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Election 2004

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					Election 2004

 Bush vs. Kerry
                  Taxes
 As in 2000, the centerpiece of the Bush
  platform is lower taxes.
 Kerry insists that the Bush tax cuts have
  failed and that we need to return to “Fiscal
  Responsibility”
   EGTRRA (2001) and JGTRRA
            (2003)
     Old Tax Code                 New Tax Code
$0 - $26,250:        15%     $0 - $7,000:           10%
$26,251 - $63,000: 28%       $7,001 - $28,000:      15%
$63,001 - $132,000: 31%      $28,001 - $143,000:    25%
$132,001 - $288,000: 36%     $143,001 - $311,000:   33%
$288,000 + :         39.6%   $311,001 + :           35%
    EGTRRA (2001) and JGTRRA
             (2003)
 Doubled the child Tax credit from $1,000
  per child to $2000
 Expanded dependant care credit from
  $3,000 to $6,000 per dependant
 Lowered marriage penalty
 Lowered capital gains tax rate 20% to 15%
 Dividends taxed at capital gains rate rather
  than regular income rate
 Repeal of the estate tax
     EGTRRA (2001) and JGTRRA
              (2003)
   Due to the political process, these tax cuts
    are scheduled to expire after 2010.
       Kerry vs. Bush on Taxes
           Bush                           Kerry
Make the existing tax cuts   Make the existing tax cut
  permanent.                    permanent expect for
                                individuals earning over
                                $200,000
                             Higher Education Tax Credit
                                (Maximum of $1500)
                             Health Tax Credits for employers
                                (up t0 75% of health care
                                premiums for small business)
                             Raise Exemption for Estate tax to
                                $2M
       Kerry vs. Bush on Taxes
           Bush                           Kerry
Make the existing tax cuts   Reduce the corporate tax rate
  permanent.                    from 35% to 33.25%
                             Repeal tax deferral on foreign
                                income
                             Tax Repatriation Holiday (special
                                10% tax of repatriated foreign
                                earnings)
                             Targeted New Jobs Tax Credit
                                (Tax credit for small business)
 Kerry vs. Bush on Taxes (Year 1)
      Cost       Employment GDP         Disposable
      (Billions) (Thousands) (Billions) Income per
                                        Capita

Bush -$38B     +155          +$29      $175



Kerry $7.4     -74           +$10.8 -$23
Kerry vs. Bush on Taxes (10 Years)
      Cost       Employment GDP         Disposable
      (Billions) (Thousands) (Billions) Income per
                                        Capita

Bush -$1,134B +6,237         +$669     $4,620



Kerry -$686B    +1,970       +$369     $3,267
     Taxes and the Economy
               Bush     Clinton   Average

GDP Growth   2.7%       3.5%      3%
(Inflation
Adjusted)
Unemployment 5.5%       5.6%      5.6%
Employment      -800K   +24       ----
(Establishment)
Employment      +2M     +20       ----
(Household)
Taxes and Growth
      Taxes and Small Business
   The vast majority of businesses in the US are small
    businesses:
      Less than 20 employees: 84%
      Less than 50 employees: 95%
   While small business makes up a small fraction of total
    employment (around 1/3), small businesses experience
    faster employment growth on average (2.6% per year vs.
    1.2%)
   Small business is the key source of short term
    employment fluctuations
       Taxes and Small Business
   Most small businesses fall into one of three categories:
           Partnership: 18M
           S Corporation: 3M
           Sole Proprietorship: 2M
   All of these types of businesses are taxed under individual income
           Out of the top 5% of the income distribution (6M), 30% are
             small business owners (2M)
   Every 10% increase in the tax rate lowers the probability of a new
    hire by 12%
          Kerry’s tax increase would reduce employment by roughly
          240,000.
          Taxes and Equity
 Kerry (and many others) have complained
  that most of Bush’s taxes went to the top
  5% of the income distribution.
 In absolute dollar terms, this is true.
  However, the top 5% was paying more
  taxes to begin with!
                      Annual Income
     Top 1%                                                         500000

     Top 5%                                   253239

   Top Fifth                       147078

   4th Fifth              68994

   3rd Fifth         43588

   2nd Fifth        25678

Lowest Fifth       9996

               0          100000     200000    300000   400000   500000      600000
                   Share of Income

