AEI » Latest Content American Enterprise Institute: Freedom, Opportunity, Enterprise Thu, 29 Jan 2015 21:17:53 +0000 en-US hourly 1 Trade in 2015: Senate Finance Committee Chairman Orrin Hatch on how America can succeed in today’s global economy Thu, 22 Jan 2015 19:38:14 +0000 Event Description

International trade and the US economy are top issues in the 114th Congress. We welcome you to join us at AEI as Senate Finance Committee Chairman Orrin Hatch (R-UT) outlines his vision for how America can succeed in today’s global economy. Sen. Hatch will speak to his longstanding efforts to renew Trade Promotion Authority and will discuss what the Obama administration must do to get ongoing trade negotiations such as the Trans-Pacific Partnership and Transatlantic Trade and Investment Partnership successfully enacted by Congress.

If you are unable to attend, we welcome you to watch the event live on this page. Full video will be posted within 24 hours.

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Disability program needs reform, not merely revenue reallocation Thu, 29 Jan 2015 20:06:28 +0000 “Republicans target disability,” say the headlines. A rule passed by the newly elected Republican-controlled House prohibits a supposedly “routine” reallocation of revenues between Social Security’s retirement and disability insurance programs, threatening dramatic benefit cuts for the disabled. In reality, the House rule may force Congress to finally enact substantive reforms for the troubled Disability Insurance (DI) program.

The average new DI beneficiary in 2013 received annual cash benefits of $14,668, plus Medicare benefits worth about $9,600 per year. Federal outlays on DI and associated Medicare benefits top one-quarter trillion dollars annually, more than three times the 1990 level. The DI trust fund is projected to run dry in 2016, resulting in 19 percent across-the-board benefit cuts.

Rising disability costs are partly demographic: an older workforce is more disability-prone, while rising female labor force participation increases the number of women qualified for benefits. But even accounting for these changes, the number of disability beneficiaries has risen by about 40 percent over the past three decades, according to analysis by the Social Security Administration’s (SSA’s) actuaries.

Yet Census Data show that the share of working-age individuals who report a disability that limits or prevents them from working has remained roughly stable over the past three decades. Self-reported health status has improved, according to the National Center for Health Statistics, fewer workers hold physically demanding jobs, according to the Urban Institute, and Bureau of Labor Statistics data show that the rate of occupational injuries has fallen. The major change is that far fewer individuals with disabilities are working: in 1990, 28 percent of individuals with self-reported disabilities were employed. Today, just 14 percent are working.

Congress itself played a role: in 1984, it loosened eligibility standards, paving the way for increased applications based on more difficult-to-assess mental conditions such as depression and musculo-skeletal disorders like back pain.

A second factor is that DI benefits have become relatively more attractive for less-educated individuals who have fared poorly in the workforce. DI benefits are increased annually along with average wage growth, while earnings for less-skilled individuals have stagnated or even declined. As a result, the “replacement rate” offered by DI — that is, benefits relative to what less-skilled workers could earn in the market — has risen substantially, according to economists David Autor of MIT and Mark Duggan of Stanford. Autor and Duggan calculate that the share of high school dropouts receiving DI benefits has doubled since 1984.

While Social Security disability is ripe for reform, many progressives wish simply to shift revenues from the retirement to the disability program without enacting any other reforms. Doing so would weaken the retirement program’s finances, which have deteriorated significantly in recent years, and leave both programs underfinanced for the future.

These inter-program transfers are portrayed as “routine.” Yet, as Charles Blahous, one of Social Security’s public trustees, has pointed out, prior revenue transfers haven’t taken place in isolation from other reforms. Several revenue reallocations were scheduled as part of the comprehensive reforms passed in 1983. The most recent transfer, in 1994, was recommended by the Social Security Trustees conditioned on “a thorough policy review of the program.” Tax reallocation, the Trustees said, “should be viewed as only providing time and opportunity to design and implement substantive reforms that can lead to long-term financial stability.” We’re still waiting for those reforms to take place.

And Social Security’s current Trustees today warn that reallocation alone “might serve to delay DI reforms and much needed financial corrections for OASDI as a whole.”

It is these actions that the House rule would prohibit: relying solely on revenue reallocation and punting real reforms to the future. A broader-based reform plan that extended the solvency of both the retirement and disability programs could include revenue reallocation to address DI’s short-term financial needs.

Comprehensive reforms must recognize that it’s not enough to simply keep workers from going on DI. That’s been tried: administrative actions under the Carter and Reagan administrations cut thousands of beneficiaries from the disability rolls. But the ensuing backlash led to Congress’s loosening of eligibility standards in 1984.

