Lessons from the Debt Ceiling Crisis: Bipartisanship in the Tea Party Era

(originally published September 6, 2011)

On the day that the bipartisan debt ceiling deal was announced in August 2011, the flurry of comments from lawmakers included two that stood out, both for their candid assessments of the agreement, and for the stark contrast between them. While Speaker John Boehner (R-OH) declared that, “I got 98% of what I wanted; I’m pretty happy”, Rep. Emanuel Cleaver (D-MO) lamented that the deal amounted to a “sugar-coated Satan sandwich”. The two views could not be more diametrically opposed.

They illuminate the disequilibrium within the final deal, despite President Obama’s determined efforts to craft a balanced solution. They show the absence of bipartisanship in the content of the deal, even though the looming consequences compelled bipartisan votes for final passage.

This outcome was principally due to the obstinate position of the Tea Party faction in the House (rather than Republicans in general). Their actions also troubled many Republicans who were concerned about the consequences of inaction. The Tea Party’s role displays the power of a sizeable extremist faction to reject bipartisanship and impose its demands at any cost, in this case jeopardizing the nation’s credit rating and overall economy, with ominous future implications.

How could such an outcome have occurred in the era of President Obama’s tenacious emphasis on bipartisanship and post-partisanship as cornerstones of his Administration and its policies? Does this mean that bipartisanship and post-partisanship are antiquated concepts? What does this portend for the prospects of bipartisanship in the future, starting with the “super committee”?

Factionalism Surpassed Partisanship in the Evolution Toward a Deal

Among the many twists and turns leading up to the resolution of the crisis, a few dynamics which curtailed bipartisan efforts were paramount in the evolution of the final deal:

• The Tea Party faction in the House Republican Caucus took an extreme position, maintained uncompromising allegiance to that position, used their leverage as a voting bloc, and refused to negotiate on anything that wasn’t in their wish list, even refusing to consider compromises proposed by Senate Minority Leader McConnell, the Simpson-Bowles Commission, and the conservative Republican Senators in the “gang of six”.

• In contrast with battles between opposing policies (which lead to compromises among policy options), the Tea Party faction shifted the terms of debate to a battle between Democratic policy and the Tea Party’s unwillingness to negotiate at all. Their notion of compromise was to require total capitulation by the Democrats on the substance of the bill in exchange for the procedural concession of allowing a bill to proceed. They simply did not care if there was no action on the debt ceiling, and, regrettably, those who don’t care have a tactical advantage.

• The Tea Party House-members co-opted the agenda of grass roots Tea Party activists to advance a different agenda. Whereas the objective of the grass roots movement is to get the government’s fiscal house in order by reducing the debt and eliminating borrowing for deficit spending, the objective of many in the House faction is to minimize – some would say deconstruct – the federal government. Rep. Cantor’s call for FEMA disaster aid to be offset by cuts in other programs exemplifies this. The objective of the grass roots activists can be achieved through balanced solutions (combining spending reductions and revenue enhancements), while the House faction’s objectives are thwarted by this approach.

• Speaker Boehner and Minority Leader McConnell understood the importance of raising the debt ceiling, and the dire consequences for the country and the economy if it were not raised. Although McConnell’s workable solution and Boehner’s negotiations with the President did not come to fruition, their influence was vital in reaching the eventual agreement. Yet, in the months leading up to the August 2nd brink of disaster, they utilized the Tea Party members’ intransigence to strengthen their own bargaining leverage, which intensified the impasse.

• Once it was clear that Tea Party faction was not willing to negotiate or compromise on any elements that were critical to a balanced solution, Speaker Boehner faced a choice between advancing legislation that could be supported by a coalition of (a) the Tea Party members and the rest of the House Republican Caucus (many of whom recognized the perils of an extended crisis), or (b) the majority of House Republicans and the House Democratic Caucus (as well as the Senate Republicans and Democrats).

• Speaker Boehner chose to advance legislation with a coalition of Tea Party members and the other House Republicans, even though he knew it wouldn’t pass the Senate. His bill (prior to the final deal) met all of the Tea Party members’ escalating demands, from the inclusion of a balanced-budget amendment to the exclusion of any revenue increases, without any compromises. Yet, in the Tea Party’s eyes, it was a compromise, simply because it included a rise in the debt ceiling, which is normally non-controversial.

• The net result is that the Tea Party members first caused the problem and then castigated President Obama for presiding over a problem. The Tea Party faction entered an arena that was always governed by certainty, injected uncertainty into the process, and then wailed about businesses facing uncertainty. Their rebukes are disingenuous at best, since the Tea Party faction created the problems which it claims to abhor.

Lessons Learned for Future Bipartisanship

Some suggest that the prospect for future bipartisan / post-partisan efforts (both procedurally and substantively) has been debilitated, since the politicization of the debt ceiling sacrificed problem-solving in favor of ideology. But that view disregards the evolving nature of bipartisanship, the lessons learned, and the opportunity for progress. Bipartisanship remains possible, following adjustments that have been necessitated by the Tea Party faction’s tactics.

Bipartisanship based on rational policy, pragmatic problem-solving, and a spirit of goodwill should give way to a revised practice of bipartisanship based on the exertion of strength and strategic leverage. In the new incarnation, the fundamental tenet of collaboration – that all parties will be sensibly motivated by mutual benefit to negotiate toward pragmatic results for some of their desired outcomes – should be replaced by a real politik principle – that political power must be used to pressure parties to negotiate in good faith. At that point, benevolent negotiations can ensue in which parties relinquish some ground to achieve bipartisan prioritized objectives.

The lessons learned from the debt ceiling debacle include the revised approach to bipartisanship and a number of mechanisms that could enhance bipartisan outcomes, even when legislative efforts are obstructed by the intransigence of the Tea Party or other factions:

1. When the Tea Party politicizes or intensifies an issue, the President could develop and publicize a purist solution of his own that could be implemented by Executive Order, which he keeps in his back pocket in deference to bipartisan solutions. Doing so will show the Tea Party what could happen if they do not join bipartisan negotiations in good faith. It will motivate their participation and minimize their intransigence. Since those who do not care about inaction have a tactical advantage, this approach will give the Tea Party faction an incentive to care and negotiate meaningfully.

2. When the Tea Party faction makes an issue contentious, others should link the issue’s underlying policy and values with the grass roots Tea Party activists’ principles. By linking the two, the Tea Party House-faction’s obstruction of progress on the issue would make them vulnerable to criticism from Tea Party activists that they are violating their own principles. The inherent inconsistency would also illuminate ulterior motives.

3. When Tea Party members are intransigent, Democrats should welcome other Republicans, whose goals or values are obstructed by Tea Party positions, as negotiating partners. Focus should be on areas of potential common ground, where a failure to act would pose tangible risks). This could isolate Tea Party members, transcend their opposition, encourage them to come to the negotiating table, and achieve substantive results where consensus is possible.

4. Speaker Boehner has relented to the Tea Party faction to hold his caucus together, both for party unity and to solidify his position at the helm. Yet, he also has an interest in Republicans not being seen as extremist, retrogressive, and dogmatic, which could alienate Independents and swing voters. When facing Tea Party extremism and intransigence on major issues, he should craft bipartisan coalitions rather than allow the Tea Party faction to drag other Republicans into precarious positions. By reaching across the aisle instead of succumbing to Tea Party demands, he can advance solutions and sound policy with broader benefits.

5. In addition to a legislative or “inside” strategy, a public opinion or “outside” strategy can focus public attention on the risks to individuals, families, and businesses of relenting to Tea Party recalcitrance. Outside-strategies could target the districts/states of key legislators and clearly communicate the benefits of stymied legislation, especially when bipartisan values are at stake. Public support can urge Republicans to repel policy and political risks of inaction and obsequiousness to Tea Party agendas. Democrats and Republicans can even collaborate when Tea Party members threaten basic principles or vital programs. Tea Party members may not need the support of independents and swing voters, but many other Republicans do.