     Top 1%             10

     Top 5%                            21
   Top Fifth                                            50
   4th Fifth                            23
   3rd Fifth                 14

   2nd Fifth           9
Lowest Fifth       4

               0       10         20         30   40   50    60
            The Bush Tax Cut
           Effective   Share    Effective   Share
           Tax Rate    (2000)   Tax Rate    (2001)
           (2000)               (2001)
Lowest 5th 6.2%        1.2%     5.4%        1.1%
2nd Fifth   12.8%      5.3%     11.6%       5%
3rd Fifth   16.1%      10.3%    15.2%       10%
4th Fifth   20.1%      18.7%    19.3%       18.5%
Top Fifth   27.3%      64.4%    26.8%       65.3%
Top 5%      30.5%      37.8%    30.1%       38.5%
Top 1%      33.4%      22.2%    33%         22.7%
      The Bush Tax Cut
             Effective Tax   Share
             Rate            (Difference)
             (Difference)
Lowest 5th   -.8%            -.1%
2nd Fifth    -1.2%           -.3%
3rd Fifth    -.9%            -.3%
4th Fifth    -.8%            -.2%
Top Fifth    -.5%            +.9%
Top 5%       -.4%            +.7%
Top 1%       -.4%            +.5%
            Taxes and the Deficit
2500                                        300000
                                            200000
2000
                                            100000

1500                                        0
                                                      Deficit
                                            -100000   Expenditures
1000                                        -200000   Taxes
                                            -300000
500
                                            -400000
  0                                         -500000
       1990 1992 1994 1996 1998 2000 2002
             Taxes and the Deficit
12
10
 8
 6
 4
                                           Expenditures
 2
                                           (Growth)
 0                                         Taxes (Growth)
 -2
  90


        92


              94


                    96


                          98


                                00


                                      02
19


       19


             19


                   19


                         19


                               20


                                     20
 -4
 -6
 -8
-10
                Healthcare
          Bush                    Kerry
Against re-importation   For re-importation of
  of drugs                 drugs
     Prescription Drug Prices
 Prescription drug prices increase by an
  average 5% per year
 By comparison, the overall CPI increases
  by an average of 3% per year
 College tuition rises by an average 10%
  per year
    Drugs Represent a Small Portion of the U.S. Health
           Care Dollar, and Have for 40 years

      Share of National Health Care Spent on Each Category, 1962-2002


          45%
          40%
          35%
                                                             Hospital
          30%                                                Care
          25%
                                                             Physician &
          20%                                                Clinical Services
          15%
          10%
                                                              Prescription
                                                              Drugs
           5%
           0%
               1960              1970   1980   1990   2000


Source: CMS; available at www.cms.gov
         Drug Spending Accounts for Only a Small
              Portion of Premium Increases
                                              2003–2004 Forecasted Premium Increases
                                               for Plans With and Without Rx Coverage
                                        20%
            Average Across Plan Types




                                                    14.5%
                                        15%                                     13.6%


                                        10%


                                        5%


                                        0%
                                                    With Rx                   Without Rx


         Almost No Difference in Premium Growth for Plans that Do and Do Not Cover Rx


Source: Segal Health Plan Cost Trend Survey, 2004 Preliminary Findings edition, November 2003
Cheaper Drugs From Canada, eh?
   Overall, prescription drugs from Canada
    are 35-55% lower. This can get as high as
    60-70% for some of the big names.
      Pharmaceutical Prices Vary
           Across the U.S.
   Drug companies do not control retail prices – drugstores
    generally add 20-30% to the prices charged by
    manufacturers. Because of the large markups, retail
    prices can vary widely within towns and states.

   In 2002 and 2003, surveys conducted by public service
    offices showed price differentials exist across local
    pharmacies.

