Brookings: Centers - Center on Children and Families

Will Obamacare Implementation Really Be a "Train Wreck"?

S. Lawrence Kocot — Mon, 20 May 2013 00:00:00 -0400

Senate Finance Committee Chairman Max Baucus, an architect and supporter of the Affordable Care Act (ACA), recently caught the Administration's attention when he voiced his concerns about the implementation of the health exchanges—the centerpiece of Obamacare now scheduled to go live on October 1—saying that he sees "a huge train wreck coming."

President Obama responded to concerns about implementation, emphasizing that he is 110 percent committed to getting implementation done right, but he also cautioned that there will be mistakes and hiccups.

While the Administration is certainly not going to highlight major problems at this point in the implementation cycle, there are a few key indicators to watch over the next few months to assess how well implementation is progressing:

1. Affordability. Very simply, can individual and small group purchasers of health insurance in the new marketplaces afford the likely cost? A recent report by the Society of Actuaries indicates that we can expect to see per member per month costs of plans in the individual markets increase by as much as 32% under the ACA -- with many states seeing increases even higher. The Administration and some advocates claim that the actuaries' report is misleading or just plain wrong, and that any cost increases will be covered by ACA's generous subsidies that will cushion the blow for most of those eligible for the benefits.

The Qualified Health Plan approval process is still in progress, so we won't know the full extent of the cost increases until later this summer. However, with projected insurance plan costs for some states now available, we can already see that there will be significant variation across the states on average costs in the non-group market. Vermont and Rhode Island are projecting favorable rates to consumers; Washington is mixed depending upon enrollee characteristics; and Maryland costs are projected to rise by 25% on average next year - but with healthy young men seeing their insurance costs rise as much as 150%- contrary to the ACA's goals of providing affordable insurance.

If the Society of Actuaries is right, we can expect that the cost of this new health insurance may be hard to swallow for some consumers who will not be eligible for subsidies - some 1 million persons in 2014, according to CBO. And for the other 6 million expected enrollees eligible for subsidies in 2014, the cost to the federal government could be more than the projected $35 billion. If overall plan and subsidy costs are much higher than anticipated, legitimate questions may be raised about the sustainability of the program.

2. Availability. Even after we know more about the "rate shock" that is predicted to come later this summer, the question then becomes: will state marketplaces be operational by October? This gets to the heart of the "train wreck" comment, as the law requires that subsidies be administered through enrollment in the marketplaces. Sixteen states and the District of Columbia have agreed to run their own state marketplaces, while the remainder have surrendered many of the operational decisions or have deferred completely to the federal government to run theirs.

Even under the best of circumstances, the Centers for Medicare & Medicaid Services (CMS) would have difficulty pulling off the simultaneous operational roll-out of more than 30 federally facilitated/partnership marketplace exchanges (FFEs) at the same time. In order for the FFEs to work as planned, CMS needs a willing state partner that is committed to making it work through precise coordination of technology and business rules, which requires extensive operational planning and resource allocation, as well as close collaboration and constant communication.

Let's face it: not all partners in the states are even willing, much less committed, to providing the time and resources to make a federal marketplace successful in their state. What Baucus is hearing about the FFE progress in Montana is consistent with what many FFE states are reporting -- many of these FFEs are not ready yet and time is running out to get them there.

So what about the 17 state-run marketplaces? They have been given over $3.5 billion in federal grants since 2010 to be ready to enroll consumers in the new insurance benefits on October 1, 2013. While some of these states are clearly ahead of the pack in terms of readiness, despite their best intentions, it is likely that not all state-run marketplaces will be fully operational by the deadline. CMS may have to decide if and when to take responsibility for some of them, which could be viewed by opponents as an early admission of failure.

To be fair, establishing marketplaces in 50 states and D.C. is an ambitious undertaking. With unprecedented cooperation required across multiple federal agencies, states, and quasi-state bodies and agencies coordinating with state insurance commissions and plans, the requirements and deadlines for effective implementation are virtually impossible. Additionally, new data systems that have never been fully tested with live data can't be expected to perform without technical glitches and a period of correction.

3. Outreach. As has been reported, CMS did not get the nearly $1 billion they said they need for outreach and implementation of the marketplaces. While this seems like a lot of money, it is not nearly enough to accomplish the task, especially given the difficulties CMS will have with some of the consumers they are trying to enroll - low-income, less healthy, and "young invincible" consumers, many of whom have not had insurance before. As polls have shown, 78% of subsidy eligible Americans do not know this benefit will be available. Like all marketplace applicants, they will need to fill out a multi-page form and will need help to get educated about subsidies to make the insurance affordable. Experience has shown that the hardest benefits to sell are the ones that cost even a little to those who have the least. This explains why Secretary Kathleen Sebelius has been desperately trying to rally insurers and private organizations such as Enroll America to step up to supplement federal enrollment efforts; the private assistance will help, but it is not likely to be enough.

So, is this really the train wreck Senator Baucus sees? It probably depends on what type of railroad one was expecting. The implementation of Medicare Part D tells us that there are plenty of opportunities for things to go wrong with exchange implementation. No implementation is without challenges and this one will be particularly rough given the size and scope.

At the end of the day, however, the measure of implementation success is probably not the expense of the benefit nor whether technology works as intended; technical problems can eventually be fixed and in the short term, manual processes can hide a lot of sins. Rather, the real measure of success is how many people actually enroll in this new benefit and get the subsidy for which they qualify. If CMS can stay focused on these measures, the light at the end of the implementation tunnel may be much brighter than the light on the political train that continues to barrel down the tracks in their direction.

Authors

S. Lawrence Kocot

Publication: Real Clear Markets

Image Source: © Jessica Rinaldi / Reuters

How Much Do Americans Care About Income Inequality? Part II

Scott Winship — Wed, 15 May 2013 16:00:00 -0400

Recently in this space, I criticized an op-ed that claimed to resolve a paradox related to inequality and public policy. Ilyana Kuziemko and Stefanie Stantcheva argued that while Americans are "deeply troubled about the current level of income inequality," support for government policy to reduce it is low. Based on a series of randomized experiments they conducted with Emmanuel Saez and Michael Norton, Kuziemko and Stantcheva speculated that rising inequality has eroded trust in government, resolving the paradox.