6. The outside-strategy can also expose the motives, extreme positions, and intransigence of the Tea Party faction by drilling down to granular explanations of their underlying goals, and the short- and long-term consequences that their policies would cause. Critiques should impose transparency and accountability on the Tea Party faction, enhance scrutiny of its judgment, and increase pressure on others for bipartisan, balanced solutions.

7. The Senate leadership sometimes foregoes floor votes due to the likelihood of Tea Party-led filibusters (and insufficient votes for cloture). Yet, deferring floor votes sends the wrong message. Senate leaders should bring legislation – especially when crafted with bipartisan input – to a vote, even if there will not be enough votes to proceed. In the debt ceiling crisis, doing so would have shown: (a) the efforts being made to find bipartisan common ground, (b) the policy solutions that could be adopted if intransigence were overcome, (c) which Senators are willing to take action, and (d) the Tea Party’s hold on Republicans, forcing them into obstructionist roles as “the Party of No”. The McConnell-Reid and Gang Of Six proposals could have been advanced in this way, intensifying pressure for a bipartisan solution.

8. Once the Senate brings up legislation, if it is halted by a filibuster, then its opponents will be identified and their motives will be on full display, facilitating an outside-strategy to mobilize public support. A filibuster is not a failure, but rather a speed-bump en route to the next stage of the process. If legislation reaches a vote and passes in the Senate but the House refuses to pass a bill that can send the legislation to a conference committee, then the Senate’s passage of its preferred policies still strengthens the President’s position, enabling him to convene a bipartisan group of Senate and House leaders to negotiate a solution.

The “Super Committee” for Debt Reduction

The “super committee” for debt reduction is an unusual construct with unique rules and incentives for action. The trigger will be a “sword of Damocles” that encourages its twelve members to find common ground for bipartisan solutions. Numbers 2 through 6, above, could play an important role and foster mutual respect. An outside-strategy, by which public support urges balanced bipartisan policy choices and illuminates the Tea Party’s objectives, can reinforce the need to choose options that distribute the fiscal pain of debt reduction fairly. As the “super committee’s” work product will affect every American, it is essential for their work to reflect the public’s sensibilities for fairness and not impair those who are lower on the socio-economic ladder.

The Challenge of Bipartisanship Going Forward

The debt ceiling crisis exemplified the challenges faced by those who seek to instill a bipartisan or post-partisan ethic of cooperation. Despite the set-back, prospects for bipartisanship remain, and may be more necessary now than ever before. It should, however, be viewed through a different lens. In contrast with bipartisanship motivated by Republicans’ and Democrats’ good faith cooperation to advance shared values for the common good, the Tea Party’s tactics necessitate the use of power politics to soften recalcitrance, compel bipartisan negotiation, and, at that point, collaborate to advance vital mutually-held objectives.

In essence, instead of starting off on a bipartisan path based on mutual respect and trust, given the current political climate, it seems necessary to work up to it.

The Tea Party’s 4 Themes and Their Antidotes For the November Election

Widespread frustration among Americans is sure to play a major role in the November midterm election. The lingering recession and intensified partisanship in Washington have created rancor and concern which, in many cases, was effectively harnessed in primary elections by Tea Party candidates. Many votes were cast to protest the status quo, and many voters have become susceptible to the most extreme positions that candidates are willing to offer.

Although a spirit of bipartisanship is vital to effective government, it is put on hold for elections, when differences between candidates are illuminated and messages are crafted accordingly. In that context, it is necessary to understand the underlying motivations and themes that led to primary election victories for Tea Party candidates, address those themes with vision instead of anger, and urge the electorate to cast their votes for balanced judgment and pragmatism.

The Tea Party’s 4 Major Themes

The Tea Party has four major characteristics, two of which were central to its inception, and two others which emerged as the primaries became “open season” against the government and the Tea Party attracted people who had other agendas.

1. Fiscal Responsibility: The Tea Party was born out of concerns about Federal spending, the national debt, deficit reduction, taxes, and capital infusions for banks and automobile manufacturers. Although the financial supports for banks and auto makers were effective in staving off a much deeper economic crisis and have largely been repaid to the Federal government, they caused resentment among many because large corporations were given greater assistance than that which was given to families facing personal income or mortgage problems. Fiscal responsibility remains a major theme – both for the Tea Party and the country as a whole – as the US will continue to face deficit, debt, spending, and tax policy choices during and beyond the current recession. These issues were the policy cornerstone of the movement, and are legitimate topics for a national debate on the priorities of government.

2. The Role of Government: Dovetailing with fiscal issues, the ideological cornerstone of the Tea Party is its belief that the scope of the Federal government should be severely reduced. Its wrath was aimed at financial support that kept banks and auto makers in business, the planned sunset of tax breaks, and legislation to reform our health care and financial industries. Many in the Tea Party would like the Federal government to limit its focus to defense and international issues, relegating the rest to the states. Yet, this is just the latest chapter of the debate on Federal versus states’ rights which dates back to our nation’s inception. The Tea Party objects to two of the government’s fundamental social responsibility roles that have increased since the 1930s: providing a social safety-net, and regulating industries which have national impacts on health, safety, the environment, consumer protection, fairness, and the economy. This philosophy is also reflected in the Republicans’ recently released “Pledge to America” document.

3. Anger: Many Tea Party votes were cast to protest the status quo, rejecting Republican office-holders who were not stridently opposed to TARP (even though it was crafted by a Republican president), the economic stimulus, and health care and financial industry reforms. The common denominator among Tea Party candidates who rode anger to victory was that they did not hold offices which would have saddled them to the ugly economy of the past three years, even if that resulted in nominees who are inexperienced, have shortcomings that usually inhibit electability, or hold views that are far outside of the mainstream. The “rejectionist” atmosphere also welcomed radical proposals that conflict with fundamental tenets of American society, which were marketed as dramatic departures from the status quo and a means to limit the scope of government. They include the elimination or draconian constriction of Social Security, Medicare, Medicaid, Unemployment Insurance, civil rights laws, reproductive rights, the Environmental Protection Agency, and the Departments of Education and Energy. Tea Party candidates have grasped for positions to differentiate themselves from the mainstream, despite consequences that even they would probably abhor if their proposals were to be enacted.

4. Demonization: As the Tea Party gained traction, it became an outlet for resentments and malevolence that scorn 2010 America. The movement was hijacked by those emboldened to use it to spread anti-immigrant, racist, anti-gay, and anti-Islamic sentiments and policies. The demonization of demographic groups was certainly outside of the original scope of the Tea Party, and yet, its electoral value insulated it from rebuke by usually responsible leaders. Vitriol was focused on President Obama (e.g., the “birther” movement, venomous placards at Tea Party rallies, and Newt Gingrich’s recent rants), immigrants (e.g., Arizona’s law that countenanced racial profiling), and Muslims (e.g., the castigation of the Islamic Cultural Center in New York City). Such vilification exhumes the baneful and destructive pattern from our nation’s past when the disenchanted seek scapegoats and turn their frustration into pernicious demonization. Even the Tea Party itself acknowledged this (laudably) by expelling one of its leaders, Mark Williams.

Antidotes to the Tea Party’s Themes

Candidates who ignore the Tea Party’s main concerns and message do so at their peril, since frustration is not the exclusive domain of the Tea Party. Candidates can address the four underlying themes while staking the territory as the effective, sensible, pragmatic choice.

1. Fiscal responsibility can – and must – be directly addressed, as it is a major issue for the overall electorate. Instead of amorphous slogans about spending cuts, the discussion should focus on jobs, economic growth, tax rates, and deficit reduction to help people at the local level.