Rather, reforms should be, in the words of the bipartisan Social Security Advisory Board, “directed to self-support, independence, and contribution that can help … avoid, delay, or minimize [the] need for dependence on the programs of last resort.”

One simple reform is to make workers without children eligible for the full Earned Income Tax Credit. Currently, the EITC for a childless worker working full-time at the minimum wage is just $22 per year. Increasing the reward to work would reduce financial incentives to go on disability.

Comprehensive reform proposals from across the political spectrum focus on creating incentives for employers to keep workers with disabilities on the job. One plan developed for the Center for American Progress by Autor and Duggan would require employers to cover the initial period of disability, during which time workers would receive rehabilitative services. Likewise, a proposal from Richard Burkhauser of Cornell and Mary Daly of the San Francisco Federal Reserve, published by the American Enterprise Institute, would institute “experience rating” for employers’ disability payroll taxes, such that employers who keep disabled employees on the job are rewarded with lower taxes. Both proposals draw lessons from the Netherlands, which reduced the intake of new disability cases by 60% by using similar reforms.

In difficult economic times it is tempting to let the government’s Disability Insurance become the equivalent of “long, long-term” unemployment checks or “early, early” retirement benefits. But the financial and human cost of such complacency is too high. The disabled who can work, should work, and Washington needs to enact policies that will help them do so.

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The twilight of China’s Communist Party Thu, 29 Jan 2015 20:01:55 +0000 “I can’t give you a date when it will fall, but China’s Communist Party has entered its endgame.” So says one of America’s most experienced China watchers to a small table of foreign diplomats at a private dinner in Washington, D.C. The pessimism from someone with deep connections to the Chinese government is notable. Washington should start paying attention if it wishes to avoid being surprised by political earthquakes in the world’s second-largest economy.

The China scholar at my table is no conservative. Nor are the handful of other experts. Each has decades of experience, extensive ties to Chinese officials and is a regular visitor to the mainland. No one contradicts the scholar’s statement. Instead there is general agreement.

“I’ve never seen Chinese so fearful, at least not since Tiananmen,” another expert adds, referring to the 1989 massacre of pro-democracy student demonstrators in the heart of Beijing. When prodded for specifics, he mentions increased surveillance, the fear of being investigated and increased arrests.

The full text of this article will be posted on Monday, February 2.

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Dear NASI: What’s behind door #4? Thu, 29 Jan 2015 19:56:57 +0000 The National Academy of Social Insurance (NASI), of which I’m a nominal member, published a blog post “clarifying the choices” available to reform the Social Security Disability Insurance program, which is projected to run short of funds in 2016. William J. Arnone, the Chair of NASI’s Board, and G. Lawrence Atkins, NASI’s President, point to three ways to strengthen the disability program’s finances.

These include:

  1. Transfer tax revenues from Social Security’s retirement program to the disability program
  2. Raise the payroll tax rate for the disability program, or
  3. Raises taxes for both the retirement and disability programs

That’s it? Those are my only choices? What’s behind door #4?

Arnone and Atkins make no mention of disability reforms such as those passed in the Netherlands in the late 1990s and early 2000s, which created incentives for employers to provide accommodations for workers with disabilities and required workers to undergo rehabilitative services before they could apply for disability benefits. The Netherlands once was a disability basket-case, with among the highest disability rates in the world. Today, they’ve reduced their intake of disability cases by 60%. Worth mentioning?

Reform proposals in the US draw from these experiences. One plan developed for the Center for American Progress and the Brookings Institution by David Autor of MIT and Mark Duggan of Stanford would require employers to cover the initial period of disability, during which time workers would receive rehabilitative services. Likewise, Richard Burkhauser of Cornell and Mary Daly of the San Francisco Federal Reserve, in a book published by the American Enterprise Institute, would institute “experience rating” for employers’ disability payroll taxes, such that employers who keep disabled employees on the job are rewarded with lower taxes.

The bipartisan Social Security Advisory Board has stated that the disability program should be reformed to “support an integrated approach that provides and emphasizes an alternate path — one directed to self-support, independence, and contribution that can help those who might, by taking that path, avoid, delay, or minimize their need for dependence on the programs of last resort.”

There’s been a tremendous amount of research work on disability in recent years. For an ostensible research organization to bypass all of that and reflexively turn to tax increases and only tax increases strikes me as bizarre.

Follow AEIdeas on Twitter at @AEIdeas.

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Place your bets: Why all political junkies should follow prediction markets Thu, 29 Jan 2015 19:25:33 +0000 Let’s talk about the other kind of “money in politics.” Here are three reasons why even non-gamblers should follow political betting markets – and then I’ll touch on the various ways this wagering occurs.

