Category Archives: budget

LESSONS ABOUT PUBLIC EDUCATION

We seem to have a consensus that public K-12 education is important and that we want to do better but little agreement beyond that. Presidents Bush and Obama made education reforms key parts of their agendas and now Governor McCrory promises major changes. Public understanding of the issues is meager and our highly partisan atmosphere for legislative discussion is a barrier to good decision making. In this climate, I went looking for the Holy Grail of education: policy answers that would lead to excellence in public education. That search led me to conclude that there is no Holy Grail. There is no one prescription or silver bullet but there are many opportunities for improvement and many possible pathways to excellence.

The most valuable source of information that I found is the Programme for International Student Assessment (PISA) in which 34 developed nations have been cooperating for sixteen years to measure student performance and to identify best practices for improvement. The US is one of the participants and there is a wealth of research at our fingertips. Here is a link to PISA’s work. http://www.oecd.org/pisa/  One PISA research paper “Lessons from PISA for the United States” is the source of most information in this column.

Our performance is about average among developed nations in reading and science but well below average in mathematics. Northeastern states are above average, about like the Netherlands. The Midwest is average, tied with Poland. The Western states perform about like Italy and the Southern states rank lowest, matching Greece. Variability of performance in the US is extreme.

Differences among the nations in spending explain only 9% of the variation in their performance. The US gets sub-par performance while being the number two per-capita spender. We are putting in enough resources to achieve excellence but we may not be putting the resources in the right places. Nor is our mediocre performance explained by a higher than normal proportion of socioeconomically disadvantaged students or students from single parent families. Many of the other nations are similar to us in that regard.

Public school and private school performance are not different. When public and private schools have similar resources and similar socioeconomic mix of students, they produce roughly the same performance.

Here are some attributes that the best performing nations seem to have in common. Teachers are highly respected and have salaries that compare favorably to other top professionals. Best performers allocate resources evenly, based on need.   Because funding is not dependent on the local economy, schools in poor communities get as much money as those in wealthy communities.   Schools and communities with particularly difficult situations may receive additional resources and teachers may be offered additional pay to go there. Only the US, Turkey, and Israel base funding on the local economy.

Best performers use standardized tests to measure performance of students and they use the results to modify curriculum, teaching practices and professional development. They do not use the results punitively against teachers or to de-fund schools.   Most also make test results public and allow families some choice in which schools their children attend. High performing schools expect a lot of their local school principals and grant them the authority to hire, set salaries and remove teachers.

 

I was surprised to see which nations are leaders. Asian and Scandinavian nations, especially Korea and Finland are top performers. Korea, Hong Kong, Singapore and Shanghai score particularly high on “resilience” of their economically disadvantaged populations which perform almost as well as the children of the wealthy.

Canada has a remarkable story and it may be the one from which we can learn the most. Not long ago, their situation was much like the US and education reform became a topic of bitter political debate. Since then, they have improved as quickly as any nation and now Canada is near the top of most performance measures. There appear to be several lessons to learn from Canada. The Provincial (State) school board establishes general curriculum standards but teachers and local schools have a lot of flexibility and opportunity for creativity in how to use the curriculum. Ontario, the largest Canadian Province, attracts many of their best and brightest into careers in public education. Admission to teachers colleges is very competitive and almost all Ontario teachers graduated in the top third of their college classes.

The Ontario funding formula provides a block grant to each district based on the number of students plus categorical grants for specific programs such as special education and rural transportation.

PISA research indicates that selectivity in choosing teachers, professional respect, collegiality, and relatively high teacher salaries are key factors in high performing schools. The Ontario Salaries will shock many Americans. Annual salary for a new teacher, depending on specialty and qualifications, will be between $45,709 and $55,404. With ten or more years of service the salary will be between $76,021 and $94,707. An additional 11% of salary goes to the retirement plan and health insurance is fully paid by the employer. Ontario does this while spending less per student per year than the American average. They have no Federal role in education, more local autonomy, more different kinds of schools and more success for less money. I hope our legislators, news media and voters will study Ontario, PISA and other research before making changes to public education.  We need to get these decisions right!

THOUGHTS ABOUT THE UNINSURED

What should happen when a person with no health insurance and little money needs a major health care service? Let’s imagine it for a fictitious person. Sara is a 61 year old widow who has two part time jobs, one at a restaurant and the other at a dry cleaning establishment. Neither provides health insurance. Her annual income from both jobs is about $28,000. She has little money saved and will have only social security income if she is forced to retire.