Job creation and economic growth are very likely to accelerate due to initiatives by President Obama and Congress, such as small businesses financing legislation, economic stimulus projects, and the effort to double exports within five years. There are at least two other initiatives which would further bolster jobs and the economy. First, job skills training can be made widely, conveniently, and inexpensively available through e-learning. Unallocated stimulus funds could be used by for e-learning programs that would bridge the gap between the jobs that are available and the skill sets of displaced workers who seek employment. Second, a network of localized business parks throughout the US could add jobs and accelerate key high-growth industries by co-locating numerous companies that are in the same emerging industry to facilitate leveraging of each other's research, skills, resources, patents, and manufacturing and fulfillment capabilities. Each park would become a hub for job and economic growth with synergistic benefits for all involved (please see “Development of Industry-Specific Technologies for the Future Economy via Business Parks” for more detail).

Tax rates will remain reduced for the first $250,000 of annual income for all families. For the highest income earners, the decision on tax rates above that level must be balanced with another focus of fiscal responsibility: deficit reduction. Since the planned sunset of the tax breaks already gave certainty to high-income earners (i.e., that tax rates would return to their prior levels after 2010), any additional tax breaks must consider the economic and political factors. (Please see “Bush Tax Cuts: The End of a Tax Holiday or the Start of a Tax Hike?” for further discussion.)

Deficit reduction is important to all – from Tea Party voters to liberals – to ensure the long-term sustainability of our economy. The bipartisan National Commission on Fiscal Responsibility and Reform will recommend ways to reduce the debt and deficit. Americans of all ideologies will be called upon to accept tough measures, possibly including means-testing for Medicare benefits, reductions of military spending, phasing out spending for certain programs, returning to the tax rates of the 1990s, increasing taxes on health insurers that impose excessive premium hikes, and increasing taxes on corporations with excessive executive compensation.

2. The role of government is an issue on which Republicans and Democrats historically and currently disagree. It is a legitimate topic for debate, and can best be addressed by specifically identifying what the American people would lose if government were limited as advocated by Tea Party candidates and the Republicans’ “Pledge to America” document. The electorate would not take kindly to the prospect of Social Security and Medicare being privatized, Unemployment Insurance being dismantled, severe reductions in low-income assistance causing homelessness to skyrocket, education programs being dismantled, companies polluting the environment at will, oil companies jeopardizing our energy security, health insurers radically raising premiums, financial companies taking advantage of consumers, civil rights laws being eliminated, and reproductive options being directed by the government.

3. Anger that leads to a protest vote is based on the illusion that the views of one candidate matter less than those of another. It can be countered by urging voters to demand specifics from the candidates, evaluate them, and choose wisely. Voters must know that, whoever they choose, that person will bring a wide span of views, not only the few that they reiterate during the campaign. It is not enough for a candidate to be against something, or to offer banal platitudes like “It’s time to give government back to the people” which don’t offer any clue as to what they would actually do. Not all incumbents are the cause of problems, just as not all outsiders are the cure. In this sense, each race should be localized, with a focus on the choice between the particular candidates, rather than on national trends.

Radical proposals which stem from anger can be countered with sound policies toward shared objectives. President Obama and Congress instituted sound policies and programs to resurrect our economy from the fiscal epidemic, but hopes for a quick cure were inflated, as impacts need more than 21 months to work through the economy. Since these efforts are very likely to bear fruit in the coming months, voters would benefit by letting the policies take their full effect without causing a course correction. Conversely, if all of the Tea Party candidates were elected, their proposals on health care, education, environmental protection, senior citizens, low-income assistance, and energy security that would be destabilizing, inimical to societal needs, and detrimental to consumers in deference to corporate interests. Most Americans would soon regret the deconstruction of sacrosanct programs and policies. In this sense, the election should be nationalized, with full attention to what Tea Party candidates say they would do. This ominous specter would bridge the enthusiasm gap, even among independents and moderate Republicans.

4. Demonization is destructive of the social fabric which unites us as Americans, is based on distrust or prejudice, has neither a factual nor ethical basis, and obstructs responsible policies. Anyone seeking a more harmonious society should reject hateful and antagonistic rhetoric, and insist on civility. Decency and civility are hallmarks of American culture that eschew venomous or slanderous comments aimed for political manipulation. Recent comments about the President by Newt Gingrich created a “straw man” with false and baseless allegations, and then attacked it with vitriol that denounced the falsified characteristics. Americans of all political stripes should condemn such tactics, and insist on sticking to the issues. Civility enables bipartisanship, which bolsters the people’s faith in their government, enhances voter enfranchisement, and improves legislative outcomes. Those who claim that bipartisanship is impractical, naïve, or undesirable usually lack either the mutual respect to find common ground or the desire to put forth effort in good faith toward pragmatic, non-ideological solutions. We should all honor President Lincoln’s decree to act “with malice toward none, with charity for all”.

The debate on the Islamic Cultural Center in New York showcases both the harm of demonization and the opportunity to find common ground. Through collaboration and civility, a compromise might be reached. Proponents do not want to move to another site, but are open to interfaith access. Opponents do not want an Islamic facility at that site, but don’t mind other faiths having a facility there. One scenario might begin by renaming the project the “Institute for Teaching of Religious Understanding and Social Tolerance” (a.k.a., “I-TRUST”), with two or three areas for diverse religions to hold prayer services, a program of interfaith study, interfaith collaboration on community-oriented projects, and a cultural center with sports facility that is open to all people.

The November Election in a Nutshell

There are lessons to be learned from the traction that the Tea Party gained in Republican primaries. Yet, there is an antidote for each of the Tea Party’s four main themes. The election should be nationalized with regard to the constructive policies that are beginning to take hold, and the proposals offered by the Tea Party while, at the same time, localizing each race as a choice between the policies of specific, identified candidates. The widespread frustration and anger is understood and acknowledged. But the solution is found in the vision for pragmatic, balanced, sound policies, not turning over the keys to those who would reverse America’s progress.

Would the Sunset of the Bush Tax Cuts Be the End of a Tax Holiday or the Start of a Tax Hike?

As Republicans resurrect their favorite mantra in seeking to reduce taxes for the wealthiest Americans, the debate on the Bush tax cuts is escalating. It includes the economic debate over the impact of the tax reductions for high-income earners, and the political debate over the message that would be sent by either extending the cuts or allowing them to expire. Proponents must prove that the tax cuts will achieve their intended economic impact, and the tax cuts must not be mischaracterized for political purposes. With the midterm elections upcoming soon, there is a partisan overlay to this issue which deflects bipartisanship, and the issue must be addressed in this context.

The Economic Debate: Are Tax Cuts For the Wealthy Effective?

The economic debate is essentially an anachronism, the latest progeny of the “trickle-down” principles of Reaganomics. Republicans suggest that high income earners need the tax cuts to feel financially comfortable enough to invest in business, which then creates jobs and stimulates the economy. But this view is inherently flawed, and there are better alternatives to achieve the desired impact.

First, these tax cuts are based on a self-serving argument that was concocted years (maybe generations) ago – by the wealthy, for the wealthy – to justify their accretion of largesse. The “indirect benefit” notion is a messaging smokescreen, rooted in elitist ideology, which asserts that giving cake to the wealthy will enable others to gather some crumbs. If the ultimate objective is to help the non-wealthy, then such support should be provided to them directly.

Second, with or without tax breaks, high-income earners will invest where they find a good return-on-investment, which is driven by the business sector’s ability to attract investment through sound business practices. High-income earners already can accelerate the economy through investment of their vast resources, and their desire for good investments is not dependent upon a tax cut. Putting more tax cut dollars in their hands does not mean that they have to invest their money at all, thus negating the “trickle-down” assumption. They make their choices based on what is best for them, not what is best for the economy.