In my previous essay, I argued that there is little evidence to indicate that Americans are particularly concerned about inequality, so their lack of interest in having the government intervene should be unsurprising. Here I want to draw attention to a problem with the conclusion of Kuziemko and her colleagues that providing people with information about inequality reduced trust in government.

In their experiment, some survey respondents were provided information about their ranking in the income distribution and about inequality levels. Receiving this information produced a decline in expressed levels of trust in government. Kuziemko and her colleagues conclude that,"emphasizing the severity of a social or economic problem appears to undercut respondents' willingness to trust the government to fix it-the existence of the problem could act as evidence of the government's limited capacity to improve outcomes more generally." But the information in their survey did not simply emphasize the severity of inequality, it exaggerated economic hardship.

Respondents randomly selected to receive information about inequality first input their "annual household income" and were told the share of "US households" that earn less than their own "household." But the information the survey gave respondents made them feel richer than they were. I typed into the survey form the 2011 median household income according to the Census Bureau-$50,054. The survey should have told me that "my" household was richer than 50 percent of American households-that's what the median is. Instead, I was told I was richer than 66 percent of households.

In fact, what the information provided by the survey told the subject was the percentage of tax returns that have less gross income than the household income she reported. Tax returns are not households. Two roommates living together, a cohabiting couple, a married couple filing separate returns-all of these constitute one household but two tax returns. More to the point, a sixteen-year-old burger-flipper or a fulltime college student with a work-study job are also distinct tax returns even if they live at home. Furthermore, gross income on tax returns (AGI with adjustments put back in) is not "household income" as most people think of it. For example, non-taxable public transfers-including most Social Security benefits and all welfare benefits-are excluded. So are the tax-favored employee benefits commonly deducted from paychecks, such as health insurance premiums, retirement plan contributions, and flexible spending accounts.

The result of these differences between the income of households and the gross income of tax returns is that the median for the former is quite a bit bigger than the median for the latter (and the same is true for other parts of the income distribution, such as the "richest ten percent" or the"poorest third"). The survey tool reports that $33,800 is the median "household income"-one-third less than the actual median.

The respondent, then, "learned" that she was richer than she was, and if she correctly thought that her standard of living was average before responding, she learned that it was better than average. More people were doing worse than her than she thought, and fewer people were doing better than her. The next step in the survey drove that home by inviting her to move a slider to see how "households" with different income levels rank compared with other households. This step reinforced that Americans were poorer than they actually were.

Different subjects were shown additional screens subsequently. However, everyone randomized to receive the information about inequality proceeded through the rest of the survey-with its questions about policy preferences and trust in government-having been given this overly-negative data about how Americans are doing economically. The subjects randomized to bypass the informational screens were not primed in this way. The design of this experiment does not allow us to assess whether getting accurate information about the distribution of household income reduces trust in government. Instead, trust in government may be eroded by getting anxiety-provoking (and inaccurate) information.

Interestingly, Kuziemko and her colleagues report results from a separate experiment they conducted indicating that among below-median households, being primed with negative information about the state of the economy reduces opposition to inequality and support for redistribution and for progressive approaches to deficit reduction. It may be that attempting to convince middle class Americans that economic insecurity is more pervasive than it is will prove counterproductive to those who wish to help the truly insecure.

I have argued elsewhere that conventional accounts on the left do, in fact, systematically overstate both the extent of economic insecurity and the strength of the evidence that income inequality is harmful. It would be a regrettable irony if an excessive and distorted focus on inequality turns out to be more harmful to struggling families than income inequality itself.

Authors

Scott Winship

Publication: Real Clear Markets

Image Source: © Carlo Allegri / Reuters

Why We Still Think College Isn't for Everyone

Isabel V. Sawhill and Stephanie Owen — Mon, 13 May 2013 15:41:00 -0400

Is a college degree worth it? Not for everyone, according to our newly-released Center on Children and Families policy brief. The value of a college degree can vary dramatically, depending on factors such as field of study, type of college, graduation rate and future occupation. Here’s our final follow-up blog post, where we take a closer look at the conclusions we come to in the brief. (Read the first, second, and third parts here.)

Last week, the Center on Children and Families released a policy brief on making smarter decisions about higher education. We have welcomed the ensuing spirited debate from policymakers, students, colleges, and fellow researchers. The title of our policy brief, “Should Everyone Go To College,” is intentionally provocative and was chosen to start a conversation around the question. In favor of simplicity, we used the blanket term “college” to argue that a traditional four-year bachelor’s degree is not for everyone. We do think that some sort of postsecondary training is a good idea for almost everyone. This includes associate’s degrees, technical and vocational certification, apprenticeships, and worker training programs.

Some suggest that encouraging marginal students to pursue some of these non-academic paths creates a tracked system that keeps low-income and minority kids out of the upper echelons of our society. For that reason, vocational education has largely fallen out of favor in the United States, but gaps in academic performance between rich and poor and blacks and whites have persisted or, in the case of income, even grown. Closing these gaps has been one goal of the research done by the Center on Children and Families at Brookings, and we agree strongly that more needs to be done to prepare students to be college ready at the end of secondary school. But for the students we focus on in our brief—teenagers and young adults planning their educational and career paths—it is often too late to make up this lost ground.