Recently Sara has had severe pain when she stands for the extended periods required by her jobs. Her doctor referred her to an orthopedic surgeon. Sara delayed follow-up because of the cost but recently her pain increased enough that she spent money for an office visit. The surgeon determined that Sara needs a hip replacement. The price of the hospital and physician fee is about $40,000 which is well beyond her means. Sara fears she will soon be fired from her jobs because she can’t be on her feet for long periods.

Should Sara be able to get the surgery that would correct her problem? Is “no” an acceptable answer? If the answer is “yes”, who should pay for it? Today, one of two things would happen. Sara might have to do without the surgery. The other possibility is that the doctors and hospital will replace her hip without payment and try to pass the cost along to those who will pay. If there are too many patients like Sara, the hospital will fail financially and many doctors will move to more prosperous communities.

There are 50million uninsured Americans today with little or no ability to pay a large health care bill. http://aspe.hhs.gov/health/reports/2011/cpshealthins2011/ib.shtml Many residents of Randolph and Montgomery Counties fall into that category. As we get ready to vote next month, I hope that Sara and the millions like her will accompany our consciences into the voting booth: a man delaying a hernia repair that he needs, a woman who feels a lump in her breast and hopes it is nothing rather than seeing a doctor today; someone who skips the colonoscopy where a polyp could be removed before it becomes colon cancer. Some of us are the uninsured. Most of us know them personally.

Two Republicans, Teddy Roosevelt and Richard Nixon; and three Democrats, Harry Truman, Bill Clinton, and Barack Obama have pushed for laws to provide health care for all who need it. In a very messy legislative process President Obama finally got a law passed which gets us most of the way there. Republican opposition was absolute and they blocked the legislative process at every turn; preventing the dialogue that could have improved and simplified the bill. From the beginning their stated agenda was to prevent the President’s re-election rather than to collaborate in governing for the benefit of all.

President Obama is praised by some and vilified by others. Critics point out that the law is complicated and imperfect. That is true. Advocates, me included, point out that when the new law is fully implemented it will be a vast improvement over what we have today.   The debate should not be about repealing it; instead we should be deciding how to improve it. In particular, we need initiatives to reduce the cost of health services so that they will be more affordable.

We need today’s Republicans to step up to the responsibility of proposing workable ways to provide more service for less money while covering the uninsured. It IS achievable. Every other developed nation has accomplished it while spending less than we do now. http://www.oecd.org/dataoecd/52/42/49188719.xls  . We can do it too. Those nations set a clear policy of universal coverage and designed economical ways of achieving the goal. Mitt Romney knows that. He is the architect of a Massachusetts program which is nearly a twin to ObamaCare. But he and Renee Ellmers, and the Republican Party have abandoned the humane ideas of Roosevelt and Nixon. While doing that, they also deserted the uninsured, the poor and the middle class.

Did you know that more family bankruptcies are caused by health care bills than by home foreclosures? http://www.washingtonpost.com/wp-srv/politics/documents/american_journal_of_medicine_09.pdf It is the uninsured middle class and the poor who will bear the burden of a Republican victory this November. Have you heard talk of “class warfare”? Well, this is it. The Republicans want to repeal a law providing health care for the uninsured while cutting taxes for the wealthy. That is economic warfare on the uninsured middle class and the poor. Otherwise, Republicans would have a proposal for how to provide health care. They have also abandoned the doctors and hospitals that are required to provide emergency service with no payment. And in their proposal to “block grant” Medicaid they have deserted the disabled and frail elderly. They pledge to cut federal Medicaid funding. Two thirds of Medicaid spending is for nursing home patients who have depleted their personal resources. Much of the remainder is for childbirth or medical care of sick children.

We can’t afford all things for all people. There will always be two or more levels of care, with the wealthy able to obtain services not available to others. But we can afford to provide most needed and effective services to everyone; and we can find ways to get our costs down. Achieving that will require a national commitment of voters and political parties over a period of many years. It begins with implementing the law that was passed after a century of effort and it should continue with gradual improvement. We are Americans and we are up to the task if we will commit to it.

How will you respond to Sara’s need and to the needs of millions like her? We should take Sara and our consciences along with us when we go to the polls. There, but for the grace of God, go I.

TRUTH ABOUT TAXES AND INCOMES

Much is said and circulated on the internet about taxes during election season. How high is too high? Who pays a fair share and who doesn’t? I’m going to lay out some facts for consideration and then make a few suggestions. Some of the facts will be hard to believe so I supplied internet links. Please, if you don’t find my statements credible, check it out for yourself.

