Consumers tend to purchase too little insurance or purchase it too late. Consequently, taxpayers wind up bearing substantial burdens for paying reconstruction costs from extreme events. The 2005 and 2012 hurricane seasons alone cost taxpayers nearly $150 billion. There is much that can be done to better facilitate the role that insurance can play in addressing losses from extreme events, both natural and man-made.
Advocates of restrictive immigration policies often claim that immigrants impose a net burden on the public treasury. The most comprehensive and authoritative study of the fiscal effects of immigration in the U.S. finds, however, that there is a net positive effect. If policymakers are concerned that less skilled immigrants may pose some risk of a fiscal burden, then restricting immigrant access to means-tested public benefits would be a better response than denying them admission. A path to citizenship for these immigrants need not entail a fiscal burden as long as their access to these public benefits and citizenship is sufficiently delayed.
This Issue Brief summarizes events surrounding the current debt crisis in Puerto Rico and presents a two-step plan for restructuring Puerto Rico’s debt and encouraging more effective governance. This plan draws extensively on the previous experiences of debt crises in municipalities on the U.S. mainland. Step one entails the creation of a financial control board (FCB) for Puerto Rico, monitored by the U.S. federal government but involving significant Puerto Rican representation. Step two would be for Congress either to craft a restructuring framework applicable to all of America’s territories, or to extend the existing bankruptcy laws in Chapter 9 of the Bankruptcy Code (with modifications) to Puerto Rico and its municipalities.
Both supporters and critics of the current tax advantages enjoyed by U.S. multinational corporations bolster their arguments with appeals to patriotism: the MNCs and their political supporters argue that allowing inversions or other similar arrangements and instituting another tax holiday for “repatriating” overseas earnings are good for the American economy as a whole; opponents condemn these tax advantages as unpatriotic in depriving the U.S. of enormous sums of needed revenue. But where, precisely, is the “home” to which profits held offshore return? For many purposes, home is where the shareholders are. Determining ownership of U.S. MNCs such as Apple and GE, however, is extremely hard to do. Appeals for policies that promote U.S. competitiveness by presuming U.S. ownership of U.S. incorporated parent companies rest, in the end, on very little.
With the Social Security Disability Insurance (SSDI) trust fund on the verge of depletion, Congress must enact structural reforms to the SSDI program that address and counter the rapid growth in SSDI enrollments in recent years. This brief details a work incentive program for SSDI beneficiaries, called the Generalized Benefit Offset (GBO), which would help get SSDI recipients back into the labor force, enhancing their own economic welfare while increasing economic output on a societal level.
Over the next five years, the effects of the ACA on employer-sponsored insurance will be modest. In the longer run, there is greater potential for disruption, depending on how firms respond to the subsidies available on the exchanges for low-wage workers. In all, only about 15% of the workforce likely will be affected. The impacts of the ACA on firms will vary widely based on three main factors: 1) the size of the firm, 2) the average compensation within the firm, and 3) the degree to which wages within the firm are homogenous or heterogeneous. Keeping in mind that employees pay for all their health insurance, group insurance is not intrinsically superior to private exchanges, and cost trumps choice for consumers, firms will choose the option that maximizes benefits to their workers, takes advantage of the best available subsidies while avoiding tax penalties, and results in the lowest administrative costs. Making all low-wage workers eligible for the same subsidies, whether they acquire coverage on the exchanges or in group plans, would be reasonable and involve less distortions.
Soon after the launch of HealthCare.gov, the exchange websites that formed the vanguard of the Affordable Care Act quickly became notorious for numerous bugs, crashes, and painfully slow loading times. Over a year later, the portals have reached a sufficient level of stability and core functionality on the back end. But what about the front end?
In order for the U.S. to remain competitive in the 21st-century economy, more individuals are going to need to earn workforce credentials and college degrees. At the same time, however, state governments have been facing financial challenges wrought by chronic structural budget deficits and rising Medicaid expenses, translating into reduced support for higher education. Instead, families now are hard-pressed to shoulder more of the burden of paying for higher education. The current system for financing higher education is broken and needs to be fixed.
Credit card minimum payments can act as an “anchor” that causes consumers to pay less of their debt than they otherwise would, leading to higher balances and interest costs, lower credit card scores, increased bankruptcy risks, and in the aggregate, suboptimally high levels of debt in the macro-economy. Policy “nudges,” which aim to increase the monthly amount that individuals pay on their credit card debt, have had mixed results.
The United States has entered a new era of catastrophes, of which floods have been the most devastating. Through its 2012 reform (Biggert-Waters Act), the 45-year old federally-run National Flood Insurance Program has an opportunity to highlight the role that risk-based premiums can play in encouraging individuals to undertake loss reduction measures. But the implementation of this reform is now being challenged due to concerns that residents cannot afford risk-based premiums. The authors of this brief propose that this can be overcome by successfully combining risk-based pricing, required insurance, means-tested insurance vouchers, and mitigation loans, so that individuals reduce their flood risk and are financially protected against future disaster losses, thus reducing the need for taxpayer money for disaster relief in the future.
Financial “robo advice”—an automated service that ranks or matches consumers to financial products—has gained significant attention in the investment industry and on the Hill, but there has not yet been a consensus on how to regulate these new services. Robo advisors often are on par with and can exceed the standards of human advisors, but they don’t fit into the category of fiduciary, and therefore won’t be held to the same regulatory standard that human advisors are. Nonetheless, they are subject to systemic risks and the potential for abuses that can hurt consumers. Professors Tom Baker and Benedict Dellaert offer a regulatory trajectory to follow as the technology of robo advisors continues to develop and expand.