Third, a tax break for the wealthiest 2% of people is not the same – and not as effective – as a tax break for businesses. The proposal is for personal tax cuts, to individuals, and most high-income recipients do not personally own a business. If the goal is to stimulate business and economic growth, then the tax breaks should be directed to small and medium sized enterprises (SMEs) which fuel local economies, and which would then be able to hire more employees and grow their business. For even greater impact, Federal stimulus dollars can be applied to infuse capital much more directly into businesses and the economy.

Fourth, the suggestion that the Bush tax cuts for the upper 2% of earners cause sustainable economic growth is absurd. If they did, then our nation would not have faced economic collapse in 2008.

Tax cuts for the middle class and low-income Americans have a much more salutary effect on the economy. They boost consumption and broad-based consumer confidence, directly bolstering economic growth, which is why President Obama seeks to extend these tax cuts. Continuing tax breaks for the middle class would also spur investment, including in the business sector, with an economic impact like investment from high-income groups (i.e., less investment per capita, but from vastly more people), and more families would reap the benefits directly, rather than scavenging for crumbs.

Tax cuts for SMEs would also have a much more direct impact on economic growth than tax cuts for the wealthiest 2%. The latter would accrue to individuals who may or may not invest any of the money, and may or may not invest it in American-owned companies. A tax break for SMEs would directly accrue to businesses that could then hire employees, purchase capital goods, extend the reach of their marketing efforts, and take other actions that would directly grow the economy.

In short, the Bush tax break for high-income earners is bad economic policy that does not achieve its stated objectives. There are more effective means toward economic and job growth.

The Political Debate: Would It Be the End of a Tax Holiday or a Tax Hike?

The Bush tax cuts were designed to expire. Even many Republicans realized it was bad policy to make them permanent, causing President Bush to institute them through Budget Reconciliation, which limited their duration to ten years. So, since they would need to be reauthorized in order to continue, would the decision not to continue them be sound fiscal policy and social fairness, or a tax hike?

Republicans suggest that a decision not to extend the tax cuts for high-income earners would amount to raising taxes. Democrats suggest that the tax cuts were designed to expire, and that their expiration is merely the end of a tax holiday.

First, since these tax cuts were only a temporary benefit, arguing that they must be extended is tantamount to trying to create a de facto entitlement for high-income earners. The proposition of creating an entitlement for those who need it the least is prima facie unfair, unnecessary, and presents a stark irony (some might say inconsistency) in light of pervasive Republican aggression against entitlement programs for disadvantaged Americans.

Second, the business and investment communities quest certainty for planning and fiscal management. As Mayor Bloomberg put it recently, “…uncertainty is not good. You don't make spending decisions, investment decisions, hiring decisions…when you don't know what's going to happen.” Yet, the tax cuts for high-income earners provided such certainty, i.e., that the tax cuts would expire at the start of 2011. This was clear in the law that created them, and it enabled the beneficiaries of the tax cuts to plan accordingly Belief that the tax cuts would continue beyond 2010 is somewhere between wishful thinking and pure fantasy. Thus, it is a fallacy to suggest that not extending them equates to a tax hike.

Third, many who are calling for the extensions of the tax cuts for the upper 2% of earners are the same people who object to rising government spending by agencies that have their budgets increase but never decrease. They complain that a new, temporary budget increase does not entitle the agency to expect the same level of funding (or more) in the future. Yet, when it comes to tax cuts, they violate their own principles, by arguing that a temporary tax break should create an expectation of permanence.

Fourth, the Bush tax cuts triggered the decimation of the 2000 budget surplus and the upward spiral of the annual deficit, surpassing a trillion dollars by the end of the Bush presidency. Many opponents of the Bush tax cuts cited the impact that such an enormous giveaway would have on the national debt, and hence, on the American economy over the long term. With debt reduction being so urgent now, continuing to drain the Federal treasury by giving tax cuts to the highest income earners – which would necessitate borrowing to pay for them – would be irresponsible at best. In fact, it could destabilize our economy for decades to come, as an exorbitant share of Federal dollars are allocated to paying the debt service, rather than providing services to Americans. Even the proponents of these tax cuts recognize the debt problem and call for deficit reduction. Their call for tax breaks is inconsistent with their own stated priorities, thus illuminating the purely political objectives of alleging a tax hike.

Therefore, it is illusory to suggest that honoring an intended sunset of a tax break would amount to a tax hike, and a claim to the contrary is a mischaracterization. A tax holiday was given to high income earners, and insisting that it be extended is like requiring Macys to extend their Presidents’ Day sale.

The Bottom Line

Congress may still choose to offer new tax cuts to high-income earners. But it must first be fully satisfied that doing so would stimulate the economy in the manner and to the extent that its proponents allege, and that there are not other alternatives that would be more effective in achieving the desired results. This is a high bar to hurdle. If the economic and political factors are applied objectively, these tax cuts will fall short.

A 10-Point Program for Job Creation and Economic Transformation

Job growth is a top priority right now for most government officials, regardless of party. But recent job-growth proposals have mainly offered measures to avoid layoffs, assist those already unemployed, and induce only incremental hiring, mostly in well-established industries. Although the recent proposal by Sens. Chuck Grassley (R-Iowa) and Max Baucus (D-Mont.) was encouraging for its bipartisan process, its job-related provisions suffered from these limitations.

We have reached the point when the USA must rapidly stimulate major, broad-based job growth over a sustained period of time. The focus should be on transformative economic development in key industries that hold the promise of becoming the drivers of economic prosperity and exports for years -- and even decades -- to come. Rather than merely keeping workers and the economy afloat, we must invest in industries that will create the need for workers, both today and over the long-term, on a massive scale. When spending tax dollars on job growth, the emphasis should be on emerging industries, to invigorate the demand for workers in companies with global high-growth potential.

As President Obama stated on February 16th, "Whether it's nuclear energy, or solar or wind energy, if we fail to invest in the technologies of tomorrow, then we're going to be importing those technologies instead of exporting them. We will fall behind. Jobs will be produced overseas, instead of here in the United States of America. And that's not a future that I accept."

Starting Points for the "Jobs Bill"

The "Jobs Bill" that will emerge from Congress should include support for job retention and incremental hiring, as well as for the unemployed, both to stop our economic bleeding and to capture the "low hanging fruit." These steps include aid to state and local governments, a payroll tax credit for small businesses that hire unemployed workers, assistance to homeowners who are in jeopardy of foreclosure, and extension of unemployment insurance and COBRA benefits. The bill should also accelerate the Obama Administration's initiatives for highway and bridge construction, energy-efficiency retrofits of homes and buildings, and a seamless national broadband infrastructure.

Long-Term Job Growth and Transformation via the "Jobs Bill"

Yet, to maximize its impact in the near-term and lay the groundwork for future prosperity, the "Jobs Bill" must fully embrace President Obama's vision for economic transformation fueled by investment in innovation-intensive industries which will propel exports and economic primacy of the US economy for decades to come. The US must aggressively grab the advantage and secure the leadership role in these fast-evolving global industries. The key technologies and industries that should be designated as top national priorities include: renewable energy / clean energy, mobile telephony, broadband computing, biotech and health care, water desalinization and clean water production, transportation safety, homeland security, recycling and waste management, and environmental protection and remediation.

Although there is already considerable activity in the US in these industries, the progress is far short of positioning the US as the dominant world leader in them. The "Jobs Bill" provides a prime opportunity to galvanize our aim, commit our resources, and accelerate our activity in these transformative industries. The level of commitment and support should be akin to that given to the "Manhattan Project" in the 1940s and space exploration in the 1960s.