I’m counting all taxation regardless of which level of government collects it or how it is collected. As Americans our total tax bill is low compared to other developed nations. Among 33 developed nations studied by the OECD (Organization for Economic Cooperation and Development) our taxes as a percent of our GDP ranked 30th. Mexico, Chile and Turkey were lower. We collected 27.3% of GDP in all forms of taxes. The median among developed countries was 36.2%. http://www.taxpolicycenter.org/briefing-book/background/numbers/international.cfm

Practically everyone in the US pays taxes and the total tax burden is very close to flat regardless of income. The top 20% of the population had 60% of the income and paid 63% of the taxes. The middle 20% of the population had 11% of the income and paid 10% of the taxes. The bottom 20% had 3% of the income and paid 2% of the taxes. The top 1% of the population had 21% of the income and paid 22% of total taxes. http://www.ctj.org/pdf/taxday2012.pdf

 

Despite propaganda, the poor do pay taxes and we are not overtaxing the wealthy. We do however; have some monumental problems to address. We are spending far more than we are collecting and if we keep on doing that, our debt will consume us. The truth is that we need to cut spending AND raise taxes. The Simpson-Bowles Commission Report made that clear as has every other credible study of our situation.

 

For three decades, the incomes of the wealthy have grown much faster than incomes of the middle class and poor. Since the 1950s the top income tax rates have been cut by more than half and the rate for capital gains (investment income) is now less than one third of the top rate for wages. It does not seem right that those who work have higher income tax rates than those who invest; but that is the case. There was indeed a time when those with high incomes paid a higher share of it in total taxes but that time has passed. Today most of us pay about the same percentage of our incomes for all governmental operations; but the incomes of the wealthy have risen while the incomes of the middle class and the poor have stagnated. http://www.census.gov/hhes/www/income/data/historical/inequality/IE-1.pdf

Today we have a growing deficit and we have some elected officials who tell us that Medicare and Social Security must be cut to balance the budget. This same crowd wants to drastically cut food stamps and Medicaid too. They would have you believe that Medicaid goes to slackers but about two thirds of Medicaid payments go to nursing homes for care of disabled and elderly. Much of the rest goes to children. http://www.cbpp.org/cms/index.cfm?fa=view&id=2223 43 percent of Food Stamp recipients live at or below half the poverty line. Only 15 percent live above the poverty line. Children under 18 account for 47 percent of all food stamp recipients. Eight percent are seniors. Forty-one percent of beneficiaries live in households with partially or fully employed workers. Their numbers sometimes include enlisted military families, paramedics, and other public servants whose pay is below the poverty line. The share of Food Stamp recipients that also receives welfare benefits is at historic lows; in 2010 it was less than 10 percent. http://www.theatlantic.com/health/archive/2012/09/who-benefits-from-food-stamps/261993/

We can help pay for vital programs by eliminating some tax loopholes. One has to do with capital gains. A person who puts aside some income in a savings account or by purchasing stock has already paid income tax on the saved money and then will have taxable income from interest, dividends, or the increase in value of the stock. The person of modest means is likely to use a savings account and his interest income will be taxed just like his earned wages.    The person of greater means can purchase stock, real estate or other investments and the increase in value of the investments will be taxed at not more than the15% capital gains rate. Fairness demands that the wages of those who work should not be taxed at a rate higher than the rate for capital gains. We should tax capital gains at the same rate as wages.

The laudable purpose of the home mortgage deduction is to make home ownership possible. So let’s limit it to a maximum mortgage of about $300,000 and also cap the lifetime amount of tax deduction for any individual. That way it won’t be used for subsidizing the purchase of second and third homes or extremely expensive homes.

We can eliminate the law which grants fabulously profitable oil companies a lower tax rate than other businesses. We could add a very low (maybe one half of one percent) sales tax on all forms of securities. A contractor pays a sales tax when he buys tools to earn money. Why should a bank or investor not pay a sales tax on their tools, like credit default swaps? Other countries have done it.   The result seems to be less speculation and more investment; less volatility from computerized trading, and substantial tax revenue. http://www.imf.org/external/pubs/ft/wp/2011/wp1154.pdf

Candidate Romney wants to reduce taxes for the wealthy even more. That will require drastic cuts to programs or huge additional borrowing. I don’t enjoy proposing higher taxes and I would enjoy paying them even less, but it seems clear that increased revenue should be part of the solution. And it would be easier to stomach cuts to human services when everyone pays a fair share.

