Industry Cries Wolf on Health Reform’s Medical Device Tax

February 15, 2012 at 9:56 am

In a new paper, we show that industry arguments for repealing the health reform law’s 2.3-percent excise tax on medical devices — surgical gloves, wheelchairs, cardiac pacemakers, and so on — are either wrong or greatly exaggerated.

Claims that the law (the Affordable Care Act, or ACA) singles out the medical device industry are false.  The excise tax is just one of a number of spending reductions and revenue increases included in the ACA that enable it to expand health coverage to 34 million uninsured Americans without adding to the deficit.

Contrary to lobbyists’ talking points, the tax will not cause manufacturers to shift production overseas.  It applies equally to imported and domestically produced devices, and devices produced in the United States for export are tax-exempt.  Thus, the tax will not reduce the competitiveness of U.S-made devices either here or abroad.

The excise tax is also unlikely to discourage innovation in the medical device industry, despite claims to the contrary.  The rate of innovation in medical technology has slowed in recent years for reasons entirely unrelated to the excise tax.  In fact, according to the consulting firm PricewaterhouseCoopers, health reform may well spur medical-device innovation by promoting more cost-effective ways of delivering care.

As The Economist states, the effect of the excise tax on the medical device industry will be “trivial compared with other shifts,” such as “scandals, recalls, stingy customers, [and] anxious regulators,” all of which have left the industry in a “rut.”

And repealing the tax would undercut health reform.  Congress would have to offset the cost of repeal by increasing other taxes or reducing spending; one likely target would be the ACA’s health coverage expansions.  Also, repealing the tax would encourage efforts to repeal other revenue-raising provisions of the ACA.

What Happens if Congress Doesn’t Continue Emergency Unemployment Benefits?

February 14, 2012 at 3:15 pm

The emergency federal unemployment insurance (UI) program is set to expire at the end of the month.  If Congress fails to extend it:

  • The number of weeks of available benefits for unemployed workers will shrink dramatically, to fewer than 26 weeks in some states (see the maps below).
  • Nearly 4.5 million jobless workers will lose UI benefits before the end of the year (see the table below).
  • The economic recovery will slow.

Besides the obvious benefit of supporting unemployed workers and their families at a time when there is still only one job opening for every four unemployed workers, UI is one of the most cost-effective ways to support the economic recovery.  CBO ranked it first in its bang-for-the-buck effectiveness among the measures it examined.  Mark Zandi, Chief Economist of Moody’s, estimates that failure to continue emergency UI benefits could reduce GDP by 0.3 percentage points this year and cost hundreds of thousands of jobs.

Coming Federal Education Cuts Will Hurt Schools, Especially Poorer Ones

February 14, 2012 at 3:05 pm

As my colleague Phil Oliff noted yesterday, several governors are emphasizing correctly the importance of education for long-term economic growth — but reversing only a tiny fraction of the massive cuts their states have made in education funding since the recession began.

Now, scheduled cuts in federal education funding under last year’s Budget Control Act will make states’ job even harder.

The federal government will impose across-the-board cuts in 2013 of about 9 percent to education aid for states and a wide range of other programs (unless the President and Congress take action to replace these across-the-board cuts with something else).  More cuts will occur over the following eight years in the part of the federal budget that includes aid for schools.

Those cuts not only will come on top of large state and local cuts in education, but also will fall most heavily on the school districts with the greatest needs unless states offset the cut by raising their own funding.  A significant chunk of federal education aid is targeted to school districts with high concentrations of low-income students to help those students meet high academic standards.

A recent report by legislative staff in Virginia, for example, shows that cutting federal funding by about 9 percent would cost Virginia schools $82.5 million next year, and the cuts would hit high-poverty districts like Richmond (where the poverty rate is 33 percent) much harder than low-poverty districts like Falls Church (where the poverty rate is just 2 percent).

Richmond, which received over $2,000 per child in federal aid in 2010, would lose about $179 per student (assuming the state took no action to protect high-need schools), while Falls Church, which received $273 per child, would lose about $24 per student.