  1. They provide a fascinating snapshot of the political “marketplace”: Just as sports fans who don’t gamble are still interested in what “Vegas thinks,” many of us who follow politics get useful information from prediction markets.
    • For example, when you hear that “Hillary is the favorite to win the Democratic nomination,” this actually a verifiable fact. Hillary is, in fact, the heavy favorite. In betting parlance, she is “odds-on” to win.
    • Another nugget: Jeb Bush’s Dec. 16th announcement that he was going to “actively explore” a presidential run. How much did that statement really change things? After all, he didn’t say that he was officially running, and there had already been months of talk about a possible Jeb candidacy. Well, here’s an interesting data point: With that announcement, Jeb Bush’s odds to win the GOP nomination improved from 5-to-1 to 7-to-2 on Betfair, a large UK betting exchange (this link illustrates the change in Jeb’s odds over time, across various exchanges.)
    • Some fun facts from current betting markets (via the aggregator Predictwise):
  • Likelihood of winning the 2016 presidency:
    • Hillary Clinton 45.9%
    • Jeb Bush 13.9%
    • Marco Rubio 6.7%
    • Mitt Romney 5.6%
    • Rand Paul 5.6%
  • Likelihood of GOP nomination:
    • Jeb Bush 24.9%
    • Marco Rubio 13.3%
    • Mitt Romney 11.7%
    • Scott Walker 11.3%
    • Rand Paul 10.0%
  • Likelihood of Democratic nomination:
    • Hillary Clinton 75.1%
    • Elizabeth Warren 8.5%
    • Joe Biden 3.4%
  1. Markets are the only real-time feedback we have: Remember that first Obama-Romney debate? Early on in that skirmish there was an emerging consensus that Romney was doing well. But how much was it actually improving his chances of winning the election? It took days for polling to fully reflect the debate’s impact. But markets are open 24/7, and those of us watching saw Obama’s re-election odds dropping. Check out the graph below of the first 45 minutes of the debate (lifted from the since-closed futures site Intrade): Obama’s re-election odds fell from 71% to 67%. Nowhere else could you find quantifiable, real-time feedback. FYI, a graph of the entire 2012 election cycle is here.
Obama re-election contract
  1. Accuracy, via “the wisdom of the crowd”: Prediction markets are often the most accurate predictors of election results, outperforming both polls & pundits. In 2012 Intrade “predicted” the electoral outcome in 49 of 50 states. In 2008, Intrade was within 1 electoral vote (Nebraska’s rogue Congressional district) of the exact outcome. There’s plenty more data out there, but I’ll mention one more interesting case: last year’s Scottish independence vote. Markets were way ahead of the polling. As the NYT’s Upshot blog put it, the vote was “A Loss for Pollsters and a Win for Betting Markets.”

So, you ask, how do I bet? Below are the main avenues. Each has their own quirks, and I opened accounts with IEM and PredictIt in order to become more knowledgeable about them (and clearly not because I enjoy this sort of thing.)

  • PredictIt: Called the “online political stock market,” is a non-profit real money prediction site. Launched in October 2014, they purposely avoided the legal issues that plagued Intrade. Cleared by US regulators, PredictIt is legal for US residents. Trading volume appears pretty light so far, with some odd-looking wagers. If their markets get sufficient liquidity, PredictIt could be the new Intrade. They’ve certainly got some intriguing markets available, such as on the outcome of this year’s Supreme Court’s gay-marriage case.
  • Iowa Electronic Market (IEM): Operated by the University of Iowa for educational purposes since 1988, IEM is a precursor to PredictIt. Maximum account size is $500, and one popular bet  is predicting the % of the presidential vote each party gets.
  • Offshore betting sites: These are betting sites operating legally abroad yet closed to US residents. Some of the better-known are Betfair, Paddy Power (which famously paid out Obama bettors two days before the 2012 election) and the Rupert Murdoch-owned SkyBet, which, like many of these sites, is a major soccer sponsor. Most of the wagers are in the form of traditional sports bets, as in “5-to-1 on Hillary.”
2016 US presidential election betting odds5

In conclusion, talk is cheap but betting isn’t. Thus markets work, in politics and elsewhere.

