IPS Blog

A Budget Plan for the People

2016 Budget of the U.S. Government booklets

(Photo: White House)

What do you need to know about the 2016 budget plan President Obama released this week? Mostly that it benefits ordinary Americans and pays for it by taxing the rich.

It’s a long wish list (150-pages) but here are a few highlights:

  • This is a $4 trillion budget plan packed with all sorts of things for middle-class and poor families.
  • One of the big items on the wish list is a $478 billion public works infrastructure program for roads, bridges, and transit.
  • Working families are a big winner as it calls for increased spending on paid leave, universal preschool, and public education.
  • Another boon for families: new tax credit for working spouses and tripling of maximum child care tax credit.

If working families are the big winners here, who are the losers? The rich. Big banks. Corporations (especially when they hoard profits overseas).

Here are a few ways the rich would pay for this budget:

  • Tax increases for the wealthiest (estate tax & capital gains taxes)
  • Fees on big banks that are overly risky.
  • Mandatory taxes on corporate profits held overseas (but as David DayenAmericans for Tax FairnessCampaign for America’s Future, and others have pointed out, this part of the proposal should be much stronger to eliminate all favorable tax treatment for offshoring).

Obama’s plan is a populist political agenda very much aligned with his recent State of the Union speech. It’s ambitious and bold and will leave many Republicans scrambling to explain why they don’t support it.

The plan is more than just a symbolic wish list. It’s a way to define and shape the debate. Aiming so clearly to lift up working families, reduce income inequality, and pay for it by taxing the rich, this agenda comes at a time when most Americans think a little wealth redistribution sounds great. Of course, Republicans have already come out strongly against it. But the Obama administration just may be betting correctly that the people will be on the President’s side.

Our Girls are Still Not Home: Boko Haram and the Politics of Death

Boy holds sign to bring our girls back at rally

(Photo: Michael Fleshman / Flickr)

The ongoing humanitarian and human rights crisis in Northeastern Nigeria has deteriorated over the last week with the cross-border military clashes between Boko Haram and the military forces of Cameroon and Chad, and Boko Haram’s attacks on the northeastern Nigerian cities of Monguno and Maiduguri.

On Sunday, initial reports from the strategically important city of Maiduguri, the capital of Borno State visited by Nigerian President Goodluck Jonathan only the day before, claimed that Boko Haram had routed the Nigerian forces deployed to defend the city. However, updated reports on Monday indicated that the Nigerian military was able to prevent the fall of Maiduguri, at least temporarily.

Secretary of State John Kerry arrived in Nigeria on Sunday and pledged that the United States would support efforts to meet the threat to the internal security of Nigeria and surrounding nations. The presidents of Chad, Niger and Cameroon, along with the Nigerian administration, have declared that they will carry out military actions to crush the Boko Haram insurgency.

The Chairperson of the African Union, Nkosazana Dlamini-Zuma, stated that the situation in Nigeria will be a priority item at this week’s AU meeting. Nigerian authorities, however, have rejected the need for AU or United Nations intervention. For them, West African regional authorities can address the issue through collective military actions.

My position, however, is that a purely military response will only exacerbate an insurgency whose roots lie in the complex socio-historical conditions and internal contradictions of Northeast Nigeria. Those conditions include massive poverty, feudal social and economic relationships that are deeply entangled with ethnic and religious affiliations, and an elite intra-class politics in which the control of the Nigerian state apparatus is the ultimate prize.

The advocates of a purely military response ignore or are unaware of the fact that before Boko Haram went underground to wage its military campaign against the Nigerian state, it represented a mass movement that had a significant popular base. And while the war may have eroded that popular base and Boko Haram’s connections to the elite of Northern Nigeria, to ignore the social/economic conditions and religious ideological factors that still provide the foundation for Boko Haram’s recruitment and popular support is to fall prey to the simplistic caricatures projected in the Western media and mimicked by the African press.