   Results are all similar – people can often save as much
    or more shopping around in their own towns as they can
    by importing from Canada
            Example: Within Arizona, Drugstore Prices Can Vary by
                   50% or More for the Same Prescription


                                 Government Survey of Retail Prices, Arizona, Sept 2002

  $250

  $200

  $150

  $100

   $50

    $0




                                                                                                                                              Zoloft
                                                                  Nexium
                     Augmentin




                                                                                                                                      Zocor
                                                                                                                      Vioxx
           Allegra




                                                                                                                              Xanax
                                                                            Norvasc
                                                        Lipitor
                                    Buspar




                                                                                                 Singulair


                                                                                                             Viagra
                                                                                      Prevacid
                                             Celebrex




                                                        Low Price          Average Price             High Price

Source: Update on Prescription Drug Prices Sept 2002, Arizona Attorney General.
www.attorneygeneral.state.az.us/pcalc/Prescription%20Drug%20Report%202002.pdf
US Generic Drugs Are Cheaper
                In Other Countries, Majority of Potential Savings From
                         Importation Captured by Middlemen

         Share of Economic Gains Captured by Importers vs Payers in Other Countries
                             Where “Reimportation” is Allowed
           Denmark                  33%                                           67%


            Sweden                      42%                                           58%


            Norway               26%                                           74%


                  UK      11%                                           89%


           Germany          16%                                           84%


       Netherlands                     38%                                           62%

                     Home Country Payers and Pharmacies                            Importers

Source: P. Kanavos, “The Economic Impact of Pharmaceutical Parallel Trade: A Stakeholder Analysis,” London School of
Economics, 2004
              Price Controls – The
                  Real Debate
   Canadian prices for innovative medicines are low for
    several reasons – income differences and other demand
    factors play a role.
   However, the main reason why prices are different is
    because of government price controls that have been in
    place in Canada for over a decade.
   Price controls are consistent with the single-payer
    Canadian health system. That system is based on
    rationing care.
   Importing drugs from Canada is a way to impose price
    controls in the U.S. market – rather than passing price
    controls directly, we can import them from Canada. But
    price controls are not a good way to encourage innovation.
                       Price Controls in Canada Lead to
                      Months-Long Wait for Urgent Cases

                      Median Waiting Time (in Weeks) for Treatment in Canada, 2003


Orthopaedic Surgery                    13.3                                   32.3


         Neurosurgery                 12.4                        20.1


       Cardiovascular
                                3.4           14.1
          Surgery

 Radiation Oncology             2.1   8.1


   Medical Oncology             3.5    6.1


                            0                 10             20           30                   40        50
                                                     Median Wait Time (Weeks) in 2003

                      Wait from GP to Specialist                     Wait from Specialist to Treatment


Source: Fraser Institute. Waiting Your Turn: Hospital Waiting Lists In Canada. 2003, Page 47
        Medicines are No Different – Canadians Have to Wait for
                         New Therapies, Too

       Percentage of Global                                 Average Delay for Products
      New Medicines Reaching                                    That Are Launched
            Country*                                        (number of months between initial
                                                           global launch and launch in country)

       US
                   86%                                 USA            4.2
Consumers
  Get More         78%                           Germany                     8.8
Medicines,
   and Get         73%                            Sweden                    7.8
Them More
   Quickly
                   66%                             Canada                          12.2
                   58%                                Spain                           15.7
                   53%                              France                           14.9
                   52%                                  Italy                             17.2
                   36%                              Poland                                   20.5
                   31%                            Portugal                                        22.1
   * Percent of 85 global launches 1994–1998 that were launched in each country by end of 1999.
   Source: Danzon P et al. ”The Impact of Price Regulation on the Launch Delay of New Drugs,”
   NBER Working Paper 9874, July 2003.
                               New Product Development –
                            A Risky and Expensive Proposition

                                       Years                                            Compound Success
                                                                                          Rates by Stage
                                         0

                                         2                                                    5,000–10,000
                    Discovery
                                                Preclinical Testing                             Screened
                  (2–10 Years)
                                         4      Laboratory and
                                                Animal Testing
                                                                                                 250
                                         6                                                 Enter Preclinical
                           Phase I
    20–80 Healthy Volunteers Used to            Phase II                                       Testing
       Determine Safety and Dosage       8      100–300 Patient Volunteers
                                                Used to Look for Efficacy
                                        10      and Side Effects                                     5
                         Phase III
      1,000–5,000 Patient Volunteers
            Used to Monitor Adverse
                                                                                                   Enter
         Reactions to Long-Term Use     12                                                        Clinical
                                                FDA Review Approval                               Testing
              Additional Post-          14
             Marketing Testing                                                                       1
                                        16
                                                                                                 Approved
                                                                                                by the FDA
                                                       Net Cost: $802 Million Invested Over 12-15 Years
Source: PhRMA Pharmaceutical Industry Profile 2003, Chapter 1: Increased Length and Complexity of the Research and
Development Process. And DiMasi, JA, Hansen, RW, Grabowski, HG. “The Price of Innovation: new estimates of drug
development costs.” J of Health Economics. 2003:22:151-185.
       As a Practical Matter, (Current) Canadian Drug Supply Too
                 Small to Have a Real Impact in the US