That’s bad news for education equity in Virginia.  Richmond schools already have far less in total (local, state, and federal) funding per child than Falls Church schools — more than $5,600 less in 2008.

At a time when income inequality is at historic levels and economic mobility is, if anything, declining slightly, cuts like these may make it harder for low-income students to acquire the skills they need to climb the economic ladder.

House-Senate Conference the Wrong Venue for Major Unemployment Insurance Reform

February 14, 2012 at 12:14 pm

Both parties have agreed for years that the unemployment insurance (UI) system needs reform.  The bipartisan, blue-ribbon Norwood Commission in the mid-1990s called for changes to strengthen the permanent Extended Benefits program, improve the UI system’s solvency, and increase access for low-wage and other disadvantaged workers. Policymakers took a step toward implementing this third goal by including some UI modernization reforms in the 2009 Recovery Act.

But the ongoing House-Senate talks over continuing the temporary federal emergency UI program are the wrong place to negotiate comprehensive changes to a permanent program that has supported jobless workers and the economy for over 75 years.

Congress should enact a quick, clean extension of temporary federal UI benefits, then pursue UI reform through the normal legislative process, giving it the full debate and discussion it deserves.

The President’s budget (see our statement) takes an important step towards UI reform by proposing changes to bolster the system’s long-term fiscal soundness and modernize its financing.  The budget also boosts funding for states to strengthen their reemployment and training services to help the unemployed get back on their feet.

Unfortunately, in their recent proposals to extend federal emergency UI, congressional Republicans have sought only those “reforms” that would deny benefits to unemployed workers and allow states to divert UI funds for purposes other than paying benefits.

UI has played an important role in creating jobs and reducing poverty in the last few years. Congress should consider a range of UI proposals — those from the Norwood Commission, the President, and House Republicans — but should keep in mind that reform should strengthen the UI system, not weaken it.

Governors’ Rhetoric, Budgets Don’t Match on Education Funding

February 13, 2012 at 5:15 pm

Governors in some states that have made deep cuts to K-12 education funding since the recession started are proposing to restore some of that funding next year.  The proposals are a welcome departure from the relentless cuts of recent years.  But, in a number of states, they would leave funding well below pre-recession levels.  For example:

  • Florida Governor Rick Scott, calling for a $1 billion increase, said, “Floridians truly believe that support for education is the most significant thing we can do to ensure both short-term job growth and long-term economic prosperity for our state.”  But Scott’s proposal would only translate into an additional $50 per pupil, after adjusting for inflation.  That’s far from enough to offset Florida’s $1,417 per-pupil cut of the last four years and would leave per-pupil funding 18 percent below pre-recession levels.  (All figures in this post refer to states’ general-purpose “formula funding” for education; see here for details.)
  • Utah Governor Gary Herbert, calling for $41 million in additional K-12 education funding to support enrollment growth, said, “I think it is absolutely imperative for our long-term economic stability that we fund education.”  But, on a per-pupil basis, Herbert’s proposal would actually cut funding by about $68 (1 percent), after adjusting for inflation.  Coming on top of a $636 reduction in per-pupil spending over the last four years, it would leave per-pupil funding 12 percent below pre-recession levels.
  • Virginia Governor Bob McDonnell, highlighting a $438 million increase in K-12 spending in his two-year budget, said, “When deciding where to move or expand, businesses look for a well-educated and well trained workforce.  We owe every student the opportunity to be career-ready or college-ready when they graduate from high school.”  But McDonnell’s proposal only translates into a $58 (1 percent) increase in real per-pupil funding.  That’s a fraction of the $802 cut the state has made since fiscal year 2008 and would leave per-pupil funding 12 percent below pre-recession levels.

All of these governors could have done more to restore education funding, since none proposes to raise significant additional revenue.

States are in the midst of a long and uncertain recovery from the revenue collapse that followed the Great Recession, and it will take years before revenues reach levels adequate to sustain services at anywhere near pre-recession levels.  If states really want to make up for the severe cuts of recent years without cutting into other critical services, they must consider raising additional revenues.