There is no doubt that Boko Haram has committed egregious crimes against humanity. But so has the Nigerian government. In every major city and town that is being contested militarily, from Baga to Maiduguri, it has been documented that the Nigerian authorities committed massive human rights violations including torture, extrajudicial killings, house burnings, kidnapping and rape. The targets of those violations were members and suspected members and supporters of Boko Haram and their families.

Abstract moralism will confuse the complex confluence of social and historical forces that shaped and are shaping the realities of Nigerian society and contextualize the rise of Boko Haram. Embracing the simplistic explanation that Boko Haram represents an alien force of wide-eyed fanatics who use terror tactics to conquer and rule over territory and people may be attractive to the intellectually lazy, but it by no means explains the reality of the situation, even if that characterization reflects some elements of truth.

There are no innocents in this conflict except the people who are losing their lives, having their towns and cities destroyed and children disappeared. Powerful forces in both the U.S. and Nigeria are benefiting from the chaos and death in that country. The U.S. Africa Command’s ( AFRICOM) strategic objective of establishing closer military relations with nations in Africa in which the U.S. has vital interests is certainly being satisfied as a result of the insurgency. And because of the security issue, the Northern-based All Progressive Congress (APC) has a good opportunity to dislodge the Democratic Party (PDP) of President Goodluck Jonathan in the upcoming Nigerian elections.

But no matter who wins the election next month or whatever military force is raised and thrown against Boko Haram in the future, it is likely that the insurgency will continue. That’s because the fuel for the insurgency will continue to be provided by elites in Nigeria and the U.S. as in other parts of the world where armed groups resist (and exploit) the politics of indifference, Western counter-insurgency violence, poverty, official corruption and the hypocrisy of the Western civilizational model.

2015 State of the Union: The Good, the Bad, and the Missed Opportunities

President Obama 2015 State of the Union

(Official White House Photo by Pete Souza)

In his sixth State of the Union address, President Obama projected a sense of decency and common sense fairness and reminded us that he can make a powerful case for good government. The Republicans seemed almost irrelevant — until you remembered that the country just voted to put them in control of both chambers of Congress. Obama made some big omissions and he got some things plain wrong, but overall, a good speech that helps open up important conversations.

The Good:

  • He made a strong case for how government helps people and can help people more. The free community college proposal is concrete and right and smart. He also gave an important boost to the growing movements at the state and city levels that aren’t waiting around for Congress to provide paid sick leave and maternity leave.
  • He boldly touted his fresh new policy on Cuba: “When something doesn’t work for 50 years, it might be time to change it.” How often do you here that in Washington?
  • He made SOTU history by being the first POTUS to utter the words “transgender” and “bisexual people” in a moving plea for the protection of these individuals’ rights.
  • He made a strong case for using diplomacy before military force—in Iran, and everywhere.
  • He threw down the gauntlet on the minimum wage: “If you truly believe you could work full-time and support a family on less than $15,000 a year, go try it. If not, vote to give millions of the hardest-working people in America a raise.”
  • Good populist lines about the tax code loopholes that benefit the rich and a vow to veto any attempts to undo Wall Street regulations.
  • A forceful two minutes on climate change: “And no challenge – no challenge – poses a greater threat to future generations than climate change.”
  • The story of the Minneapolis newlyweds who bounced back from the recession—who isn’t a sucker for that kind of thing?
  • The centrality of values that led him to say we must prohibit torture and speak out against anti-Semitism and anti-Muslim speech.

The Bad:

  • Fair trade activists have learned to plug their ears when Obama shifts from supporting wage increases and fighting climate change to pushing trade agreements that help corporations drive down labor and environmental standards everywhere. This year the pain was heightened by fear-mongering about China.
  • Despite his strong words on climate change, he continued to plug his “all of the above energy policy,” which includes fossil fuels.
  • His defense of our use of drones as “properly constrained.” Imagine how that line went over with the families of Pakistani civilian victims. Obama has ordered many more drone strikes than President George W. Bush.
  • It is wrong for Obama to demand Congressional authorization for an illegal and unconstitutional war in Iraq and Syria that he’s already started, especially since he’s insisted in the past that he doesn’t actually need a new authorization. What he wants is a fig leaf, issued long after a proper debate should have happened, and he shouldn’t get it. He also said the war in Afghanistan was “over,” just a few months after surreptitiously extending it at least another year. That was worthy of many more jeers than it got.