Where do I bet? What kind of site is this? Is it legal for those in the US? How much can I bet? Can I exit my bet before the election? Fun bets available
PredictItEducational non-profit (U. of Wellington)Yes$850 per “question”Yes, buy & sell positions just like stocksWill Elizabeth Warren declare a 2016 run by March?
Offshore sitesBookmakers operating legally abroadNo (I tried)Varies, but can take sizeable wagersOnly by making an the opposite wager (one exception is Betfair exchange)Odds that GOP 2016 ticket is 2 women: 100-1 (it’s 13-2 for Dems)
Iowa Electronic MarketsEducational non-profit (U. of Iowa)Yes$500 total across all marketsYes, buy & sell positions just like stocksWhat % of the 2016 2-party vote will each party get?
IntradeWas set up as a financial “exchange”                             CLOSED IN 2013Had state-by-state electoral college bets


Follow AEIdeas on Twitter at @AEIdeas.

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Building toward another mortgage meltdown Thu, 29 Jan 2015 18:42:24 +0000 ...]]]> The Obama administration’s troubling flirtation with another mortgage meltdown took an unsettling turn on Tuesday with Federal Housing Finance Agency Director Mel Watt ’s testimony before the House Financial Services Committee.

Mr. Watt told the committee that, having received “feedback from stakeholders,” he expects to release by the end of March new guidance on the “guarantee fee” charged by Fannie Mae and Freddie Mac to cover the credit risk on loans the federal mortgage agencies guarantee.

Here we go again. In the Obama administration, new guidance on housing policy invariably means lowering standards to get mortgages into the hands of people who may not be able to afford them.

Earlier this month, President Obama announced that the Federal Housing Administration (FHA) will begin lowering annual mortgage-insurance premiums “to make mortgages more affordable and accessible.” While that sounds good in the abstract, the decision is a bad one with serious consequences for the housing market.

The full text of this article can be read by subscribing to The Wall Street Journal. The rest of the article will be posted to on Monday, February 2.

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Analyzing the Jordan-Islamic State swap: Bolton on Fox Business’ ‘Lou Dobbs Tonight’ Thu, 29 Jan 2015 18:34:33 +0000 0 Study: Obama’s ‘middle-class economics’ tax plan would have ‘very little net impact on middle-income households’ Thu, 29 Jan 2015 18:30:47 +0000 In an analysis of President Obama’s State of the Union tax proposals — the core of his new “middle class economics” —  the Tax Policy Center finds the ideas “would have very little net impact on middle-income households.” That,  even though the president promised his plan would “[lower] the taxes of working families and [put] thousands of dollars back into their pockets each year.” More from the Wall Street Journal about the TPC analysis:

Instead, much of the benefit of Mr. Obama’s plan goes to the lowest-income households, the analysis concludes. For example, those making between $49,000 and $84,000—the middle quintile of earners—would actually see their taxes go up by an average of $7 under Mr. Obama’s proposals.

In the middle, there would be a mix of winners and losers. About one quarter would get a tax cut averaging about $550, while about half would get a tax increase averaging about $290. Instead, the biggest boost to incomes would come in the lowest quintile, those with incomes up to about $25,000. They would see their incomes go up by about 1.2%, or $174. Those in the top 1% would see theirs fall by 2%, or about $29,000.

One reason for the result is that experts tried to estimate the impact on all U.S. workers of the president’s new proposed tax on highly-leveraged financial institutions. That is not a direct tax increase on those workers, but economists figure they would pay in some fashion—through lower compensation and benefits, for example.

The picture is slightly better for the administration if the bank tax is set aside. In that case, only about 6% of households in the middle quintile see a tax increase, as opposed to almost half. But the overall impact of the president’s plan on this group remains negligible-essentially, no change in after-tax incomes and an average $12 tax cut.

The analysis also has the potential to undermine administration claims on its capital gains proposal. In its State of the Union fact sheet, the White House said that 99% of the impact of those increases would fall on the top 1% of earners. The TPC analysis shows that about 62% of the overall tax increase would fall on the top 1%, while the rest—38%—would fall on people with lower incomes. These increases would be felt far down the income spectrum, mostly because of Mr. Obama’s proposal to start imposing capital-gains tax on many inheritances.

Some Republicans say it will be impossible to “outbid” Democrats for the affections of the American middle. (You know, by proving tax relief and more affordable higher ed — not to mention the promise of more high-paying jobs.) Actually, if this is the left’s best shot, it might not be hard at all.

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Are Republicans ready for a post-Obamacare world? Thu, 29 Jan 2015 18:25:57 +0000 ...]]]> Millions of Americans could find their health-insurance plans endangered if the Supreme Court rules this summer that President Barack Obama’s administration has broken the law in subsidizing them. The administration created this problem by pushing through a poorly written statute and lawlessly implementing it. But congressional Republicans nonetheless should step up and solve the problem — and they should do it in a way that hastens the end of Obamacare.