The goal should be to help them make the choices that will turn out best for them given their individual strengths at the end of high school. For a student who has performed poorly in the classroom, the most bang-for-the-buck may come from a vocationally-oriented associate’s degree or career-specific technical training or from a period of work before returning to school with stronger motivation to learn what academic institutions teach. Think of the alternative: this student’s poor grades and possible ambivalence about classroom learning means he is likely to never finish his degree, and will have wasted time and money that could have been spent learning an employable skill. On the other hand, there are plenty of low-income students who are smart enough to succeed in college but who tend to choose schools that are beneath their ability and are more likely to drop out. The correlations of family background with college entry, persistence, and graduation have been rising, meaning it is especially important to help low-income students with the requisite abilities and preparation to enroll in a high-quality institution. Those individuals could benefit from better information about financial aid, graduation rates, and expected earnings.

Unfortunately, that information is not currently available: no one single comprehensive dataset containing information on earnings by school (let alone by major or program) exists. The Student Right to Know Before You Go Act, which we mention in our brief, has bipartisan support and would be an improvement on the status quo. The PayScale dataset we used for our brief has significant limitations, including questions about the reliability of its calculations and its representativeness.

Finally, some have rightly pointed out that our findings are descriptive, and should not necessarily be interpreted causally. It is likely true that smarter students self-select into engineering majors, so not every student will do better if she studies engineering rather than English. The same logic applies to more selective schools: part of why students at elite schools do better later on is that they are more talented before they ever enter college. Even so, careful economic research suggests that students do best when they attend the best school they can get in to, and that certain majors have real benefits.

Ultimately, higher education decisions are made by individual students and their families, and are based on their unique interests, strengths, and personal values, not only income and career prospects. Students need to have realistic expectations about what they’re likely to get out of pursuing higher education. Rigorous economic research has found that there is a sizeable proportion of people who experience a negative return to their education. That doesn’t mean they may not excel at other pursuits. It just means that one size doesn’t fit all high school students.

Authors

Isabel V. Sawhill
Stephanie Owen

Image Source: © Jessica Rinaldi / Reuters

Helping Young People Make Better Higher Education Choices

Isabel V. Sawhill and Stephanie Owen — Fri, 10 May 2013 09:00:00 -0400

Is a college degree worth it? Not for everyone, according to our newly-released Center on Children and Families policy brief. The value of a college degree can vary dramatically, depending on factors such as field of study, type of college, graduation rate and future occupation. Here’s the last in a three-part blog post series, where we take a closer look at findings from the policy brief. (Read the first part and second part here.)

Even though we often talk about college as a monolith, the truth is that not all college degrees are created equal. There is huge variation in the return to a bachelor’s degree, depending on choice of major and occupation; school type and selectivity level; and likelihood of graduating. All of this suggests that it is a mistake to unilaterally tell young Americans that going to college—any college—is the best decision they can make. If they choose wisely and attend a school with high graduation rates, generous financial aid, and high expected earnings, they can greatly improve their lifetime prospects. The information needed to make a wise decision, however, can be difficult to find and hard to interpret.

We lay out a three-pronged approach that would help every young person make a smart investment in their future: better information, performance-based scholarships, and better alternatives to a traditional four-year degree.

Authors

Isabel V. Sawhill
Stephanie Owen

Image Source: Mike Segar / Reuters

For Some, College May Not Be a Smart Investment

Isabel V. Sawhill and Stephanie Owen — Thu, 09 May 2013 09:00:00 -0400

Is a college degree worth it? Not for everyone, according to our newly-released Center on Children and Families policy brief. The value of a college degree can vary dramatically, depending on factors such as field of study, type of college, graduation rate and future occupation. Here’s the second in a three-part blog post series, where we take a closer look at findings from the policy brief. (Read the first part here.)

For a young adult shopping for a college, the choices can be overwhelming. That shiny brochure can make College X look like a great place to spend four years. But what do you really get out of choosing one school over another? As it turns out, quite a bit. The return on investment (ROI) of a bachelor’s degree varies widely at different types of schools. For certain schools, according to the online salary information company PayScale, the ROI is actually negative.

But getting into college and choosing a school is only the beginning. College isn’t worth much unless you graduate. Part of what sets certain schools apart is how many of their incoming students actually come out with a degree.

Notice that there is a wide range of completion rates within each school selectivity category, particularly for the less selective colleges. Not every student can get into Harvard, where the likelihood of graduating is 97 percent, but students can choose to attend a school with a better track record within their ability level.

Authors

Isabel V. Sawhill
Stephanie Owen

Image Source: © Rebecca Cook / Reuters

Should Everyone Go To College?

Stephanie Owen and Isabel V. Sawhill — Wed, 08 May 2013 09:00:00 -0400

Summary

For the past few decades, it has been widely argued that a college degree is a prerequisite to entering the middle class in the United States. Study after study reminds us that higher education is one of the best investments we can make, and President Obama has called it “an economic imperative.” We all know that, on average, college graduates make significantly more money over their lifetimes than those with only a high school education. What gets less attention is the fact that not all college degrees or college graduates are equal. There is enormous variation in the so-called return to education depending on factors such as institution attended, field of study, whether a student graduates, and post-graduation occupation. While the average return to obtaining a college degree is clearly positive, we emphasize that it is not universally so. For certain schools, majors, occupations, and individuals, college may not be a smart investment. By telling all young people that they should go to college no matter what, we are actually doing some of them a disservice.

The Rate of Return on Education

One way to estimate the value of education is to look at the increase in earnings associated with an additional year of schooling. However, correlation is not causation, and getting at the true causal effect of education on earnings is not so easy. The main problem is one of selection: if the smartest, most motivated people are both more likely to go to college and more likely to be financially successful, then the observed difference in earnings by years of education doesn’t measure the true effect of college.

Researchers have attempted to get around this problem of causality by employing a number of clever techniques, including, for example, comparing identical twins with different levels of education. The best studies suggest that the return to an additional year of school is around 10 percent. If we apply this 10 percent rate to the median earnings of about $30,000 for a 25- to 34-year-old high school graduate working full time in 2010, this implies that a year of college increases earnings by $3,000, and four years increases them by $12,000. Notice that this amount is less than the raw differences in earnings between high school graduates and bachelor’s degree holders of $15,000, but it is in the same ballpark. Similarly, the raw difference between high school graduates and associate’s degree holders is about $7,000, but a return of 10% would predict the causal effect of those additional two years to be $6,000.