This brief looks at the costs of implementing the EPA’s Clean Power Plan. Specifically, it examines whether implementing the CPP on a state-by-state basis—that is, with each state meeting its own individual target for emissions reduction by 2030, rather than establishing regional targets—is economically efficient. The economic analysis uses data from electricity-generating firms participating in the Pennsylvania-New Jersey-Maryland (PJM) Interconnection to examine the relative economic efficiency of regional versus state-by-state implementation of the CPP. The research indicates that state-by-state implementation would yield the lowest electricity prices in 2030.
In the wake of the stalled Johnson-Crapo bill, the overarching goal of housing finance reform continues to be the efficient provision of long-term fixed-rate mortgages to credit-worthy borrowers in all markets throughout the business cycle. This Issue Brief analyzes three newly-proposed plans for reforming the U.S. housing finance system: (1) a proposal from Jim Parrot et al. to merge Fannie Mae and Freddie Mac into a new government corporation; (2) Andrew Davidson’s proposal for mutual ownership of the GSEs by mortgage originators; and (3) an opposing plan from Mark Calabria, arguing against securitization altogether and for a return to the regime of originate-and-hold.
Are FDA premarket trials on new drugs and medical devices excessive and do they inhibit consumer access to new and much-needed technologies? Or may they actually be insufficient and expose consumers to too much risk? To address this question, the new research described here compares the regulatory approaches of the U.S. and the European Union for second and third generation coronary stents. The research supports the FDA’s argument that reductions in their standards for device approval would reduce consumer welfare. Nevertheless, the research also suggests that in some circumstances, FDA reform proposals advocating for more relaxed premarket requirements but enhanced post-market surveillance would yield considerable welfare gains.
This brief offers a 5-year retrospective on Dodd-Frank, pointing out aspects of the legislation that would benefit from correction or amendment. Dodd-Frank has yielded several key surprises—in particular, the problematic extent to which the Federal Reserve has become the primary regulator of the financial industry. The author offers several recommendations including: clarification of the rules by which strategically important financial institutions (SIFIs) are identified; overhauling the incentives offered to banks; instituting bankruptcy reforms that would discourage government bailouts; and easing regulatory burdens on smaller banks that are disproportionately burdened by the SIFI designation process.
This Brief focuses on ways in which private firms are adopting tools that mirror public law instruments—such as internal carbon fees (similar to a public carbon tax) and private cap-and-trade schemes (like public emissions trading schemes)—to reduce greenhouse gas emissions and address climate change. These private case studies suggest that significant progress in reducing emissions can come from embedding emissions reduction programs into core business strategy. Moreover, these case studies indicate that climate change, as a global issue, requires public regulators to recognize the potential contributions of global multinational firms.
Perceptions of how illegal immigration affects native residents have shaped policies, but these policies are likely ineffective both in general and in their specific focuses, like in lowering crime and improving native employment. Policymakers should consider objectively the effects of past policies such as IRCA and 287(g), before instituting new, non-data driven mandates and legislation in response to public demand.
The 113th Congress extended the research and development (R&D) tax credit through the end of 2014 by passing the Tax Increase Prevention Act (H.R. 5771), which President Obama signed into law on December 19, 2014. That the fate of this credit in 2015 remains unknown is not surprising. This brief explores the history, logistics, and policy implications of the temporary R&D tax credit, and offers recommendations for additional research that would help determine the merit of making the credit permanent. Using new, restricted-access IRS data and an instrumental variables strategy, the brief offers an unbiased estimation of the effectiveness of the R&D tax credit, showing that corporate research intensity—the ratio of R&D spending to sales—is indeed highly sensitive to the tax subsidy rate. When it gets cheaper for firms to spend on qualified R&D, they actually do spend more, as policymakers hope.
Momentum seemed to be escalating in early 2014 for the passage of a comprehensive reform package of the housing finance system in the U.S., but that was not to be, as neither political party fully supported its passage, derailing the progress made over the previous few years.
While consensus around the primary features of reform has grown, new research that questions these assumptions needs to be addressed and the inertia keeping the country mired in the current, uncertain system needs to be overcome. In this brief, we will discuss the progress made thus far en route to reform, analyze the disparate elements of the leading proposals, and incorporate new findings that will shape the additional research that must be done before policymakers can agree on the best path forward.
When the state and federal health insurance exchanges were introduced in 2013, much attention was paid to the logistics of their launch. Nearly a year later, policymakers should now be looking at a different question: how can we collect and use data from the exchanges to understand how consumers think about insurance choice, so as to make the exchanges function better?
It’s a tough time to be a renter. According to data from the U.S. Census, half of all renters, and 83 percent of renters with incomes under $20,000, paid more than 30 percent of their incomes in rent in 2011. One commonly-proposed policy solution to declining rent affordability is the construction and preservation of low-income housing. But this will only ameliorate the situation temporarily.
Detroit filing for bankruptcy had significant implications for people beyond the residents of the city. There were consequences for pension beneficiaries and bondholders that call into question the laws that protect pension and bond creditors during municipality financial distress.
The behavior of investors before and after the passage of JGTRRA suggests that they divide into “clienteles” based on dividend payouts when the tax disadvantage of dividends varies across investors. Policymakers therefore need to build a proper appreciation of investor behavior, particularly among affluent households, into their thinking about any tax reform proposal affecting capital income. If dividend clientele effects are ignored, estimates of the revenue that can generated by changes in capital tax rates will be off-base.