President Obama reiterated the case for such a commitment, and the high stakes involved, during his State of the Union address last month, in the context of clean energy and energy efficiency: "I know there have been questions about whether we can afford such changes in a tough economy... But here's the thing -- even if you doubt the evidence, providing incentives for energy-efficiency and clean energy are the right thing to do for our future -- because the nation that leads the clean energy economy will be the nation that leads the global economy. And America must be that nation."

The importance of the "Jobs Bill" in advancing US long-term leadership and economic prosperity can be illustrated by envisioning the WTO trade negotiations of 2025 and 2035. The US will seek to secure fair trade and competitive advantages in industries with maximal worldwide growth opportunities in those eras and beyond. The question will be whether the US is trying to wrest a foothold from others, or be in the driver's seat. We must work TODAY to build the competencies, technologies, infrastructure, and supportive services that enable the US to lead in the high-growth industries of the future.

10-Point Program for Job Growth Now and in the Future

A program could be included in the "Jobs Bill" to propel near-term and long-term US job growth, exports, innovation, and economic leadership in the global economy. To be eligible for government assistance and benefits under this program, a company would have to be involved in one or more of the national priority industries identified above, and need to be engaged (or seek to be engaged) in at least one of the following activities:

(a) research and development of a new technology or service for which there is a high growth potential;

(b) manufacturing of a product utilizing a high-growth potential technology in connection with a patent or patent pending;

(c) implementation of a marketing and sales plan that would reach, or significantly expand penetration into, export markets with a demonstrable high-growth potential;

(d) execution of a business model that would bundle products and/or services relating to one of the targeted industries, by partnering with at least one other US-based company, for enhanced reach, scope, and impact in high-growth export markets; and/or

(e) fulfillment, order processing, inventory management, transportation, and/or delivery services for companies engaged in one or more of the targeted industries.

For qualifying companies - including start-ups, micro-enterprises, and existing companies - government assistance and benefits under this program would include:

(1) an enhanced Research and Development Tax Credit, for companies described in paragraph "a", above;

(2) an Expedited Review and Processing of Patent Applications, in the case of companies described in paragraphs "a" and "b", above.

(3) a Payroll Tax Credit for two years for each unemployed person hired by a company of any size, if the hire is directly and predominantly for the above activities;

(4) a Loan, for companies described in "c" and "d", above (re: exports) to pay the salary of new hires for one year, with such loans being repaid over the ensuing four years (which could include a requirement to retain the employee for at least one more year);

(5) Job Skills Training assistance for employees who are directly and predominantly engaged in the above activities;

(6) Technical Assistance to start-up companies and micro-enterprises for help in formation, incorporation, and otherwise establishing their company;

(7) expedited Processing Assistance with documents and procedures to enable exports;

(8) Technical Assistance with fulfillment, transportation, and delivery of exports; and

(9) an Online Partnership Development Match-Making Directory for companies that seek to access / provide value-added services from / to other companies in their industry, and for other companies to identify market opportunities that could justify additional hires;

(10) development of a Network of Business Parks throughout the US that are dedicated to accelerating the key national priority industries by co-locating many companies engaged in the same emerging industry so that participants can leverage each other's research, resources, and manufacturing and deployment capabilities, resulting in synergistic benefits for all participants (extended discussion of this proposal is found below, in blog post entitled "Job Creation as Job One: 3 Ideas for The Forum on Jobs and Economic Growth", December 2, 2009).

A 10-Point Plan to Drive Down Health Care Costs & Expand Coverage

Without health care reform, premiums are expected to escalate dramatically in the upcoming years, pricing many Americans out of the market and into the ranks of the uninsured. There is also a rampant misconception that health insurance is stable and reliable, which is easily disproven by multitudes of coverage and treatment denials. Reform is just as essential for the sake of the insured as for the uninsured.

Objectives of Health Care Reform

Health care reform – including a palatable public option – is capable of achieving each of the key objectives which must be satisfied for a bill to emerge from Congress. #1: The plan must drive down costs for all Americans, all health care payors, and the overall health care system. #2: All Americans must have access to affordable, reliable health insurance, and quality, affordable health care. #3: Americans must retain their ability to choose among health insurance and health provider options. In conjunction with other components of the Senate and House bills, the ten elements below could meet these objectives and appeal to key legislators and constituencies.

Opposition to Health Care Reform

The opponents to meaningful reform mainly base their resistance on three misconceptions: (a) individuals, families, and small businesses are adequately served by the existing system and can fend for themselves; (b) market forces should be the sole driver of competition to private insurers, and no governmental action should be taken that could result in a decline in the market share of insurers that are not providing reliable, affordable coverage for all applicants in their coverage area; and (c) the Federal government should have no role in pooling risk and providing coverage even for Americans who are not being adequately and affordably served by insurers.

The first objection is rooted in the centuries-long debate on the primacy of the community versus that of the individual. Advocates of comprehensive reform recognize that all payors and providers are inter-dependent, as evidenced by the uncompensated costs of health care pushing up costs and premiums for both private and public insurance (e.g., higher costs of care lead to lower reimbursement rates to achieve cost savings, which result in higher premiums). Reform opponents often focus on their own coverage and care, believing that free market principles allow their needs to be fulfilled in isolation from the needs and payment mechanisms of others.

But it is an illusion for anyone to believe that the cost of their health care – whether public or private – is isolated from other cost and coverage factors. Whether or not they realize it, families, individuals, and businesses need competition and a system that affordably serves everyone, in order to stabilize the scope and cost of coverage. Currently, neither exists. Each of us is one diagnosis away from learning that we are not insulated from the failures of the current system. Buyers in the individual and small-group markets are neither empowered nor self-sufficient, due to risk pooling, the practices of insurers, and the inequality of bargaining power between small purchasers and insurers. The shortcomings of the today’s marketplace cannot be ignored.

The second objection is rooted in the absurd suggestion that private insurers, who need to generate profits, cannot compete with an option that is not designed to generate profits. That argument is self-defeating. If profits account for the disparity in premiums between the two, then profits are unjustifiably high, and the amount spent on health claims is irresponsibly low. An insurer that retains modest profits can compete well. But insurers that manipulate coverage and care decisions to ensure high profits will not be able to compete. Why should anyone defend the right of insurers to generate windfall profits at the expense of the families that they insure? Why would reform opponents want to limit our choices to the most expensive insurance alternatives, which are also notorious for denying care? These insurers have been escalating costs, and have caused great hardship for many Americans. They should not be rewarded. If the bad actors lose market share, the responsible insurers will benefit, along with the American people.

The third objection is rooted in denial of the intrinsic nature of insurance: the pooling of resources of the many to pay for the needs of the few. That is also a normal and regular role of government in many contexts. People pay into a collective repository – even if they do not need services at the time – in exchange for that repository paying their own expenses in the future when needed. For most Americans, the health care repository is a private-sector insurer, whereas for senior citizens and people with disabilities, the main repository is Medicare. People pay into a collective fund for Medicare while they are able to do so, and become beneficiaries years later. Whether health insurance is provided by private insurers or the government, the principles of communal pooling of funds are the same. Thus, anyone who supports Medicare but objects to Federal risk pooling and health insurance is being hypocritical.

Reform, With a Palatable Public Option, that Achieves the Three Main Objectives

Many legislators would prefer a public option that is maximally robust and extensive. However, to pass a reform bill, the public option should be constrained to the part of the market for which it is most needed, and must not exclude insurers that wish to compete with it. The following ten elements could be combined to achieve the three objectives, and gain legislative support.

(1) Private-sector and non-profit insurers that serve the individual and small-group markets would be aggregated into a marketplace exchange for eligible purchasers that is similar to the Federal Employee Health Benefits program. This component would be similar to what was proposed by the Senate’s “Gang of Ten” in early December, and would be administered by the government.

