value in the postmarket setting.

As payers and providers continue their push toward increased value-based care, more innovative models for connecting such reforms to drug development are needed. Earlier collaboration with industry could enable more efficient identification of unmet need, opportunities to add value through drug development, and clearer input on the value proposition and evidentiary thresholds needed for coverage. Equally important will be unique public-private collaborations that invest in developing a better postmarket data infrastructure that can more effectively identify high value uses of new treatments and support achieving value through new payment reforms.

Stronger collaboration could also improve evidence development and the coverage determination process after a targeted  treatment has gained regulatory approval. Facilitated drug access programs like those proposed by the Medicare Administrative Contractor Palmetto GBA create access points for patients to receive targeted anti-cancer agents off-label while payers and industry gather important additional outcomes data in patient registries. More systematic and efficient use of policies like Medicare's Coverage with Evidence Development (CED), which allows for provisional coverage for promising technologies or treatments while evidence continues to be collected, could enable industry and payers to work together to learn about a medical product's performance in patient populations not typically represented in clinical studies. A CED-type model could be especially useful for certain specialty drugs: data collected as a condition of payment could help payers and providers develop evidence from actual practice to improve treatment algorithms, increase adherence, and improve outcomes. 

Finally, collaborations that support stronger postmarket data collection can also support novel drug payment models that further reward value. Bundled payments that include physician-administered drugs, for example, could encourage providers to increase quality while also incentivizing manufacturers to help promote evidence-based drug use and lower costs for uses that generate low value. Outcomes-based purchasing contracts that tie price paid to a medical product's performance could be another promising approach for high-expense treatment with clearly defined and feasibly measured outcomes.

Many of these ideas are not new, but as manufacturers, payers, providers, and patients move into an increasingly value-focused era of health care, it is clear that they must work together to find new ways to both promote development of promising new treatments while also making good on the promise of value-based health care reforms.

      

Quickly following on the heels of the midterm elections, Senate Majority Leader Mitch McConnell (R-KY) indicated that the medical device tax was a key target for repeal in the 114th Congress. Today, the Senate Finance Health Care Subcommittee will hold a hearing about the effects of the 2.3 percent tax that was included in the Affordable Care Act. Many believe that a repeal is, in fact, possible. Below is a basic primer about the tax and its contentious history.

1. What is the medical device tax?

Included in the Affordable Care Act (ACA) and launched in 2013, the medical device tax imposes a 2.3 percent sales tax on medical device supplies. The tax applies broadly to a range of products, including pacemakers, artificial joints, surgical gloves, and dental instruments. It does not apply to eyeglasses, contact lenses, hearing aids, wheelchairs, or any other device that the public generally buys for individual use. Further, the tax is applied equally to imported and domestically produced devices, and devices produced in the U.S. for export are tax-exempt.

      

The breakthrough therapy designation (BTD) program was initiated by the U.S. Food and Drug Administration (FDA) in 2012 to expedite the development of treatments for serious or life-threatening illness that demonstrate “substantial improvement” over existing therapies. The program has since become a widely supported mechanism for accelerating patient access to new drugs. As of March 2015, FDA has received a total of 293 requests for BTD. However, it has granted just  82 (28%), which indicates an ongoing lack of clarity over what exactly meets the criteria for the designation.

On April 24, the Center for Health Policy at Brookings convened a public meeting to explore the designation’s qualifying criteria and how FDA applies those criteria across therapeutic areas. Panelists used real-world and hypothetical case studies to frame the discussion, and highlighted major considerations for the application process, the FDA’s evaluation of the evidence, and the key factors for acceptance or rejection. The discussion also identified strategies to ensure that qualifying criteria are well understood. Here are the five big takeaways:

1.  The BTD program is viewed positively by drug companies, researchers, advocates, and others 

Across the board, participants expressed enthusiasm for the BTD program. Industry representatives noted that their experience had been extremely positive, and that the increased cooperation with and guidance from FDA were very helpful in streamlining their development programs. Receiving the designation can also raise a drug company’s profile, which can facilitate additional investment as well as clinical trial patient recruitment; this is particularly important for smaller companies with limited resources.