The Affordable Care Act lets subsidies flow to insurance plans purchased on exchanges established by state governments. Since most states haven’t set up exchanges, following the law would have required limiting the subsidies geographically. The administration decided to offer them more widely, to include plans purchased on federal exchanges in states that declined to establish their own. If the Supreme Court decides to reinstate the law’s limits, millions of people whose plans are subsidized will suddenly face much higher premiums. And if they drop their coverage, it could cause premiums to rise for those who are left on the exchange, even people whose own plans aren’t subsidized.

Republicans could respond to this situation by saying it’s Obama’s fault and not their problem. But that would be a pretty callous reaction, and it probably wouldn’t be politically sustainable. A new poll from the Kaiser Family Foundation shows that if the court restricts the subsidies, 64 percent of people think Congress should “pass a law so that people in all states can be eligible for financial help from the government to buy health insurance.” Democrats would present a united front calling for quick fixes: The recalcitrant states could set up exchanges or deem the federal exchange for their residents to be “state-established”; Congress could pass a short bill blessing the subsidies everywhere.

Acceding to such demands, however, would present its own disadvantages. Republicans would have to expand the reach of Obamacare right after the court had shrunk it, entrenching a model of health-care policy they consider bad for the country and enraging many of their supporters. Because of the way Obamacare is written, the ruling would end the employer mandate and limit the reach of the individual mandate in the affected states. Going along with the Democrats would mean voting for these especially unpopular features of Obamacare. If the only alternatives are doing nothing or effectively reversing the court’s decision, Republicans will split over which to choose and fight each other about it.

But there are other alternatives. Republicans could, for example, offer to authorize the subsidies everywhere, but only through the end of this presidency and in return for some changes to the law. Or they could offer a health-insurance alternative of their own that enables the people affected to get affordable coverage. James Capretta and Yuval Levin have outlined legislation that meets that goal.

Levin and Capretta have concluded, however, that the best response by Congress to a decision striking down the subsidies would be something a bit less ambitious. They think that Congress should advance legislation to allow states to opt out of Obamacare and into something better. Those states would then be exempt from the law’s regulations and mandates. People already on the federal exchanges in those states would keep getting their subsidies for some limited time. Going forward, though, people in those states with no access to employer coverage would get tax credits they could use to buy any state-approved coverage — whether or not it meets Obamacare’s requirements or is bought on any government-run exchange.

This legislation would create a safe exit ramp from Obamacare. It would protect people from losing their coverage when Obamacare’s illegal subsidies end. It would respond to the public demand expressed in that Kaiser poll. Opponents of the law would no longer have to choose between leaving people without insurance and expanding a bad health-care policy. And if supporters of Obamacare balk at the proposal — if Democratic senators threaten to filibuster it, or if Obama threatens a veto — they will have to explain that Obamacare is terrific but can’t withstand the existence of a rival model in other states.

The plan is not politically foolproof. Some people would see their subsidies decline. Popular Obamacare regulations about how insurance companies should treat people with pre-existing conditions would have to be altered (though not abolished) for markets to work in the opt-out states. But it’s the best option for Republicans. They ought to work on it starting yesterday.​

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America’s broken program for low-income children with disabilities — and what to do about it Thu, 29 Jan 2015 18:05:57 +0000 ...]]]> Children with disabilities who live in poor families are among the most vulnerable Americans. Caring for children with disabilities can be a difficult task for any family — but especially for families who, in the majority of cases, were poor and in need of social services even before the challenge of caring for such a child arose. For these families, the social and economic capital that allows many middle-class families to cope with the difficulties of raising a child with disabilities is often absent.

Our nation’s primary means of addressing this need is the Supplemental Security Income (SSI) program. SSI provides monthly cash payments to the families of 1.3 million children with disabilities from low-income households, as well as eligibility for health care through Medicaid. In 2013, SSI issued more than $10 billion in cash payments to the families of these children.

SSI is effective at alleviating material hardship — it comprises about half of the total income for the households of children in the program, reducing the poverty rate of this group by 26 percentage points. For many families, SSI plays a vital role in meeting the medical and financial needs of a child with disabilities.

But the program deserves scrutiny for what it does not do often enough: lead to positive long-term educational and employment outcomes for children in the program. For many children receiving SSI benefits, long-term or lifetime SSI benefit receipt at near-poverty income levels is a very real possibility.

Unacceptable outcomes

A substantial minority of child SSI recipients never finish high school. Using data from the National Survey of SSI Children and Families (NSCF), Jeffrey Hemmeter and others found that that more than 30 percent of child SSI recipients age 17 to 18 years old had either dropped out of school entirely or were out of school; 42.7 percent of recipients had been suspended or expelled from school at one point or another.