(2) Insurers in the exchange could offer low-premium catastrophic care plans, to provide families, individuals, and small businesses with a less expensive “safety net” just in case of a major health need. Consumers could choose between comprehensive coverage or a catastrophic care plan, which would be a lower-cost alternative for those who seek coverage just for major illnesses, and would alleviate the strain on health care providers from uncompensated care for major treatment.

(3) The public option would be in the exchange as just one of the many options for purchasers. Enrollment could be limited to individuals, families, high-risk populations, and small businesses (up to 50 or 100 employees, or under a payroll threshold). The eligibility of small businesses could mute some objections since their advocates maintain that they often cannot afford private insurance (even the opponents of the public option acknowledge that it would be less expensive). Insurance companies would benefit when high-risk persons enroll in the public option (their care is often more expensive). Large and medium sized groups and employers would be ineligible, continuing the major role of private insurers in this market. Although some oppose any coverage option that is not profit-driven, most would not mind getting a bigger bang for their premium buck.

(4) Health care practitioners who wish to participate in the public option would be required to meet new Health Information Technology (HIT) standards by a specified timetable that is sooner than that required for other providers. This would accelerate the adoption of HIT among providers who participate with both the public option and private insurers. Insurance companies would benefit because their providers would begin to use HIT – resulting in cost containment and administrative efficiencies for both providers and insurers – without insurers applying the same early efforts toward that transformation.

(5) All plans in the exchange – the public option, the non-profits, and the private insurers – would adhere to an “expense to premium ratio”. This ratio indicates the amount of premiums spent on administrative expenses rather than on claims for health services and treatment. If an insurer’s expenditures on overhead (including administration, advertising, utilization review, agent fees, corporate retreats, lobbying, and profits) exceed the specified ratio, a steep fee would apply. Insurers could avoid the fee by having a low ratio, signifying that premiums are paying for care, not disproportionately paying overhead. Use of “expense to premium ratios” would promote cost containment and consumer value, minimizing spending on activities that are devoid of benefit to consumers. The ratio is a strong tool for evaluating proposed hikes in premiums, deductibles, and copayments. It would apply separately to each line of business of an insurer, not allowing insurers to leverage and distort results among consumers by aggregating lines of business.

(“Expense to premium ratios” are a more accurate reflection of insurer behavior than “loss ratios” because “loss ratios” do not include insurers’ revenues from the investment of premiums. “Loss ratios” are cited by insurers because they erroneously create the impression that health insurers only have premium dollars, and no other finances. They allow profiteering and high expenses.)

(6) Since the 1940s, the McCarran-Ferguson Act has exempted insurers from most Federal regulation. This has created a patchwork of inconsistent state regulations for health insurers, and limited competition. It might also impair the effectiveness of the marketplace exchange: for example, the use of “expense to premium ratios” to enhance value for consumers and cost containment. Amending or repealing this law is necessary so that competition, cost containment, and reliable, affordable health insurance may thrive. Also, if health insurers were allowed to provide coverage nationally, as proposed by some Republican legislators, the outright repeal of McCarran-Ferguson would be essential.

(7) Claims administration – with each insurers’ distinct forms, processes, and rules – has become overwhelmingly time consuming and expensive for health practitioners. These problems would be solved by use of a single set of uniform, standardized forms and procedures for claims filing, and interactions. The system would be based on electronic filing, applied nationwide, and utilized by all providers, payors, and regulators. It would advance cost containment, facilitate evaluation of data to improve health care quality and treatment protocols, and magnify efficiency of the exchange. Providers and insurers who participate in the exchange could be required to adopt these systems first, ahead of the schedule for adoption by others, as a trade-off for the additional business that they would gain by joining the exchange. The cost savings and alleviation of burden would be incentives for others to embrace the standardized system.

(8) Rules should be developed that prohibit denials of coverage based on traditional underwriting schemes, and limit rate variances among enrollees in the exchange. The rules, which must apply to all plans in the exchange, would establish that premium rates are either to be constructed on the basis of Community Rating, Adjusted Community Rating, or tightly limited “rate bands” which allow only minor variances based on specified criteria.

(9) Consumers have been reassured that they can keep their health insurance and providers if they would like to do so. However, it is also vital to annually enable enrollees in the exchange to switch to a different insurer if they are not satisfied. The plans in the exchange should have the tightest controls against cost increases and coverage limitations, to enable continuity.

(10) Medical malpractice liability insurance and defensive medicine have played a role in the escalating cost of health care. It is important yet difficult to assess the justifiability of premium rates, due to the lack of data from liability insurers. Increased reporting from them is necessary, including premium rates and revenues, med mal claims made, claims defended, claims paid, court settlements reached. Reasonable regulation of premium rates would contain costs and enhance accountability, alleviating the burden on doctors, hospitals, and payors. Defensive medicine costs, on the other hand, will be reduced not by legal reform, but through the adoption of HIT. When electronic medical records and practice guidelines are fully implemented in the US, defensive medicine will be ameliorated by the access of providers to patient records of treatment, tests, and health history, as well as guidance from the aggregated data.

Job Creation as Job One: 3 Ideas for The Forum on Jobs and Economic Growth

President Obama’s commitment to job creation and revitalization of the economy is highlighted by his designation of job growth as a top priority for the Administration, and his Forum on Jobs and Economic Growth. In addition to the myriad efforts by his Administration to establish, implement, and accelerate initiatives for job creation, his leadership is amplified by his call to all sectors of American society for ideas and strategies that will further advance these objectives.

The dialogue is certain to address a wide range of issues, from access to capital and insurance to promotion of key industries and market development, and from small business incentives and micro-lending encouragement to tax benefits and trade enhancement. As a contribution to this national brainstorming session, the following three perspectives could also add significant value to our national effort to create employment opportunities in the short-term, and institute sustainable economic and job growth over the long-term.

1. Job Skills Training via E-Learning

Job skills training and workforce development are critical components in job growth and economic development. There is often a co-dependent “chicken-and-egg” relationship between the need for well-trained workers and the availability of jobs for well-trained workers, such that progress toward the two objectives necessarily must advance concomitantly. Companies are usually reluctant to establish or increase operations without assurance of the availability of qualified personnel to hire for such operations. Similarly, once people have gained high-value job skills, there is a need to place them in jobs in which they will be able to put their skills to remunerative use. Thus, it is vitally important that job skills training and workforce development resources be widely available, and be correlated with and calibrated to the proliferation of jobs and work opportunities. Online e-learning provides a highly scalable and relatively low-cost solution for dissemination of a vast array of job skills. Americans would be well served by Federal support for e-learning of job skills training that enables convenient access at a place and time of the learner’s choosing.

2. Information Technology and Business Skills for Competitive Advantage in the Global Economy

For maximal relevance to today’s 21st century information-based economy, it is increasingly necessary for new workers, re-trainees, and displaced workers to obtain information technology and business skills. With the acceleration of the global economy, digital-based skills have become a core competency in many industries and roles that are transitioning to advanced business methods, mechanization, and reliance on information technology tools. This trend is prominent in the manufacturing sector, which, in past decades, may not have embraced these developments as closely as in other sectors. Even more crucially, in the services sector --- including financial services, health care, IT and telecom services, fulfillment and delivery, etc. --- these skills have long been of paramount importance. Job growth in each of these sectors depends upon workers having contemporary IT and business skills, as well as the foundational capacity that will enable them to quickly achieve operational competency in the IT and business skills that are used by a specific employer.