                   Total Prescriptions Filled in US vs. Canada, in Millions - 2002


                              >3.4 Billion
        3,500
        3,000
        2,500
                                              After exhausting all Canadian supplies,
        2,000
                                              still would need to supply medicines for
        1,500                                          3.1 billion prescriptions
        1,000
           500                                               331 Million
               0
                                  US                           Canada


Source: IMS Health
Will Re-importation lower costs?
  Current estimates suggest that re-importation
  will lower aggregate spending on prescription
  by $40B over the next 10 years (a 1%
  decrease)
    Will Re-importation affect safety?
   Each country has an agency overseeing
    drug manufacturing (FDA). Some
    countries have higher standards than the
    US, some have lower.
          Safety Issues Cannot Be
                   Ignored
   State of Minnesota sent inspectors to identify
    good sources for Minnesotans to use to get
    Canadian drugs
   Inspectors announced visits in advance – and
    chose places already doing business with the US
    in large numbers
   Inspectors found major problems, including:
       Medicines requiring refrigeration – like insulin – being shipped without it
       Medicines being shipped with no labels, potentially risking patient lives
       Stores with no recall procedures in place or requiring patients to sign away
        all of the drugstore’s liability in case of errors or other problems
       Stores shipping and storing medicines that had been returned by other
        customers
                 Healthcare
   Currently, there are approximately 45M
    Americans without Heath Insurance
     Can’t afford it (unemployed)
     Employer doesn’t provide it (Small business)
     Choose not to have it
                          Healthcare
               Kerry                                  Bush
   Expand eligibility for Medicaid       Tax credits
    and SCHIP                                Tax credit of up to $3,000
                                              per family/$1,000 per
        Cover kids up to 300% of             individual
         federal poverty level (FPL)         Some will take as $1,000
        Cover parents of kids up to          HSA contribution/$2,000
         200% of FPL                          insurance ($300/$700 for
        Cover all others up to 100%          individuals)
         of FPL                              Non means-tested credit for
                                              small businesses that set up
                                              HSAs
   Kerry “swap”
      Federal government
       assumes all costs for              Tax deduction for high-
       children in Medicaid in             deductible insurance
       exchange for states                   Individuals who purchase
       expanding SCHIP                        low-premium, high-
                                              deductible insurance
                                              policies can deduct
                                              premium from taxable
                                              income
                          Healthcare
                Kerry                                  Bush
   Federal government would               Tax credits
    reimburse employer insurance              Tax credit of up to $3,000
    plans for 75% of per person                per family/$1,000 per
    costs that exceed a threshold              individual
                                              Some will take as $1,000
       Threshold set so that                  HSA contribution/$2,000
        savings average 10 percent             insurance ($300/$700 for
          Threshold= $36,000 in               individuals)
           2006 (AEI), $30,000                Non means-tested credit for
           (Kerry campaign)                    small businesses that set up
                                               HSAs
       To qualify, employers and
        insurers would have to:            Tax deduction for high-
           provide health insurance        deductible insurance
            to all employees                  Individuals who purchase
           adopt disease                      low-premium, high-
            management programs                deductible insurance
           pass all savings along to
                                               policies can deduct
            employees                          premium from taxable
                                               income
                            Healthcare
                  Kerry                                Bush
                                           Tax credits
   Plans with FEHBP contracts would          Tax credit of up to $3,000
    offer similar plans to all comers
                                               per family/$1,000 per
                                               individual
        Premium would depend on
         risks of enrollees                   Some will take as $1,000
                                               HSA contribution/$2,000
                                               insurance ($300/$700 for
        Separately priced from FEHBP          individuals)
         plan
                                              Non means-tested credit for
        Tax subsidies for purchasing
                                               small businesses that set up
         coverage through the CHP              HSAs