This can lead to more negative outcomes as recipients transition into adulthood. By age 19, about half of former child SSI recipients had been arrested at least once.

Neither of these outcomes sets children on a path toward success in the labor market or society more broadly.

Another study using data from the NSCF indicated that among former child SSI recipients age 19-23, 39 percent had failed to complete a high school degree or equivalent and 21 percent were employed. For those who do not work, the maximum monthly cash benefit was $721 in 2014 ($8,652 per year).

Youth in the SSI program face many challenges — they hail from poor families, the majority of which are headed by single parents. About half live in households where another member receives disability benefits. About half live in households where their parent(s) have no employment income. On top of this, these youth must navigate life with an impairment.

For those who do not work, the maximum monthly cash benefit was $721 in 2014 ($8,652 per year).

We should expect more from a program that seeks to help these vulnerable Americans. Providing financial resources and healthcare benefits is important, but so is improving outcomes. The SSI program’s outcomes are at odds with the aspirations of individuals with disabilities embodied in the Americans with Disability Act — and the aspirations of all parents for their children.

What has worked?

At a recent AEI conference, top scholars and practitioners discussed these tough questions, focusing on the transition to adulthood of child SSI beneficiaries — an area ripe for reform given these poor educational and employment outcomes. They began by looking at what has worked.

One area of consensus quickly emerged: Work is good. Richard Luecking, president of TransCen (a nonprofit dedicated to improving education and employment for individuals with disabilities), noted a host of studies suggesting that early work experience “is the most compelling predictor of post-school success.”

Work isn’t just good for youth — it is also possible. The national Youth Transition Demonstration (YTD) project tested work-focused interventions for SSI youth, and the approach showed success. As Thomas Fraker of Mathematica observed, youth who received the employment-focused intervention were, after three years, working more and earning more than those who hadn’t. At most pilot sites, those in the treatment group were 8 percentage points more likely to have had paid employment in the subsequent years than those in the control group.

And because the demonstration was conducted with a cross-section of SSI recipients with varying degrees of impairment, its positive results confirmed that even “individuals with significant disabilities are employable and can work,” according to Jamie Kendall of the Administration for Children and Families.

More than 30 percent of child SSI recipients age 17 to 18 years old had either dropped out of school entirely or were out of school, according to one survey.

What else can be done?

The transition into adulthood is particularly difficult for children receiving SSI. Focusing on long-term life outcomes — especially work and basic educational attainment — should be a top priority. At the AEI conference, panelists offered several small-scale ideas for improving these outcomes.

Small, practical changes

One idea offered by David Wittenburg of Mathematica was simple: better data. Despite the program’s size, little data exist on life outcomes of SSI youth. What data do exist are gathered from one-off surveys. If the program is to improve key outcomes in a dedicated and strategic way, reliable administrative data is needed to show where the program stands and where it is headed. SSA should gather this information and incorporate it into the yearly report on SSI. As Wittenburg noted, doing so “reinforces a [message] of what is important to policymakers, administrators, as well as youth themselves and their families — that this is an outcome that we care about.”

Better financial education could also help, as the San Francisco Federal Reserve’s Jody Hoff argued. It is likely that many families fail to grasp the financial implications of work. They understand that benefits may be reduced as earnings increase, but don’t understand the particulars of the tradeoff. Some may respond to this fear by avoiding work.

Hoff described how a financial literacy calculator could help educate beneficiaries about how work can pay off. By demonstrating how an individual’s total income (benefits plus earnings) rises with hours worked, the tool can help beneficiaries make sound long-term financial decisions. Incorporating this tool into case management could be very helpful, as Hoff noted, “in helping young people think about their opportunities around work.”

Education about work’s payoff is important, but making work less burdensome would also be a step in the right direction. Some child SSI recipients may be deterred from work by the complex process of reporting earnings to the Social Security Administration, or out of fear of losing benefits. Only about 2,300 out of the 1.3 million child SSI recipients reported countable earnings in 2013. Wittenburg proposed a simple solution to this problem: do away with reporting youth earnings altogether. That would eliminate the fear of benefit reduction as a result of work, as well as the complicated process of reporting earnings. Costs would be modest because the number of children reporting earnings is minimal.

Advanced planning for transition off the child SSI program could also help. Currently, youth on SSI are reassessed for eligibility at age 18. About a third will not meet the adult program’s stricter criteria. Wittenburg described the situation this way: “They are coming to the office at age 18, and it is almost like they are going to the lottery.” Too few of those who lose that lottery have adequately prepared for life outside of the program.