LET THE COMPETITION BEGIN

Most seniors can’t imagine life without Medicare. Before its passage in 1965, seniors often did without needed health care. Many suffered or died prematurely as a result. Some bankrupted themselves and their children to pay physicians and hospitals. Today, seniors are the only age group in our nation with guaranteed access to most of the health care that they need. Older Americans live longer and healthier lives because of the commitment that we made to them in Medicare. The problem is that Medicare is expensive. There are three basic ways of reducing the cost. One is to use less health care. Another is to reduce the price of health care. The third way is to reduce administrative costs so that more of the money goes to pay claims. There are opportunities in all three areas but conversations about how to improve quickly turn into shouting matches.

Paul Ryan proposes a Medicare Voucher system: http://paulryan.house.gov/issues/issue/?IssueID=9969. The value of the voucher would be set annually at the second lowest rate offered by any insurance company.   It is unclear what coverage the plan would offer because the private plans would not be required to match the coverage offered by traditional Medicare. If you want a better plan, you could add your own money to the value of the voucher. Mitt Romney says that he is in general agreement with Ryan. They plan to limit spending to a specific amount and then trust the insurance companies to manage health care costs. Seniors get to buy what the companies offer for the voucher and choose from a confusing array of plans (somewhat like the Medicare Drug Plan but worse). If the companies don’t match traditional Medicare for your voucher, it will be your problem and the risk of rising costs will be yours. The insurance companies will make a profit regardless of whether you have good benefits.

Since 1997, insurance companies have had the opportunity to profit by providing better value than traditional Medicare and they have been unable to reduce costs. Insurance companies sell “Medicare Advantage Plans” which are required to provide coverage equivalent to traditional Medicare. Advantage Plans have become part of the problem rather than the solution. Medicare pays an insurance company MORE than the cost of regular Medicare (http://www.healthaffairs.org/healthpolicybriefs/brief.php?brief_id=48 ) and the rates paid by the Advantage Plans to doctors and hospitals are often LOWER than the rates paid by Medicare. Medicare spends 2% of its revenue (tax dollars) on administrative costs. Insurance companies spend much more, typically more than 10% (also tax dollars). (http://www.kff.org/medicare/upload/7731-03.pdf) The bottom line is that government-operated Medicare provides more care for less money than the insurance companies.

First Romney and Ryan say that Medicare costs too much. Then they propose to turn Medicare over to insurance companies which have HIGHER costs than the government. Their plan relies on magical thinking. They would have us try what we are already doing with the belief that it will work next time.

Democrats fear that the voucher system will reduce the kinds of services covered by Medicare and increase the deductibles, co-pays and premiums required of seniors. They also fear that Republicans would totally privatize Medicare by eliminating the existing program and allowing only the plans offered by insurance companies. Since leading Republicans have proposed that in the past, the fear is understandable. Any plan to change Medicare should begin with a guarantee that the basic level of benefits now available will not be reduced and will be funded for all Medicare recipients. Revisions should be about improving service, efficiency, and quality while driving cost down. The Romney Ryan approach is to limit spending, turn the money over to insurance companies (which will profit whether they perform well or not) and let seniors fend for themselves.

Competition that benefits taxpayers and patients is good but we should not allow a giveaway to insurance companies. Participation in Medicare by insurance companies is ok but they should be required to match the coverage we have now. Let’s also have competition in the other direction by allowing Medicare to sell coverage to anyone, regardless of age, at rates that allow Medicare to at least break even. This would create the “government option” which many liberals wanted in the healthcare reform law and it would allow public-private competition across the board in health care.

The rules to govern this could be simple: Medicare benefits are not reduced. A Medicare recipient can choose private insurance covering at least what Medicare covers. Medicare payments to insurance companies are the same as the cost of covering an average Medicare recipient. Medicare and every insurance company must accept any person eligible for Medicare who wants to enroll with them. Insurance companies (like Medicare) must publish the rates that they will pay to health care providers and pay the same rates to everyone. Variance would be allowed for quality and cost incentives.

Medicare would design health insurance products for the private market in competition with insurance companies. Participation by health care providers would be voluntary. Payment rates would be determined as they are for Medicare.   This insurance plan could be purchased by individuals or by employers.

This proposal truly creates a marketplace and competition where healthcare providers, insurance companies and Medicare all compete to drive cost down while improving quality and satisfaction. It can readily be linked to the ACA (ObamaCare) provisions allowing health care providers and insurance companies to profitably collaborate to improve quality and cost performance.