                                           Tax deduction for high-
                                            deductible insurance
                                              Individuals who purchase
                                               low-premium, high-
                                               deductible insurance
                                               policies can deduct
                                               premium from taxable
                                               income
                 Healthcare
   Why is health insurance tied in with
    employment?
     Convenience
     Taxes
     Risk Pooling
                 Healthcare
 The Kerry plan is superior to Bush in that it
  pools small business into one group
 However, it still keeps provision of benefits
  at the employer level
     Healthcare decisions should be made by
      individuals rather than employers
     Small businesses do not have a comparative
      advantage in negotiating with insurance
      companies
     Tax benefits are regressive
               An Alternative
   A hybrid of Bush/Kerry would be best
     Offer tax credits to lower income households
      (refundable) for the purchase of healthcare
      insurance.
     Pool small businesses and individuals into
      larger groups
     Allow employers to facilitate health insurance,
      but no actually supply it
              Costs & Impact (Kerry)
                           $1,520
                   1600               $1,249

                   1200
      $ Billions


                                                 $653
                   800

                   400

                     0
                          AEI       Lewin      Thorpe



Newly Insured             27 M      25 M        26 M
             Costs & Impact (Bush)
                                  $166
                         $129
                  150
                                            $91
      $ Billion




                  100

                  50

                   0
                        AEI     Lewin    Thorpe


Newly Insured           7M       8M        2M
                       Education
   During his first year in office, George Bush
    signed into law “No Child Left Behind” (NCLB)
       States required to set reasonable standards for math
        and English. States will use annual testing for grades
        3-8. States with low performance are subject to
        corrective action.
       Schools subject to corrective action must give
        students the opportunity to attend other schools (and
        must provide transportation)
                 Education
          Kerry                     Bush
Essentially, Kerry         Continue to implement
  wishes to “Fully Fund”    NCLB (This would
  NCLB by increasing        amount to increasing
  federal spending on       federal spending by
  education by $30B.        $6B (Budget
  The goal is to hire       projections)
  500,000 new
  teachers.
Federal Education Spending
40,000
35,000
30,000
25,000
20,000
15,000
10,000
 5,000
    0
         1993   1996   1999   2002     2005     2008
                                     estimate estimate
Federal Education Spending
40000
35000
30000
25000
20000
15000
10000
5000
   0
    1962   1967   1972   1977   1982   1987   1992   1997   2002     2007
                                                                   estimate
           Education Spending
   Financing education is largely a state issue.
    Last year, the federal government spent around
    $30B on education. This is approximately 3.5%
    of total spending on education ($850B)
   We are currently spending approximately $8,000
    per student.
   Spending per student has increased
    approximately 400% since 1970 (about 11% per
    year)
   Most of this is aimed at lowering class size
Education Spending
Does money influence educational
         outcomes?
              Alternatives
 School Vouchers
 Charter Schools
 Stronger Accountability
            Energy Policy
 The US imports 9.4M barrels of oil per
  day. (roughly 50% of total consumption)
 This costs $60B per year
US Oil Imports
           Demand/Supply
 While we are still below the record high
  demand of 1978 (18.8M barrels per day),
  demand has grown significantly since
  1980 (15.2M barrels/day)
 Supply has gradually declined since its
  early 1970 peak of 11.3M barrels/day)
Demand/Supply
US Net Demand is Modest in
       Global Terms
Most of US oil imports come from a
      small set of countries
Imports are shifting to South
          America
Half of US Imports come from 3
            countries
            What to do?
 Increase Demand
 Reduce Supply
                      Energy Policy
              Kerry                               Bush
Against ANWR drilling as well as    Increase domestic oil production
  other environmentally sensitive      including ANWR
  areas
                                    $1.7B for Hydrogen fuel cell
Royalties from oil/gas extraction      research
  to go towards energy R&D
                                    Against increasing fuel efficiency
Increase CAFÉ standard to             standards
   40mpg
                                    Tax Credits for hybrid vehicles
Tax Credits for hybrid vehicles

				
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