Wittenburg proposed improving transition planning for youth facing the age 18 redetermination. One option would create a no-penalty redetermination process in the early teen years, providing children on SSI and their families a better idea of whether they will be eligible for the program when they turn 18, and allowing them to plan accordingly. Another option would require SSI youth to meet with an SSA counselor and, to retain eligibility for benefits, develop and demonstrate progress in following a plan for success in key areas, such as school, work, or training. Such a change would, as Wittenburg described, be “shifting the way we think about how we are providing supports and moving youth toward an orientation … that is focused on outcomes.”

Education about work’s payoff is important, but making work less burdensome would also be a step in the right direction.

Larger changes should be explored: Three ideas

At its heart, SSI is an income maintenance program. It issues checks and provides Medicaid benefits to eligible individuals, the vast majority of whom are low-income. It also connects them with other services and supports, but it was never designed to ensure that children with disabilities would attain the greatest educational and workforce outcomes that their capabilities allow. Small changes could be positive — but larger ones could do more.

Two ideas involve exploring how the lessons learned from welfare reform apply to the SSI program.

So long as the eligibility criteria are looser for children than they are for adults, many child SSI recipients will leave the rolls at age 18. Rapid attachment to the labor force — or additional education — is critical at this juncture.

The Earned Income Tax Credit successfully encouraged thousands of recipients of Temporary Assistance for Needy Families — mostly single mothers — to work. It is worth exploring whether extending the EITC to transition-age youth in the SSI program would yield similar results. For those deemed ineligible for SSI as adults, a generous work support could make employment more appealing and bridge the resource cliff created by the sudden loss of benefits. This would cost money, but it should be discussed and further evaluated.

Welfare reform’s devolution of responsibility to the states created challenges for SSI — but it also provides a potential solution. The SSI/TANF interaction is concerning. By definition, both programs serve low-income families. However, states are required to enforce a work requirement for TANF recipients, TANF benefits are time-limited, and states fund them.

SSI is very different. It is a federal entitlement with no work requirement or time limit on benefits. And in many states, SSI benefits are more generous than TANF benefits. As a result, some families may be drawn to SSI — states with less generous TANF benefits tend to see higher rates of SSI receipt than states with more generous TANF benefits. And states have an incentive to move families from the TANF program to the SSI program — they no longer have to enforce a work requirement or fund the benefits for these individuals.

It is not clear that adult beneficiaries are better off on SSI than TANF. Work rates and exit rates for the former are much lower.

Devolving SSI to states could help address this issue by providing states with responsibility for both programs, as Mary Daly and Richard Burkhauser have proposed. This would eliminate the incentive for states to shift adult TANF beneficiaries onto SSI, because they wouldn’t save any money by doing so.

For families with children, states could use case management, with its combination of supports and requirements, to encourage working-age adults to work. States would have more flexibility to target the needs of the children, and could use these funds to provide services to the children directly rather than cash to their families.

Because states would bear the full cost of benefits for children with disabilities who remain on the program as adults, they would have a strong incentive to invest in the education, training, and accommodation that would enable more of these children to enter the workforce.

Many conditions are life-long. Because of this, SSI could not be time-limited, as TANF was. But many others want to work and can do so — they just need a program that shares their aspirations, and provides them with the accommodation and support that their conditions require. Providing states with a financial stake in supporting those goals could be a step in the right direction, especially for children.

When the record of bad outcomes becomes too hard to overlook, policymakers and administrators have a responsibility to consider new approaches.

Another idea for reform turns on the approval process. Evaluating whether or not an individual is eligible for SSI is difficult: conditions change — especially mental conditions — and objectively determining the status of subjective criteria is hard.

Despite these difficulties, initial determinations are fairly consistent.

More problems occur when individuals who have had their claim rejected choose to appeal the decision in a disability hearing. At the hearing, the individual is permitted to retain legal representation and present their case before an administrative law judge, or ALJ.

This process is problematic because the ALJ is tasked with representing the government’s interest and the claimant’s rights, while also playing the role of an impartial judge of the evidence. However, claimants are permitted their own legal representation, tilting the scales in favor of claimants. In part because of this structure, roughly half of all denied claims are overturned at this stage, though results vary widely between ALJs — some are much more likely to grant approval than others.

One’s chances of receiving disability benefits shouldn’t turn on which ALJ hears the case, and hearings with one-sided arguments are unlikely to lead to consistent and accurate outcomes.