The Missed Opportunities:

  • What, not a word on racism? He did say a few sentences on Ferguson at the end and called for criminal justice reform, but he missed a key opportunity to contribute to the best conversation the nation has had on race in years.  He’s done it before. Why is he skirting the topic now?
  • While his new proposals to tax the 1% and put funds into child care and higher education are commendable, he could have said more about why inequality is both morally wrong and bad for society and bad for the economy. He’s done better elsewhere.
  • It was moving to see Ana Zamora, a DACAmented DREAMer, sitting with the First Lady. But he should have made a stronger case for immigration reform—an area where there might be some potential for bipartisanship.
  • Even though he mentioned a few communities where he has mourned with the victims of mass shootings/our nation’s lax gun regulations, he failed to utter the word “guns.”

Understanding the Trust Fund Loophole

Offering debit cardPresident Obama plans to unveil his fiscal policy agenda during the State of the Union address Tuesday. His new agenda will include a number of programs that aim to shift the tax burden off of working families and onto the top 1 percent and, more specifically, the top .1 percent.

One major Obama initiative to watch calls for closing the “trust fund loophole,” a move important to addressing skyrocketing wealth inequality.

The trust fund loophole is a new term to describe an egregious yet legal tax avoidance technique of the super wealthy. They use this loophole to avoid paying capital gains taxes on their assets.

Here’s how this works: Suppose you buy stock worth $100,000 (the “basis” value in tax terms) that appreciates to $1,000,000 over the time you own it. When you die, your heir inherits the stock valued at $1,000,000.

Under current law, neither you nor your heir would ever pay any tax on that $900,000 appreciation. Your heir’s inheritance instead gets “stepped up” to $1,000,000 and, thanks to this “stepped-up basis,” the heir does not owe capital gains tax either at the point of transfer or when the asset is sold.

The trust fund loophole lets the super wealthy transfer hundreds of billions of dollars, untaxed, year in and year out. Closing the loophole — and raising the capital gains rate to the Reagan-era level of 28 percent for couples with incomes over $500,000, as the White House is also proposing — would raise a projected $210 billion over ten years, nearly exclusively from the super wealthy.

Explains the White House Fact Sheet on this reform package: “99 percent of the impact of the President’s capital gains reform proposal (including eliminating stepped-up basis and raising the capital gains rate) would be on the top 1 percent, and more than 80 percent on the top 0.1 percent (those with incomes over $2 million).”

Numbers like these make the new White House tax reform proposal arguably the most aggressive Obama move yet to take on skyrocketing wealth inequality. The President, as the Washington Post puts it, is finally having his “Piketty moment,” a tribute to the French economist Thomas Piketty, author of the 2014 blockbuster Capital in the Twenty-First Century.

The President’s proposal stands in sharp contrast to what House Republicans are proposing. They’re calling for eliminating the estate tax and maintaining stepped-up basis, a sure-fire formula for ensuring that America’s wealth inequality rises to ever-greater levels. The estate tax remains our nation’s best check on concentrated wealth.

This check, unfortunately, has been blunted over recent years. Rising exemptions to the estate tax and lower estate tax rates have greatly diminished the contribution the estate tax ought to be making.

The new Obama administration trust fund loophole reform does not address these estate tax problems or other serious problems — known collectively as the billionaire loophole — that allow the wealthy to shield their assets from the tax liability they would otherwise owe. But efforts to close the billionaire loophole do appear likely to be included as part of the President’s budget due out February 1.