There are other factors to consider. The cost of college matters as well: the more someone has to pay to attend, the lower the net benefit of attending. Furthermore, we have to factor in the opportunity cost of college, measured as the foregone earnings a student gives up when he or she leaves or delays entering the workforce in order to attend school. Using average earnings for 18- and 19-year-olds and 20- and 21-year-olds with high school degrees (including those working part-time or not at all), Michael Greenstone and Adam Looney of Brookings’ Hamilton Project calculate an opportunity cost of $54,000 for a four-year degree. In this brief, we take a rather narrow view of the value of a college degree, focusing on the earnings premium. However, there are many non-monetary benefits of schooling which are harder to measure but no less important. Research suggests that additional education improves overall wellbeing by affecting things like job satisfaction, health, marriage, parenting, trust, and social interaction. Additionally, there are social benefits to education, such as reduced crime rates and higher political participation. We also do not want to dismiss personal preferences, and we acknowledge that many people derive value from their careers in ways that have nothing to do with money. While beyond the scope of this piece, we do want to point out that these noneconomic factors can change the cost-benefit calculus.

As noted above, the gap in annual earnings between young high school graduates and bachelor’s degree holders working full time is $15,000. What’s more, the earnings premium associated with a college degree grows over a lifetime. Hamilton Project research shows that 23- to 25-year-olds with bachelor’s degrees make $12,000 more than high school graduates but by age 50, the gap has grown to $46,500 (Figure 1). When we look at lifetime earnings—the sum of earnings over a career—the total premium is $570,000 for a bachelor’s degree and $170,000 for an associate’s degree. Compared to the average up-front cost of four years of college (tuition plus opportunity cost) of $102,000, the Hamilton Project is not alone in arguing that investing in college provides “a tremendous return.”

It is always possible to quibble over specific calculations, but it is hard to deny that, on average, the benefits of a college degree far outweigh the costs. The key phrase here is “on average.” The purpose of this brief is to highlight the reasons why, for a given individual, the benefits may not outweigh the costs. We emphasize that a 17- or 18-year-old deciding whether and where to go to college should carefully consider his or her own likely path of education and career before committing a considerable amount of time and money to that degree. With tuitions rising faster than family incomes, the typical college student is now more dependent than in the past on loans, creating serious risks for the individual student and perhaps for the system as a whole, should widespread defaults occur in the future. Federal student loans now total close to $1 trillion, larger than credit card debt or auto loans and second only to mortgage debt on household balance sheets.

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Should Everyone Go To College?

Authors

Stephanie Owen
Isabel V. Sawhill

Image Source: © Brian Snyder / Reuters

Going to College? Think Hard About Your Major and Your Career After You Graduate

Isabel V. Sawhill and Stephanie Owen — Wed, 08 May 2013 10:00:00 -0400

Is a college degree worth it? Not for everyone, according to our newly-released Center on Children and Families policy brief. The value of a college degree can vary dramatically, depending on factors such as field of study, type of college, graduation rate and future occupation. Here’s the first in a three-part blog post series, where we take a closer look at findings from the policy brief.

For the past few decades, it has been widely argued that a college degree is a prerequisite to entering the middle class in the United States. We all know that, on average, college graduates earn significantly more money over their lifetimes than those with only a high school education. Brookings’ Hamilton project has estimated that the average bachelor’s degree holder makes $570,000 more over a lifetime than the average high school graduate. What gets much less attention is that the college premium varies widely by the choices students make.

For example, the value of a bachelor’s degree depends heavily on choice of major and later occupation. No surprise here: the highest paid major is engineering. If on the other hand you studied education (but didn’t go on to get a master’s degree), you can only expect to make half of what those engineering majors do. (Stagnant teacher compensation is a whole other topic that we won’t go into here.)

Not everyone ends up working in the field they studied in college, so it’s also useful to look at earnings by occupation. The highest-earning occupation category is architecture and engineering, with computers, math, and management in second place. The lowest-earning occupation for college graduates is service.

Of course, plenty of people choose to study art or become teachers because they derive intrinsic value from those fields that can’t be measured by a paycheck. Personal preferences and noneconomic benefits are important, too. Few among us would want to live in a world with all programmers and no artists, or all investment bankers and no philanthropists.

Authors

Isabel V. Sawhill
Stephanie Owen

Image Source: © Jessica Rinaldi / Reuters

College Is The Holy Grail, But Should Everyone Go?

Isabel V. Sawhill — Wed, 08 May 2013 09:30:00 -0400

The new Holy Grail in American life appears to be a four-year college degree. Almost all high school students and their parents aspire to go to college, and high school graduates are enrolling in much higher numbers than in the past. The problem is that too few of them are graduating. Dropout rates from four-year schools are over 40 percent and from community colleges they are closer to 70 percent. The need for remedial courses to compensate for what kids are not learning in high school is distressingly high and not all that effective.

For those who actually graduate, a college degree can pay off handsomely in the labor market. After adjusting for other confounding variables, the extra lifetime income associated with a bachelor’s degree is $570,000, and the rate of return is high – somewhere around 10 percent. However, those figures are averages. The benefits of a college degree vary widely depending on the quality of the school and a student’s choice of major. Not all college degrees are created equal: there is a huge variation in the return to a bachelor’s degree, depending on choice of major and occupation; school type and selectivity level; as well as the likelihood of graduating. The details are spelled out in a newly released Brookings brief that notes that 170 of 853 unique schools, or 1 in 5 of those schools analyzed, have negative returns on investment.

With college costs at record highs, many students are incurring debilitating debt. Student loans are the second largest item on household balance sheets after mortgage debt. It may actually be irresponsible to tell young people that college is always the best choice, and that they will be able to find jobs that make these debt levels affordable. If a student is able to get into a school with high graduation rates, generous financial aid, and he or she chooses a major with high expected earnings – such as engineering or science -- they can greatly improve their lifetime prospects. But an expensive degree at a non-selective four-year school with a low graduation rate may not be a wise decision.