This imperative was illuminated earlier this decade during the concern over “outsourcing”, by which many jobs were being relocated outside of the United States. As the global economy allows – and even promotes – the free flow of jobs to locations with lower operating costs, the key to success for US companies and job growth for US workers is the mass proliferation of advanced IT and business skills. With such skills, US workers and industries can remain pre-eminent in innovation, cost-efficiency, and value. These outcomes will continue to be the cornerstone for product development, service delivery, entrepreneurship, and new business models, each of which propel our economy, and, ultimately, are essential for job growth among people who can advance these objectives.

3. Development of Industry-Specific Technologies for the Future Economy via “Business Parks”

The Federal government can fulfill a critical role in developing and implementing strategies to accelerate job growth for skilled workers, due to its unique capacity and powers for policy development, resource coordination, stakeholder collaboration, and incentive creation. The Administration could convene a task force (comprised of government officials, industry leaders, university leaders, financiers, economic development thought-leaders, scientists, educators, and others) to chart the course of future innovations through accelerated and coordinated creation of “business parks” to catalyze technologies, products, and services that will become industrial leaders and revenue generators for decades to come. Deployment of these initiatives would have a strong impact on localized job growth in the near-term, and become focal points of our country’s global economic leadership in future decades. Some of the key steps include:

(a) identification of industries, products, and services with very high growth potential that are anticipated to address US and global economic and societal needs in the future, e.g., clean-tech energy production, resource conservation, clean water production including de-salinization, health care and biotech advancement, environmental remediation, recycling and waste management, high-volume food production, mobile telephony and computing, transportation safety, homeland security technologies, etc.;

(b) identification of stakeholders who have resources that could contribute significantly to development of those industries, products, and services, e.g., technologies, intellectual capital, financial capital, facilities, delivery or deployment infrastructure, end-product usage, etc.;

(c) development of conceptual frameworks for the coordination of resources in physical “business parks” that are dedicated to an individual industry, product, or service, so that participants can leverage each other's research, resources, and manufacturing and deployment capabilities, resulting in synergistic benefits for all participants;

(d) specification of components, inputs, and services with which each business park would be equipped, including high-tech communications and technology infrastructure (with fiber and wireless connectivity), energy-efficient facilities that are tailored to each business park’s needs, support services, and, possibly, environmentally-friendly affordable housing;

(e) identification of localities that would be appropriate for the siting of business parks, considering their access to facilities, infrastructure, research, intellectual capital, local and business funding, planning coordination, technology transfer, zoning variances, skilled workers, job skills training resources, manufacturing or production capacity, markets, leadership, etc.;

(f) identification of incentives, business relationships, and the legal framework associated with the business parks, e.g., ownership and partnership characteristics, sharing of patent and licensing revenues (including for the Federal government), tax incentives, establishment of enterprise zones, coordination with Federal science and research institutions, anti-trust waivers to allow for coordination of activities, procedures for accelerated initiation of operations to stimulate job growth and economic impact, etc.; and

(g) coordination of the activities and results emanating from the business parks with the industry stakeholders who are engaged in the products and services that are designated for development through this initiative.

FINDING COMMON GROUND ON HEALTH CARE REFORM

As health care reform progresses through the House and the Senate, certain issues remain the main points of contention, both between Democrats and Republicans, and between the majority of Democrats and their “Blue Dog” colleagues. Efforts are focused on finding ways to bridge the gap on the Federal option, financing for the initial years (before efficiencies generate major savings), the employer mandate, and medical malpractice claims and liability insurance. In the spirit of brainstorming, the following thoughts offer ways that the divide on these issues could be narrowed, to generate support from at least some of the lawmakers who have concerns.

THE FEDERAL OPTION

The Federal option has been hailed for serving two crucial objectives of reform: less expensive premiums and expanded coverage. Yet, opponents distort these assets into liabilities. While they recognize that the Federal option would be more efficient and less expensive – that it will be so good that most people will choose it – they then suggest that this competition hurts competition! Besides for being illogical, their argument suggests that insurance companies either cannot become efficient or should not be prompted to do so, and that insurers can only survive when their market share is protected from competition. It is akin to calling for a cure to cancer but refusing to fund cancer research on the grounds that cancer deaths would decrease, causing the population to swell out of control. Opponents claim to support consumer choice while, at the same time, denying them the choice!

Why do opponents want to restrict choice to the most expensive insurance alternatives, which are also notorious for denying care? Why do they want to protect market share for companies that they recognize would not be the choice of most consumers? Why do they condemn the Federal option for being too efficient at providing quality health care with higher consumer satisfaction? Senator DeMint (R-SC), for example, claims that he has proposed many health care reform alternatives. But each one just used a pretense of reform to promote business development initiatives for insurance companies, allowing insurers to sell to more people and accept premiums from more sources. Promoting and defending health insurers that charge high premiums for limited care that do not satisfy health needs is an affront to the public interest. True competition would and should force some of the “bad actors” in the health insurance market out of business -- which would be good for consumers and businesses -- while the “good actors” in the private insurance market would continue to thrive

Still, in the spirit of bipartisanship, concerns about the Federal option could be accommodated by imposing some limitations and terms on the Federal option. (1) Enrollment could be limited to individuals and families who are currently uninsured, as well as to those who are not insured under group coverage, and to small businesses (with up to 50 or 100 employees, or under a payroll threshold). (2) The Federal option could provide enrollees with a choice of comprehensive coverage or a catastrophic care plan, which would be a lower-cost alternative for those who seek coverage just for major illnesses, and would alleviate the strain on health care providers from uncompensated care for major treatment. The eligibility of small businesses would mute the objections of advocates who claim that small businesses cannot afford comprehensive coverage from private sector health insurers, since even the opponents of the Federal option acknowledge that it would be much cheaper. Insurance companies would benefit by high-risk persons enrolling in the Federal option (as their care is often more expensive), which would also limit the extent to which the Federal option’s premium pricing could decline below that of private insurers. The ineligibility of large and medium sized groups and employers to enroll in the Federal option would ensure that the private market would continue to play a fundamental role in health insurance coverage.

(3) Health care practitioners who wish to participate in the Federal option could be required to meet Health Information Technology (HIT) standards by a specified timetable that is sooner than that required for other providers. This might inhibit some providers from signing up to provide services through the Federal option, thus limiting its market share and maintaining balance with insurers. Yet, it would accelerate the adoption of HIT among many providers who participate in both the Federal option and private insurance. Insurance companies would benefit from this as their participating providers would become oriented toward the use of HIT --- resulting in administrative and cost efficiencies for both the providers and the insurers --- without the insurers applying early efforts toward that transformation.

FINANCING OPTIONS

Everyone agrees that new revenues must be found to pay for the reformed system. But views differ on how to make revenue generation as painless as possible.

The proposal by Senator Kerry (D-MA) to tax health insurers would provide a major source of funds. Some think it would restrain insurers’ ability to compete. But, a tax on insurers that is linked to their overhead and profits would increase quality, efficiency, and consumer satisfaction without impairing insurers’ vital operations. By tying it to insurers’ “expense to premium ratios” (similar to, yet more meaningful than, “loss ratios”), the tax would promote the use of premiums to pay for health care services and treatment, rather than administrative expenses, utilization review, advertising, agent fees, corporate retreats, and profits. Insurers could avoid paying this tax by having a low ratio (below a specified level), since a low ratio would mean that premiums are being used to pay for care, rather than disproportionately paying for overhead. If an insurer’s ratio is higher than the accepted standard, then that excess amount could generate a steep excise tax to recoup those amounts for use in the health care system. Insurers would be incentivized to minimize premiums and expend them on health care services. (“Expense to premium ratios” are a more accurate reflection of insurer behavior than “loss ratios” because “loss ratios” only include insurers’ revenues from premiums, not their major revenues from investment of premiums, which “expense to premium ratios” do take into account.)