Patient and disease advocates were likewise supportive, and expressed hope that the early lessons learned from successful breakthrough therapy approvals (which have been mostly concentrated in the oncology and antiviral fields) could be translated to other disease areas with less success. However, while BTD is an important tool in expediting the development of new drugs, it is just one piece of broader scientific and regulatory policy landscape. Accelerating the pace of discovery and development of truly innovative new drugs will depend on a range of other factors, such as developing and validating new biomarkers that can be used to measure treatment effects at an earlier stage, as well as establishing networks that can streamline the clinical trial process. It will also be important to develop effective new approaches to collecting, analyzing, and communicating information about these treatments once they are on the market, as this information can potentially be used by FDA, providers, and patients to  further improve prescription drug policy and medical decision-making.

2.  BTD requests far outnumber those that actually meet the qualifying criteria

Since the program began, less than 30 percent of requests have received BTD designation. A substantial majority were denied at least in part due to either a lack of data or problems with the quality of the data, or some combination of the two. For example, some sponsors requested the designation before they had any clinical data, or submitted the request using clinical data that was incomplete or based on flawed study designs. Many requests also failed to meet the Agency’s bar for “substantial improvement” over existing therapies.

One reason for the high denial rate may be a lack of a clear regulatory or statutory bar that could be used as a definitive guide for sponsors to know what is needed to qualify for the designation. BTD denials are also confidential, which means that sponsors effectively have nothing to lose by submitting a request. Going forward, manufacturers may need to exercise more discretion in deciding to request the designation, as the process can be resource- and time-intensive for both sides.

3.  There is no single threshold for determining what defines a breakthrough therapy

About 53 percent of the 109 total BTD denials were due at least in part to the fact that the drug did not represent a substantial improvement over existing therapies. During the day’s discussion, FDA and sponsors both noted that this is likely because the criteria for BTD are inherently subjective. In practice, this means there is no clear threshold for determining when a new therapy represents a “substantial improvement” over existing therapies. Designation decisions are complex and highly dependent on the context, including the disease or condition being targeted, the availability of other treatments, the patient population, the outcomes being studied, and the overall reliability of the data submitted. Given the multiple factors at play, it can be difficult in some cases to determine when a new product is potentially “transformational” as opposed to “better,” especially for conditions that are poorly understood or have few or no existing treatments. In making its determinations, FDA considers the totality of the evidence submitted, rather than focusing on specific evidentiary requirements.

4.  Early communication with FDA is strongly recommended for BTD applicants

Roughly 72 percent of the BTD denials related at least in part to trial design or analysis problems, which led several people to suggest that sponsors engage with FDA prior to submitting their request. Though there are several formal mechanisms for interacting with the agency, informal consultations with the relevant review division could help sponsors to get a better  and much earlier sense of what kind of data FDA might need. This early communication could both strengthen viable BTD requests and reduce the number of frivolous requests.

5.  FDA may need more resources for implementing the BTD program

Drugs that receive breakthrough designation are subject to much more intensive FDA guidance and review. However, when the program was established in 2012, Congress did not allocate funding to cover its costs. There have been ongoing concerns that the program is exacting a significant toll on FDA’s already limited resources, and potentially affecting the timeline for other drug application reviews. These concerns were reiterated during the day’s discussion, and some suggested that Congress consider attaching a user fee to the BTD program when the Prescription Drug User Fee Act comes up for reauthorization in 2017.

      

Event Information

The Risk Evaluation and Mitigation Strategies (REMS) program has become an important tool of the U.S. Food and Drug Administration (FDA) in ensuring that the benefits of a given medical product outweigh the associated risks, and has enabled FDA to approve a number of products that might not otherwise have been made available for patient use. Since the implementation of the REMS program, however, concerns have been raised regarding its impact on patient access to products and the associated burden on providers and health care systems. In an effort to address these concerns—and as part of its commitments under the Prescription Drug User Fee Act reauthorization of 2012—FDA has undertaken efforts to standardize and improve the effectiveness of REMS, and to better integrate REMS programs into the health system. As part of this broader initiative, the Agency is currently assessing the feasibility of integrating accredited continuing education (CE) programs and activities into REMS programs that have been developed for a single drug.

Under a cooperative agreement with the FDA, the Center for Health Policy held an expert workshop on May 18, titled “Incorporating Continuing Education into Single-Drug REMS: Exploring the Challenges and Opportunities”. This workshop provided an opportunity for pharmaceutical manufacturers, regulators, CE providers, accreditors, and other stakeholders to explore the ways that CE can be a valuable addition to the REMS toolkit, discuss potential barriers to the development and implementation of REMS-related CE for single products, and identify strategies for addressing those barriers.

Event Materials

• Bio sheet
• REMS CE Meeting Agenda
• REMS_CE_Meeting_Discussion_Guide_Final
• REMS CE Meeting Summary