How can we help students make smarter investments in their postsecondary years? First, we need to make sure they have better information on financial aid, graduation rates, earnings levels, and other relevant information about the institutions they are considering. Some of this data exists, such as the PayScale college rankings and the Obama Administration’s College Scorecard, but should be more broadly publicized. Second, we should encourage more students to consider less traditional postsecondary alternatives such as job training programs, apprenticeships, vocational certificates, and associate degrees that train students in skills that are in high demand by employers. Finally, financial aid should be tied to academic performance: research suggests that students with financial aid that has strings attached are more likely to complete their degrees.

Authors

Isabel V. Sawhill

Publication: Real Clear Markets

Image Source: © Jason Reed / Reuters

Infographic: Should Everyone Go to College?

Isabel V. Sawhill and Stephanie Owen — Wed, 08 May 2013 16:33:00 -0400

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Should Everyone Go To College?

Authors

Isabel V. Sawhill
Stephanie Owen

Subsidizing Higher Education May Not Be Paying Off

Isabel V. Sawhill and Ron Haskins — Tue, 07 May 2013 00:00:00 -0400

A college degree has long been touted as a key component for a successful and prosperous life. But a more critical look reveals that coming in prepared and graduating is often the biggest challenge, especially for disadvantaged students. Senior fellows Isabel Sawhill and Ron Haskins discuss the findings from in the latest issue of The Future of Children journal which is devoted to post secondary education preparation as well as a new Center on Children and Families brief that examines the college return-on-investment.

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Subsidizing Higher Education May Not Be Paying Off

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Time for Change: A New Federal Strategy to Prepare Disadvantaged Students for College

Ron Haskins and Cecilia Elena Rouse — Tue, 07 May 2013 09:00:00 -0400

Abstract

If more children from low-income families graduated from college, income inequality would fall and economic opportunity would increase. A major barrier to a college education for students from low-income families is that they are poorly prepared to do college work. Since the War on Poverty of the 1960s, the federal government has funded several programs to help prepare disadvantaged students to succeed in college. Evaluations show that these programs are at best only modestly successful. We propose to consolidate these programs into a single grant program, require that funded programs be backed by rigorous evidence, and give the Department of Education the authority and funding to plan a coordinated set of research and demonstration programs to develop and rigorously test several approaches to college preparation.

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Time for Change: A New Federal Strategy to Prepare Disadvantaged Students for College

Authors

Ron Haskins
Cecilia Elena Rouse

Publication: The Future of Children

Improving College Prep. for Low-Income Students

Ron Haskins and Cecilia Elena Rouse — Tue, 07 May 2013 00:00:00 -0400

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Time for Change: A New Federal Strategy to Prepare Disadvantaged Students for College

Authors

Ron Haskins
Cecilia Elena Rouse

Is There a Better Way to Prepare Disadvantaged Students for College?

Tue, 07 May 2013 09:00:00 -0400

Event Information

May 7, 2013
9:00 AM - 11:00 AM EDT

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue, N.W.
Washington, DC 20036

A major barrier to college education for students from low-income families is that they are poorly prepared to do college work. Since the War on Poverty of the 1960s, the federal government has funded several programs to help prepare disadvantaged students to succeed in college. Evaluations show that these programs are at best only modestly successful.

On May 7, Princeton University and the Brookings Institution released the latest issue of The Future of Children—a journal that promotes effective, evidence-based policies and programs for children—which examines the state of postsecondary education in the United States. Journal co-editor Cecilia Rouse provided an overview of the issue’s contents. Ron Haskins of Brookings presented findings from an accompanying policy brief that proposes a plan to improve college preparation programs for students from disadvantaged families by consolidating them into a single grant program and requiring that funded programs be backed by rigorous evidence. Following their presentations, Harry Holzer of Georgetown University responded to the proposal from the policy brief. A panel of experts then discussed the proposed reform and offered their own thoughts on the value of postsecondary education for low-income students.

Video

How Much Do Americans Care About Income Inequality?

Scott Winship — Tue, 30 Apr 2013 10:14:00 -0400

Since the financial crisis, income inequality has been a topic of obsession in many journalistic and advocacy quarters. There is some irony in this, because the crash brought about the first reversal of inequality between "the 99 percent" and richer Americans in years, and there was much less concern about the subject during the period in which inequality was rising steadily. A very visible group of academic, policy, and media elites is convinced that rising inequality is the problem of our time, and many of them struggle to understand why the issue has not inspired an outcry from the broad middle class and poor.

The head-scratching and excuse-making was recently put on display in an unintentionally revealing way in a recent op-ed attempting to explain Americans' views toward economic inequality. In it, the authors, Ilyana Kuziemko and Stefanie Stantcheva, laid out what they believe to be a paradox: Americans care about inequality but do not want government to address it. Kuziemko and Stantcheva go on to describe research they have conducted with famed inequality scholars Emmanuel Saez and Michael Norton that they believe explains the "complicated" views of Americans. Their conclusion: rising inequality may have weakened faith in government.

However, a fair read of polling on inequality refutes the idea that Americans are self-contradictory. There is little evidence that Americans are particularly bothered by inequality; therefore, it is unsurprising that they do not want government to reduce it. On the other hand, there is ample evidence that Kuziemko, Stantcheva, Saez, and Norton believe Americans should be more bothered by inequality. But you can't always get what you want.

Kuziemko and Stantcheva (K & S) cite a December 2011 Pew Research Center poll finding that 66 percent of Americans agreed there was strong conflict between rich and poor Americans. This result is regularly interpreted as indicating the public is concerned about inequality but indicates no such thing. The question measures respondents' sense of the existence of conflict, not whether that conflict is worrisome. You may recall that in late 2011, Occupy Wall St. had finally made inroads with the general population, as the economy sputtered. Respondents to that poll accurately perceived that there was more conflict than there had been even a few months earlier. Indeed, upper-income respondents were no less likely than poor respondents to agree there was strong conflict.