Sizeable revenues could also be generated from the House Ways & Means proposal to tax very high-income people, and various efforts to tax “Cadillac health insurance coverage” (e.g., worth more than $15,000 to $25,000 for family coverage). Despite some opposition to these, this criticism could be muted. The tax could be applied only to “Cadillac coverage” over a specified level (e.g., $20,000 for family coverage), and then also be means-tested, to ensure against the tax being placed on a family earning, for example, $100,000. High income families (for example, earning over $250,000 or $350,000 annually) would be taxed at a basic rate for their “Cadillac coverage”, and very wealthy families (e.g., over $1 million) could be taxed at a much higher rate. In this way, “Cadillac coverage”, which is akin to compensation, would only be taxed in the case of those who are most able to afford it (rather than being subsidized by all taxpayers by being tax exempt).

Means testing of “Cadillac coverage” could still be coupled with a reasonable tax on annual incomes over $1 million. This additional tax could be tempered, however, by applying it for just a limited number of years, until the efficiencies of the reformed health care system generate anticipated savings which can be applied to the system.

EMPLOYER MANDATE

To some, an employer mandate is the key to universal coverage, affordability of coverage, and reducing uncompensated care. But to others, it’s just plain scary.

The employer mandate has been derided as unaffordable for small businesses, many of which allegedly would sacrifice business growth to avoid it. Scare tactics are intensifying, with Congressman John Shadegg (R-AZ) on July 30th implying that the mandate would apply to all businesses with two employees. While critics focus on the cost of insurance, they ignore the cost of NOT being insured. Employees in small businesses are not exempt from becoming sick, developing chronic illnesses, and wishing they had health insurance. If these employees do not have health coverage, then it adversely affects the business, for example, if illnesses spread among employees, decrease productivity, intensify due to a lack of treatment, cause skilled employees to quit their jobs, etc. If these realities are ignored, and measures to cushion the impact of a mandate are necessary, then there are some options.

As stated earlier, small businesses should be allowed to enroll in the Federal option to minimize their premiums and out-of-pocket costs, and provide reliable coverage. Additional meaningful incentives could be offered to non-exempt small businesses, especially to encourage their enrollment sooner rather than later. (1) A small tax credit or subsidy could be offered for the first few years if they enroll promptly, to defray a portion of the costs and ease the financial burden. (2) To bolster economic recovery and revitalization too, a tax credit for hiring employees could be made available to small businesses if they purchase health insurance prior to a specified date. (3) An investment tax credit for purchase of durable capital equipment could be available to small businesses if they purchase insurance by a specified date. Both of the latter two tax credits would serve as incentives for early participation in the employer mandate, and help stimulate the economy at the same time.

MEDICAL MALPRACTICE / LIABILITY INSURANCE REFORM

Despite the intrepid popularity ratings of lawyers and volumes of lawyer jokes, medical malpractice laws serve a vital role in ensuring appropriate health care and providing recourse for medical errors. Yet, they do add to the cost of health care. For years, Republicans’ calls for reform in this area have practically been a mantra, closely tied to their desires to limit lawsuits, and tort and product liability laws.

First, health care providers often engage in duplicative and unnecessary care and tests so as to insulate themselves from potential lawsuits if an undesirable health outcome should result. The key to eliminating these extraneous “defensive medicine” costs is not through legal reform, but rather, through the adoption of HIT. When electronic medical records and practice guidelines are fully implemented throughout our health care system, defensive medicine will be ameliorated by the access of providers to patient records of treatment, tests, and health history, as well as the guidance from aggregated data.

Second, there have been many instances in which patients have sued providers and insurers in response to an undesirable health outcome. Although even the best health care cannot guarantee successful health outcomes, some patient lawsuits fail to recognize this. To minimize the burden of frivolous lawsuits, one option would be to encourage (or require) patients to first pursue their claims through mediation or arbitration. Many claims will be able to be resolved through such channels, while others may result in the patient realizing that their claim should not be pursued further. Naturally, however, patients should still retain their full rights, following such a hearing, to escalate their claims through the courts.

Third, the rise in medical malpractice liability insurance premiums in recent years has been disproportionate to the incidence of medical errors, medical malpractice claims, and court settlements. It has been difficult to assess the justifiability of premium rates due to the lack of data from liability insurers. (1) Increased reporting from liability insurers is necessary, e.g., premium rates and revenues, claims paid, medical incidents defended, etc. (2) Greater scrutiny of liability insurers would enhance accountability through reasonable regulation of their premium rate structures, in order to alleviate the burden on doctors, hospitals, and others.

BOTTOM LINE

Health care reform in 2009 is absolutely essential. As the reform debate hones in on remaining critical and challenging issues, it is imperative that all stakeholders dedicate themselves toward finding common ground. Practical solutions can be developed on a bipartisan basis, to serve the needs of all constituents, whether they be those of moderate and conservative Republicans, or progressive and “Blue Dog” Democrats. The final bill will not have everything that any single lawmaker would want. But meaningful reform is in everyone’s best interests, and requires everyone’s whole-hearted commitment and willingness to support a package that meets core objectives for America’s urgent needs. Through creative solutions, the final result will be a key to a sustainable health care system for decades to come.

Convergence of Policy and Business: President Obama's Priorities

President Obama's priorities would have a transformative impact on the United States in many respects. During the 2008 campaign, he advanced many of these policies in terms of long-term sustainability for the US economy, the national and global environment, and the improved quality-of-life impacts for Americans. Since his election and during his Presidency, in the climate of our troubled economy, he has advanced his agenda as a threshold to not only restore our economy, but also to do so in ways that transform our current struggles into long-term sustainable successes. The business opportunities that are facilitated by the President's agenda can be pursued by Americans of all political persuasions, and, as such, are entirely bipartisan. President Obama has truly championed the vision of utilizing our current predicament as a watershed opportunity to build tomorrow's America.

President Obama's agenda lays the foundation for major business challenges and opportunities, as our national success in each of these areas will improve life in America, revitalize our economy, and establish the US's worldwide pre-eminence in each of these fields. The President's priorities are clear from the American Recovery and Reinvestment Act, his leadership in legislation on Capitol Hill, and his White House conferences. At many industry-specific and general policy conferences across the country, there has been a clear recognition of the need for -- and rewards of -- concerted, timely action that takes advantage of the Federal leadership in these domains. There has been a broad understanding of the clear confluence of policy and business, from bipartisan perspectives, in a broad range of technologies and industries. Political and business interests are aligned, and results will now depend on timely, focused, committed action on behalf of all those who are willing to devote their capital, intellectual, human, and other resources to these efforts.

In digesting the discussions, presentations, and agendas of many conferences, forums, and gatherings in recent months, many technological and subject-matter areas appear ripe for action by stakeholders in the business, non-profit, academic research, and other sectors. The following five areas are among those which rise to the top of the list of the many business opportunities that are facilitated, encouraged, and supported by the Obama Administration:

• development of an advanced nationwide health information technology infrastructure and integrated, operational system;
• establishment of a carbon "cap and trade" market, based on offsets, conservation, and shifting to renewable energy "clean tech" technologies;
• deployment of broadband technologies to enable all Americans to participate in the digital-based economy (via fiber, WiMax, 3G, WiFi networks, BPL, and other technologies);
• development of technologies that convert high-value waste streams and municipal solid wastes into useable diesel fuels; and
• advancement of broad-based, affordable access to education and job skills training via e-learning that can be monitored and which leads to tangible results.

This list is by no means exhaustive, as there certainly are other fields and technologies in which the Obama Administration is encouraging and supporting advances and business activity. The Bipartisan Bridge community is encouraged to submit additional technological and business arenas which are of high priority to the Administration, and which can have a beneficially transformative impact on our nation's economy and quality-of-life.