Charlie Hebdo Meets ‘The Interview’

The Interview screen capture

In the film, “The Interview,” an American journalist is instructed to assassinate North Korean leader Kim Jong-un (Columbia Pictures)

The hacking of Sony Pictures and the terrorist attack on Charlie Hebdo in Paris differ in obvious ways: One involved a state-directed cyberattack on a private corporation; the other involved radicals loosely linked to non-state actors determined to kill journalists. But both incidents also constitute attacks on freedom of expression, thus inspiring a public recommitment to this bedrock principle of Western liberalism. In France, millions lined up to buy copies of the newspaper, again with an offending cartoon of prophet Mohammed prominently displayed. And in the United States, millions of Americans (including myself) watched “The Interview,” a raunchy comedy mocking North Korea’s autocratic leader.

Both events also engaged ideas and debates in political science. In “The Interview,” when the television journalist played by James Franco lobs a softball question about hunger in North Korea, the Kim Jong-un character argues that crippling Western sanctions are to blame. Spoiler alert: Franco politely moves on – until later when he realizes that people really are starving. Are sanctions effective negative incentives for shaping political behavior?

An essay on sanctions enforcement in the current issue of International Organization notes there is a large literature on sanction effectiveness. Sanctions failed to bring down Saddam Hussein in the 1990s, but they succeeded in preventing him from building weapons of mass destruction, as we all learned after the 2003 invasion. They were instrumental in ending apartheid in South Africa, where unlike Iraq there was popular support for sanctions and an organized solidarity movement directed the political effects of the economic pain toward the white minority regime.

But in Cuba sanctions only succeeded in befuddling America’s allies, who couldn’t understand why we couldn’t kick a Cold War conceit. President Obama’s recent reestablishment of diplomatic ties not only acknowledges some of these lessons about sanctions, it implicitly endorses Steven Levitsky and Lucan Way’s argument that “linkage” – economic ties, cultural exchanges, and open communications with the West – is more likely to advance democratization than “leverage,” in this case, sanctions. Though their argument is specific to “hybrid” regimes that blend features of democracy with dictatorships’ limited political competition as a special post-cold war phenomenon, American corporations have argued for linkage with Cuba since the 1990s.

“The Interview” also relates more broadly to the new literature on comparative authoritarianism, which I recently wrote about in the journal Commonwealth and Comparative Politics. When the characters played by Franco and co-star Seth Rogan resume their mission to kill Kim, their co-conspirator argues you can’t just kill him because someone else will simply replace him. As political scientists Jason Brownlee and Barbara Geddes argue, an important difference between stable and unstable authoritarian regimes is institutions that can resolve internal conflicts and avoid succession crises. Leaders don’t last long without organizations, parties and institutions.

In the film, the subversives therefore set out to expose Kim as a fallible human, with the goal of generating “audience costs” – what political scientist Jessica Weeks describes as tides of public opinion capable of limiting a ruler’s options. This is more likely to work, the journalists’ co-conspirator explains, because she’s not alone: There’s a whole faction of what political scientists Guillermo O’Donnell and Philippe Schmitter called “soft-liners” who support liberalization.

Following the regime’s collapse, Rogan in the final scene flirts with the co-conspirator via Skype. One could see her hyperbolic sexuality as a shallow appeal to Rogan and Franco’s fan base, which I admit includes me. But we should also see it as a subversive mockery of the old Hollywood recipe for gun-toting heroines. Despite its sarcasm, as political commentary it is not too far from Katniss’s war on war (and authoritarianism) in the “Hunger Games.”

This brings us back to Charlie Hebdo. Like blowing up Kim’s head in “The Interview,” I’m not comfortable with publishing cartoons of the prophet Muhammad, because I know they will offend my Muslim friends. Anticipating this view, pundits have been quick to quote Voltaire’s adage, “I detest what you write, but I would give my life to make it possible for you to continue to write.” This week his 1763 “Treatise on Tolerance” ranked 17th on Amazon.com’s best sellers in France. Then again, it’s worth remembering that two years later he called for the death of Jean-Jacque Rousseau (a dispute detailed in Leo Damrosch’s 2005 biography, “Restless Genius“). So this free speech stuff gets complicated. But we’re better off having its limits tested by artists, including obnoxious ones, than having its limits imposed by political rulers. Maybe along the way we’ll learn something about how to be both good citizens and good neighbors.