The increase in perceived conflict the poll found between 2009 and 2011 looks worrisome, but 2009 was a historical low point. The level of perceived conflict at the end of 2011 was no higher than in 1992, and it dropped to 58 percent in late 2012. That level was the same as in 1987 and just a bit higher than in 2000. K & S do not show that concern for inequality is high, let alone rising.

K & S cite research by political scientist Larry Bartels to argue that most people understand inequality is rising and that most of those believing it has risen disapprove. That is true, but it is worth emphasizing that 45 percent of those who believed inequality has increased did not call it "a bad thing," and even among those who did believe it was bad, we don't know how many felt particularly strongly in their view.

In early 2011 Gallup polling that asked for an open-ended response to the question of what is America's most important problem, just one percent said inequality, well below pressing issues like "lack of respect for each other" and "foreign aid," to name just two that outranked inequality. Viewed against this evidence, it is unsurprising that the Gallup poll they cite from later in the year indicated only a minority of Americans thought it was important for the federal government to reduce inequality.

In short, there is little evidence that "Americans are deeply troubled about the current level of income inequality," as K & S put it. In fact, one suspects that they are recent converts to this talking point. You can envision them, along with Saez and Norton, initially hypothesizing that it must be that Americans don't understand how much inequality we have and how harmful it is. If we could educate them, they would surely demand more government intervention. Hence, the research study they designed that randomly gives a "tutorial" on income inequality to some participants but not others and that then considers how policy preferences differ between the two groups.

It turned out that the tutorial had little effect on policy preferences toward redistribution, despite it being designed to make inequality look more harmful and redistribution less so than the evidence has established. But the tutorial did reduce respondents' trust in government. From this narrow result, they conclude that rising inequality may have reduced faith in government. So Americans' preferences for government inaction on inequality, it turns out, are not because they are ill-informed about the subject. And if they are well-informed, it can't be that they simply don't care about inequality, right? So Americans, they conclude, are "troubled by" inequality but they need to be convinced "that their government is up to the task of addressing it."

There is more to be said about the study itself, which I will take up in a second essay.

Authors

Scott Winship

Publication: Real Clear Markets

Image Source: © Jim Young / Reuters

On the Budget, Obama's Opening Bid Was Reasonable

Ron Haskins — Tue, 16 Apr 2013 15:26:00 -0400

It would be difficult to imagine an uglier process of enacting legislation on important issues than the last two years of attempts by federal policymakers to reduce the size of the nation's deficit. Although no single explanation would suffice to account for the difficulty of making bipartisan progress, a major philosophical difference between the political parties stands out as the major culprit.

Broadly speaking, Republicans want smaller government and lower taxes; Democrats want more government and higher taxes. Since enactment of the Social Security Act in 1935, the story of the federal government has been one of expanding programs, increasing federal spending, and increasing taxes. Republican denials notwithstanding, Republicans have often supported the thousands of laws that expanded government relentlessly over the years and even in raising taxes to support the programs, although they have often kept in check the higher levels of spending proposed by Democrats. Even so, for the last several years Republicans have talked more vigorously about the philosophy of small government and low taxes. Necessity met opportunity when the nation entered a slow-burning deficit mess, aggravated by a severe recession that soon convinced almost everyone that the federal government had to balance its books by cutting spending, raising taxes, or both. Roughly speaking, the need to reduce the deficit, combined with the fact that cutting spending would move the nation toward the Republican goal of smaller government, has given Republicans an opportunity to cut spending to an extent that would have otherwise been impossible.

By contrast, the deficit puts Democrats in a defensive posture because, as President Obama's budgets show, they typically propose increased government spending. Ironically, Democrats also have been able to seize on an external force to support their cause. That force was the Great Recession that began in December 2007 with effects, especially high unemployment, that continues today. In 2009, Democrats were able to pass an $800 billion plus stimulus bill to fight the recession and that bill expanded a host of programs for the poor and unemployed. Some of those changes have been made permanent, which has had the effect of permanently boosting government spending.

The recession and the stimulus have allowed Democrats to advance their agenda; the deficit and the compromise legislation Congress has passed to reduce it over the past two years have allowed Republicans to advance their agenda, although the fiscal cliff agreement in January did contain a $600 billion tax hike on the rich.

Now comes President Obama with his budget proposal for 2014. He proposes to increase taxes by imposing a minimum tax rate of 30 percent on earnings over $1 million, limiting itemized deductions for those in the top tax brackets, and increasing the federal tax on cigarettes to pay for expanded spending on preschool. Republican leaders have been scathing in their rejection of the tax increases. But the president also proposes changes in health care, primarily Medicare, by encouraging more Medicare recipients to use generic drugs and by making elderly couples with incomes over $170,000 pay for more of their care. And most importantly, Obama proposes to change the inflation adjustment in Social Security benefits in a way that would reduce spending by about $130 billion over the next decade and even more after that.

Although Republican leaders have been hostile to many features of the Obama budget, the Medicare and Social Security proposals are important and would both cut spending. It is even possible to see the inflation adjustment proposal as a breakthrough because a Democratic president has, at the cost of infuriating his political base, proposed to reduce spending on the program that is the greatest policy achievement of the Democratic Party. In the past, Republican leaders have urged the president to make the specific inflation adjustment proposal he now offers in his budget. Republicans should take it.

The President makes a number of new spending proposals in his 2014 budget, notably on infrastructure, preschool expansion, support for manufacturing, and making permanent several existing tax credits that help low-income families. But the Office of Management and Budget estimates that as a percentage of GDP, the nation's debt would decline from 76.6 percent in 2013 to 73 percent in 2023. Many analysts and politicians think the debt should be reduced more, but this reduction, if the OMB estimates are correct, would represent continued progress on the deficit and a major breakthrough on Social Security.