One way of addressing this it to make the hearings adversarial, as Maura Corrigan of the Michigan Department of Human Services has proposed. An SSA representative would be permitted to make a case for why the claimant was justifiably denied benefits, the claimant would be permitted representation as well, and the ALJ would decide which case is more persuasive. This would likely reduce the variations in approval rates between ALJs. Hiring more lawyers to represent SSA would not be cheap, and few find the idea of more lawyers appealing. But it could result in more just and reliable decisions about who should receive benefits and who should not.

A way forward?

The SSI program is a backwater of American social policy for a host of reasons. Funded almost entirely by the federal government, states and localities have little skin in the game and occasionally treat SSI as a place to dump a hard-to-serve population. At the federal level, SSI can easily be overlooked when compared to programs with much greater cost. And the program’s constituency can be very hard to challenge for politicians who do not want to be labeled as being cruel to low-income individuals with disabilities.

But at some point, when the record of bad outcomes becomes too hard to overlook, policymakers and administrators have a responsibility to consider new approaches. SSI should be reoriented toward improving life outcomes rather than simply meeting material needs. Changes consistent with that goal should be carefully considered and undertaken. Doing so would recognize and encourage the many contributions that people with disabilities can make and want to make, instead of focusing on those that they can’t.

Robert Doar is the Morgridge Fellow in Poverty Studies at AEI, where Brad Wassink is the manager of the Program on Human Flourishing.

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Will the world America choose uncomfortable dynamism or cozy stagnation? Thu, 29 Jan 2015 18:02:57 +0000 MIT’s Andrew McAfee lists some ideas that his crowd — other “technologists, entrepreneurs, businesspeople, and economists at American universities,” as he describes them — believe and are really sure are correct: (a) creative destruction is good news, (b)  markets allocate better than bureaucrats do, (c) there is such a thing as too much regulation, (d) business is not the enemy, (e) the state can’t provide jobs to everybody. But maybe that’s just an American thing, as McAfee realized on his trip to the World Economic Forum, or Davos:

In Switzerland I moderated an open forum session titled “Employment: Mind the Gap?” I was the only American on stage, and there was only one representative from the private sector on the panel. Two European trade unionists, a French economist, and the prime minister of Sweden (himself a former trade unionist) made up the rest of the speakers.

I found the discussion fascinating because once we got past the initial uncontroversial remarks (yes, education is important; yes, we must all work together…) we got into a conversation about the right way to mind the gap. As it unfolded, I came to the conclusion that the majority of people on stage did not share my economic worldview as expressed in the statements above. Instead, they seemed to believe much more strongly in government planning, programmes, and protections as the best way to ensure good jobs and wages. And they seemed willing to sacrifice some flexibility, decentralisation, and innovation — perhaps a lot — in the pursuit of stability and prosperity for workers.

I pointed out that economic data from the European continent in recent years was not encouraging for this economic worldview, and my onstage popularity as a moderator dipped sharply. Panelists responded, correctly, that this was in part because of differing responses to the Great Recession. They seemed less willing to engage with the idea that it might also be because several European countries were trying to fight the uncomfortable dynamism of today by making sure those who had jobs yesterday would not lose them.

In case I wasn’t clear enough in Davos, let me be clear here: I don’t think this will work. To paraphrase Churchill, countries today have a choice between turbulence and anaemia. If they choose anaemia, they will still have turbulence.

That’s right. Economic security without a dynamic economy is illusory. Indeed, a society that tries to prevent all failure is actually increasing its fragility and odds for a major breakdown and massive insecurity. Ashwin Parameswaran:

This fleeting and illusory stability that benefits the short-term interests of the currently employed workers in a firm leads to the ultimate loss of bargaining-power and reduced real wage growth in the long run for workers as a class. In the pursuit of stability, the labour class supports those very policies that are most harmful to it in the long run. …  Just like a fire that burns down tall trees provides the opportunity for smaller trees to capture precious sunlight and thrive, new firms expand by taking advantage of the failure of large incumbents. But when the incumbent fails, there must be a sufficient diversity of small and new entrants who are in a position to take advantage. A long period of stabilisation does its greatest damage by stamping out this diversity and breeding a micro-stable, macro-fragile environment.

And Nassim Nicholas Taleb:

When you ask people what is the opposite of fragile, they mostly answer something that is resilient or unbreakable—an unbreakable package would be robust. However, the opposite of fragile is something that actually gains from disorder. In the book, I classify things into fragile, robust, or antifragile.

The American economy must be made more antifragile in that it should prosper from the messy disorder of the free enterprise system. No safety net for business, a modernized, pro-work, fiscally sustainable one for workers to better shield them from the worst ups and down of a more competitively intense economy.

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