Top Five Inequality Moments of 2014

Black Lives Matter protest sign

(Photo: Kaitlyn Veto / Flickr)

We’re now going on 7 years since the 2008 financial crisis made inequality a hot topic for Americans.

Looking back on 2014, it’s easy to see inequality remains a top issue that hasn’t gone anywhere.

Below is my roundup of the top 5 inequality moments of 2014 (of course, there were many others, but these 5 stand out to me as the most influential).

5. Obama Ushered in 2014 with an Inequality Bang

Part of what makes Obama’s Jan. 2014 State of the Union Address a top inequality moment is that it echoed an earlier speech he’d given the previous month in which he declared inequality to be “the defining issue of our time.” The SOTU speech built on this historic speech and made headlines over his statement that “Inequality has deepened.” However, the focus of the SOTU was more on expanding opportunity than ending inequality, causing some to wonder whether inequality might start to recede from the political and media landscape.

4. Piketty’s Book Became #1 Bestseller on Amazon.com

Just as we began wondering whether inequality would remain a hot topic, Thomas Piketty’s 700-page tome on inequality became a bestseller and even sold-out in April. Why? Because this tour de force told a new and sweeping story of inequality. The “1 percent” are responsible for the second Gilded Age not because they’re talented or hardworking but because they inherit and hoard their wealth. That is the tendency of capitalism, Piketty told us—the movement towards greater and greater inequality. That message propelled Piketty from obscure French economist to rock star status overnight—right here in the U.S. of A.

3. Janet Yellen Sounded the Warning Bell on Inequality

In a 30-minute speech back in October, chairwoman of the Federal Reserve Janet Yellen made headlines when she spoke openly and frankly about rising income and wealth inequality in America. Though she cited plenty of data, what made Yellen’s speech memorable— and even historic—was its deeply personal tone. “The continuing increase in inequality in the United States greatly concerns me,” she said. Noting that Americans have a very small chance of advancing economically these days, she asked “whether this trend is compatible with values rooted in our nation’s history.” Yellen’s speech was a hopeful sign of how she views her role and responsibility as the new Fed chair.

2. Workers of the Cities and States United

Worker justice campaigns upped the ante as 2014 saw a wave of new organizing leading to new policies at the city and state levels. With Congress dragging its heels on a federal minimum wage increase, for instance, 15 states plus the District of Columbia approved wage hikes in 2014 alone. In November, San Francisco passed the nation’s first Retail Workers’ Bill of Rights, a law that will curb erratic scheduling for retail workers. Other coalitions also introduced similar bills in other cities. What’s that? A Republican takeover of Congress in January? Worker justice coalitions have simply been too busy to notice.

1. Ferguson Reminded Us Inequality Isn’t Colorblind

Ferguson—and the people’s impassioned protests that followed—reminded all of us that a national conversation about economic inequality cannot and must not ignore America’s’ ugly legacy of racism. The marches in the streets against police brutality are embedded in a history of economic inequality in this country that has always been racially tinged. In 2015, may we all remember that inequality isn’t colorblind.

Letter to Carole R. Zawatsky, CEO of DCJCC

Carole R. Zawatsky
Chief Executive Officer
DC Jewish Community Center
1529 16th Street, NW
Washington, DC 20036

Dear Ms. Zawatsky,

We are writing to express our dismay at your firing of Ari Roth as Director of Theater J, a position he has held with distinction for 18 years.

We at the Institute for Policy Studies and Split This Rock deeply support free expression and the exchange of ideas, and question the direction that this action suggests the DCJCC is moving in.

One of the roles of art should be to widen the conversations we have with one another. By firing Mr. Roth, whose curatorial vision was an expansive and generous one, you have accomplished the opposite, narrowing and limiting the space for imaginative consideration of the pressing issues of our time.

Art, too, functions to humanize others, to remind us of what we have in common as a people. As John Judis, the former New Republic senior editor, was quoted as saying in The Washingtonian, “What’s at stake here is not simply artistic censorship, but the attempt to snuff out works of art that recognize that Jews and Palestinians share a common humanity.”