The opening question for serious negotiations about the 2014 budget and deficit reduction is whether both sides have shown enough give to justify serious bargaining. Whatever else it might do, the Obama budget proposal, by offering an important reduction in Social Security spending and a cut in Medicare spending that could be expanded in the future, shows considerable give on the president's side. So far the response from most Republicans has been dismissive. Maybe Republican leaders should take a second look and make a counterproposal that falls between the Ryan budget and the president's budget while retaining the Social Security and Medicare savings. If they have to offer something in taxes, which they will to get a deal, remind Democrats that the Social Security inflation adjustment would also increase income taxes by around $100 billion over ten years and accept the president's cigarette tax proposal. Something along these lines would allow both Democrats and Republicans to achieve part of their traditional agenda.

Authors

Ron Haskins

Publication: Real Clear Markets

Brookings Expert Roundtable on President Obama’s Federal Budget Proposal for FY 2014

Ron Haskins, Isabel V. Sawhill and Bill Frenzel — Thu, 11 Apr 2013 16:00:00 -0400

President Obama’s FY 2014 budget proposal offers a blueprint that will cut the deficit by $1.8 trillion dollars over the next decade, invest more in infrastructure and early childhood education and is intended to improve the nation’s failing fiscal health. But can it really do that? And more? We examine the budget proposal and its impact in this discussion.

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The President’s Budget: A Good Strategy for Difficult Times

Isabel V. Sawhill — Mon, 08 Apr 2013 15:08:00 -0400

The President’s budget will be released on Wednesday and its outlines have already been revealed to the media. According to most accounts, he will offer to slow the growth of entitlements, make some new productivity-enhancing investments in infrastructure and early childhood education, and insist on raising some new revenues by curbing deductions for the wealthy.

The big question is what will this accomplish in our current deeply polarized environment?

He has clearly chosen a more centrist approach than the two parties in Congress. His plan is more liberal than the House Republicans’ but more conservative than the Senate Democrats’. Democrats will be especially upset that he is proposing to change the inflation adjustment used for Social Security benefits and Republicans will continue to insist that new revenues are unacceptable. Finding a compromise in this environment will be almost impossible, especially if Republicans remain wedded to their mantra of no (more) new taxes.

At the same time, he may have moved far enough away from the usual Democratic position to interest some Republican senators in a deal. His plan to meet with members of the Senate right after the budget is released suggests that he plans to continue his so-called “charm offensive” and that he wants to find a way to make this budget work politically. If he is successful, and can get a plan agreed to in the Senate, he and his allies will be able to present such a plan to the House, putting them in the difficult position of either agreeing with most of the plan or looking even more recalcitrant than usual.

The House Republican budget plan involves abolishing the Affordable Care Act, making draconian cuts to Medicaid and other programs for the poor, shifting Medicare to a premium support plan a decade from now, and not only retaining, but adding to, the deep cuts to domestic discretionary spending included in the sequester. It says more about Republican ideology than it does about what the public supports. The voters favor a more balanced plan and one that protects the poor and avoids terminating many parts of the health care reform bill.

If I’m right that the President’s plan is much better aligned with public preferences than anything the House is contemplating, then even if he loses the political battle, he can win the public opinion war. Some Democrats argue that it is a mistake for him to compromise so soon in the process, but that argument ignores the impact his positions can have on how the voters judge his performance. There will be more battles to come with the expiration of the debt ceiling in May and the need to fund the government in 2014, not to mention the mid-term elections in the fall of that year.

With the public at his back, the President may ultimately prevail, as he did post-re-election with his plan to raise taxes on the wealthy. Whether he does or not, he has no other choice than to try to find a reasonable compromise. His willingness to talk about entitlements and to make specific proposals to reduce their growth needs to be part of the strategy. He can do this without giving up on the equally-important need to reform the tax system in a way that produces some new revenues.

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Isabel V. Sawhill

Myths of Inequality and Stagnation

Scott Winship — Wed, 27 Mar 2013 00:00:00 -0400

Much of what I write is an attempt to dispel economic doomsaying on the left. It’s not that I think we have solved every problem of fairness, opportunity, or security; rather, certain problems are real while others are overstated.

Sometimes dramatically so. Last month David Cay Johnston, Pulitzer Prize winner and former New York Times reporter, wrote an essay for the (generally very informative) “taxanalysts” website on income inequality. Johnston tried to make the case that the gains of the rich have come at the expense of everyone else with the eye-raising claim that the income received by “the bottom 90 percent of earners” rose by only $59 in terms of today’s purchasing power between 1966 and 2011.

This is one of those litmus-test claims that in a perfect world would disqualify some people from debate over living standards, inequality, and the state of the middle class. To honestly believe that below the top 10 percent of earners there has been essentially no improvement in 45 years is to declare an extreme disconnection from the real world and a commitment to a negative interpretation of the American economy that is beyond parody.

The claim was dutifully repeated this week by the Center for American Progress’s Think Progress, the Huffington Post, and Salon. It has been tweeted, liked, or emailed by over 10,000 readers of those sites and in turn read by their own followers and friends. They will be more accepting of the next fearful economic claim as a consequence.

This is an egregiously erroneous “finding”, as I’ll explain in a moment. But first, take the test yourself. The median household income is the income of the household that is right in the middle of the distribution—half of all households are richer than it and half are poorer. How much do you think median household income has risen since 1966? (Hint: I’d take the “over” if we’re starting with $59.)

The Census Bureau’s Current Population Survey is the most widely-used source of income data, though it has some flaws. The first year for which household income datais readily available from the CPS is 1967. From 1967 to 1979, median household income grew by $5,500. This understates income growth during this period because it does not incorporate non-cash public transfers like food stamps, Medicaid, and Medicare and does not include fringe benefits or realized capital gains (such as from the sale of a home). From 1979 to 2009, we can use improved estimates from the Congressional Budget Office that combine the CPS data with tax return data to partially fill these gaps. CBO indicates that median household income (before taxes) rose by $14,200. After taxes, median income rose by $17,600.