We don’t need to make an “either or” decision between Democrats and Republicans. It will be better to insist on a “both and” approach. We can create a health services marketplace where the best ideas of liberals and conservatives compete head to head on a level playing field to serve the quality and cost needs of the public. In this kind of competition, it is likely that everyone will learn to perform better. The candidates and political parties should demonstrate the courage to test their ideas in the marketplace.

HOW TO BALANCE THE FEDERAL BUDGET

I’m going to try something different with this column, giving readers some rarely discussed information about where our American money goes and how that compares to other nations. I’ve chosen health care and defense because they are very large components of our spending. In business, this technique is called benchmarking. It tells us how well we are doing compared to competitors so that we can see where we have opportunities for improvement. That is important in a global economy where jobs are easily moved to places where goods and services can be produced inexpensively. The information can be useful in setting goals for our future. The choices to be made depend on our values, but if we all start with the same facts then agreement about goals may come easier.

First let’s look at health care. If you add together all of our health care spending, it is about 17% of our total economy. That includes taxes, insurance premiums, out of pocket expenses…everything. It amounts to $7960 per year for every man, woman and child. The second most expensive nation in the world at present is Norway. Their mix of insurance, personal expenses and taxes provides some form of coverage for everyone and they spend $5352 per person. If we can find a way to tie Norway for the most expensive health care and to match them by covering everyone, we would reduce our spending by $2608 per person. Multiplied by our population of 313 million people, that adds up to $816 billion in savings in one year. Savings would come in the form of reduced government spending, reduced insurance costs and reduced out of pocket spending. All savings would benefit families in one way or another. To get that gain, we have to tie Norway for most expensive in the world. Data to demonstrate this are available for download at http://www.oecd.org/dataoecd/52/42/49188719.xls Those who look it up will find that most developed nations spend less than Norway and that their health outcomes are equal to or better than ours.

Second, let’s look at defense spending. It is probably no surprise that we are number one in defense spending, but you may be surprised to learn the size of our lead. Our annual defense budget is estimated to be $711 billion. That is 4.7% of our total economy (GDP) and it is 41% of the military spending for the entire world. Number two is China, which spends $143 billion, 2.1% of their GDP.   If we were to reduce our defense spending so that we are only tied for spending the most, we would have $568 billion available for other priorities. To demonstrate what a competitive burden this is for our economy and our families, let’s look at it on a per person basis. There are a lot more Chinese than there are Americans. We spend $2273 per citizen (men, women and children) on defense. The Chinese spend $106 per citizen. That is one reason why it is often cheaper to make things in China. Defense spending data are from http://milexdata.sipri.org/ and more information at http://www.sipri.org/

Add $816 billion to $568 billion and we save $1 trillion, 384 billion. If we were to set and achieve those two goals, the savings would be sufficient to eliminate the federal deficit and possibly begin repaying the debt. If we want to leave defense spending and health care as they are, then we must pay for them. The annual cost will be about $10,233 per person and that is $4422 more than if we match Norway and China.

It appears that our general alternatives are:

  1. Leave health care and defense alone. That decision costs $4422 more per year for every man, woman and child or $17,688 per year for a family of four. Pay for it through reduced spending on other priorities and increasing our national debt (which someone is supposed to pay back some day). It requires drastically cutting spending on education, public safety, infrastructure and social security along with covering fewer people under Medicare and Medicaid. In essence, it will require telling many of the middle class and all of the poor that if they can’t pay for health care and first class education then they can’t have those things. Some of our elected officials are leading in that direction.
  2. If we leave health care and defense alone, the other alternative is a massive increase in taxes to pay for them.
  3. The third alternative is to adopt ideas from other developed countries which have learned to provide good health care for all of their citizens and keep themselves secure from invasion or attack for far less money than we are spending.

The comparative benchmarks are not world-wide norms. They merely tie us for being the world’s biggest spender on both health care and defense. We have not even addressed whether we can afford to be tied for most expensive in both of these categories.

One way to frame up the discussion is to ask, “Are we sufficiently committed to our current systems for defense and health care that we are willing to pay $4422 more than the second most expensive nations every year for every American?” What would you decide, knowing that you will have to write the checks?

Another way to discuss it is to ask, “If we could eliminate our entire deficit in exchange for accepting Norwegian health care and being as secure from attack as China, would we do that?” Then we would not have to write the checks and we would not be forced to cut other spending or raise taxes to balance our budget.

The numbers are plain. It is 6th grade math with a whole lot of zeros added. The hard questions are about values. Who are we as Americans, and who do we want to be? Those are questions for individual consciences and for public debate. We can take our answers to the polls.