At a minimum, therefore, median household income rose by $20,000 from 1967 to 2009. The data on which Johnston relies shows a decline of $200.

Despite his claim, the data Johnston uses represents tax returns, not “earners”. A married couple filing jointly is a single tax return. But even if we give Johnston the benefit of the doubt and ask what has happened to the median “earner”, he is way off. Thereadily available CPS data goes back to 1975—the increase in earnings for the median worker was $6,500 from 1975 to 2011, while the tax return data relied on by Johnston suggests a decline of $1,200.

How did Johnston get it so wrong? The most fundamental answer is that he failed to challenge his priors when the data showed an implausible result. But he is not making his numbers up. The problem is that the data he used cannot be used to examine trends in living standards among the non-rich.

Johnston relies on the tax-return-based data of economists Thomas Piketty and Emmanuel Saez—the data that is the basis for the ubiquitously reported (and true) finding that incomes at the top have sky-rocketed. As I have written before, the degree of income inequality we have in the U.S. is truly mind boggling, though that fact tells us nothing about whether inequality is problematic. Clearly it makes a difference if the bottom 90 percent is only $59 richer over 45 years rather than $20,000 richer. Piketty and Saez do show that the income received by the bottom 90 percent of “tax units” rose by just $59. We know because they admirably make mounds of their data available to the public (in this case, see the “Table_Incomegrowth” tab, column J).

Why are their numbers so different from the Census Bureau and CBO figures? The share of household and personal income that is included in the Piketty/Saez measure has declined markedly since 1966. In that year, the total income in the Piketty/Saez data amounts to 109% of the total income in the CPS. That the share is over 100% largely reflects the fact that the CPS does not capture the very richest households and caps the amount of income reported at artificially low levels for confidentiality purposes. By 1979, Piketty/Saez income was just 93% of CPS income, despite the fact the CPS continued to understate income at the top. The decline in share of income accounted for by Piketty/Saez is due to the fact that taxable public transfers are largely excluded from their measure, as are tax-favored employer benefits deducted from paychecks. Both sources of income have grown over time. Their estimates also exclude realized capital gains among the bottom 90 percent, and those were rising over time too.

The share of CPS income accounted for by Piketty/Saez income was largely unchanged in 2009. But this was the period in which income inequality rose. If the CPS could adequately capture top incomes, the increase in CPS income would have been greater than the data indicate, and so the share of CPS income accounted for by Piketty/Saez income would have fallen again. From 1979 to 2009, we can turn to the CBO income estimates, which incorporate public transfers, employer-provided health insurance, full pay (before deductions), capital gains, and top incomes. The share of CBO income accounted for by Piketty/Saez income fell from 89% in 1979 to 77% in 2009.

It is also the case that “tax units”—essentially tax returns, but with a small number of additional “units” added in to account for non-filers—include, for example, teenagers who have summer jobs and college kids on work study who file tax returns and make very little. Changes over time in the size of these groups could also affect the results—not only by pulling the incomes of the bottom 90% down but by pushing the entry point to the top 10% up (more low-income tax returns means the “top 10%” is a richer group). There may also be under-reporting of self-employment and other income in the tax return data, and if that has increased over time, it would also dampen the rise in income in the bottom 90%.

You might think that these problems call into question the basic Piketty/Saez claims about rising income inequality.This is a possibility I’ve considered (and continue to), but evidence from other sources supports the basic conclusion that the incomes of the very rich have skyrocketed. These sources are not without problems themselves (and most rely on the tax return data in some way), but many of the shortcomings of the Piketty/Saez income measure are absent from them.

The Johnston analysis, in the end, is just an extreme case of liberal negativism about living standards. As I discuss in my new essay for National Affairs, “Overstating the Costs of Inequality,” the median household in the U.S. is twice as rich as it was in 1960, at the peak of the supposed “Golden Age” the American middle class. Too many commentators refuse to see that and are all-too-ready to accept the most outlandish claims about living standards. As I’ve argued before, this sort of thing sows economic insecurity and works against continued improvement in our standard of living. And it detracts from real-world problems.

Authors

Scott Winship

Publication: National Review

Overstating the Costs of Inequality

Scott Winship — Mon, 25 Mar 2013 17:16:00 -0400

In recent years, inequality has become the core economic concern of the American left. The gap between the haves and have-nots is understood to be the fatal flaw of our economic system — a fundamental problem that is the source of countless other difficulties. To hear many liberals tell it, increasing inequality is holding back growth, crushing the prospects of the poor and middle class, and even undermining American democracy. Such concerns are prominent in President Obama's rhetoric, and seem also to drive key parts of his policy agenda — especially the relentless pursuit of higher taxes on the wealthy. As the president put it in his second inaugural address in January, he believes "that our country cannot succeed when a shrinking few do very well and a growing many barely make it."

The idea that our economy is held back by inequality is echoed in the claims of some of the nation's most prominent economists. Princeton professor (and Nobel laureate) Paul Krugman and David Card of the University of California, Berkeley, contend that inequality hurts economic mobility. Princeton's Alan Krueger (now chairman of the White House Council of Economic Advisers) and Columbia's Joseph Stiglitz (another Nobelist) think it dampens economic growth. Along with Raghuram Rajan, former chief economist of the International Monetary Fund, Stiglitz also argues that inequality was behind the financial crisis. Cornell economist Robert Frank and former labor secretary Robert Reich are convinced that it fuels the indebtedness of the middle class. The Massachusetts Institute of Technology's Daron Acemoglu believes that inequality enables economic elites to capture the machinery of government and thus ultimately produces national decline.

Read the rest of the article at the National Affairs website or download a fully annotated version of the essay.

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Scott Winship

Publication: National Affairs

Brookings: Centers - Center on Children and Families

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How Much Do Americans Care About Income Inequality?

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The President’s Budget: A Good Strategy for Difficult Times

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