We remind you: Ari’s work with Theater J was cutting edge at times; this is what good theater often is. If we cannot defend the cultural front, we have no chance on the political battlefields.
If we desire peace and the need to bring people together – what better place than the theater?

The road to peace with justice in the Middle East will require that we listen to one another, to many voices, sometimes even to unpopular voices. Your actions in removing Mr. Roth from your institution, sadly, work to silence the diversity of opinions so desperately needed.

We write this with great sadness because our two organizations have viewed the DCJCC as a close ally. IPS held our 25th Annual Letelier-Moffitt Human Rights Awards at the DCJCC 14 years ago with our art show of “Light Among Shadows.” We co-hosted Ariel Dorfman’s “Death and the Maiden” a few years later.

IPS and Split This Rock will be willing partners with Mr. Roth in the new theater he intends to build at the Atlas so that we can help promote the type of cultural work that is needed today.

Sarah Browning, Executive Director, Split This Rock

John Cavanagh, Executive Director, Institute for Policy Studies

E. Ethelbert Miller, Board Chair, Institute for Policy Studies

Dan Vera, Board Chair, Split This Rock

 

What the U.S. Should Learn from Russia’s Collapse

Oil tankers

(Photo: Liz Bartlett / Flickr)

After months of whispered warnings, Russia’s economic troubles made global headlines when its currency collapsed halfway through December. Amid the tumbling price of oil, the ruble has fallen to record lows, bringing the country to its most serious economic crisis since the late 1990s.

Topping most lists of reasons for the collapse is Russia’s failure to diversify its economy. At least some of the flaws in its strategy of putting all those eggs in that one oil-and-gas basket are now in full view.

Once upon a time, Russia did actually try some diversification — back before the oil and gas “solution” came to seem like such a good idea. It was during those tumultuous years when history was pushing the Soviet Union into its grave. Central planners began scrambling to convert portions of the vast state enterprise of military production — the enterprise that had so bankrupted the empire — to produce the consumer goods that Soviet citizens had long gone without.

One day the managers of a Soviet tank plant, for example, received a directive to convert their production lines to produce shoes. The timetable was: do it today. They didn’t succeed.

Economic development experts agree that the time to diversify is not after an economic shock, but before it. Scrambling is no way to manage a transition to new economic activity. Since the bloodless end to the Cold War was foreseen by almost nobody, significant planning for an economic transition in advance wasn’t really in the cards.

But now, in the United States at least, it is. Currently the country is in the first stage of a modest defense downsizing. We’re about a third of the way through the ten-year framework of defense cuts mandated by the Budget Control Act of 2011.

Assuming Congress doesn’t scale back this plan or even dismantle it altogether, the resulting downsizing will still be the shallowest in U.S. history. It’s a downsizing of the post-9/11 surge, during which Pentagon spending nearly doubled. So the cuts will still leave a U.S. military budget higher, adjusting for inflation, than it was during nearly every year of the Cold War — back when we had an actual adversary, the aforementioned Soviet Union, that was trying to match us dollar for military dollar.

Now, no such adversary exists. Thinking of China? Not even close: The United States spends about six times as much on its military as Beijing.

Even so, the U.S. defense industry’s modest contraction is being felt in communities across the country. By the end of the ten-year cuts, many more communities will be affected. This is the time for those communities that are dependent on Pentagon contracts to work on strategies to reduce this vulnerability. To get ahead of the curve.

There is actually Pentagon money available for this purpose. Its Office of Economic Adjustment exists to give planning grants and technical assistance to communities recognizing the need to diversify.

As we in the United States struggle to understand what’s going on in Russia and how to respond to it, at least one thing is clear: Moscow’s failure to move beyond economic structures dominated by first military production, and now by fossil fuels, can serve as a cautionary tale and call to action.

Diversified economies are stronger. They take time and planning. Wait to diversify until the bottom falls out of your existing economic base, and your chances for a smooth transition decline precipitously. Turning an economy based on making tanks into one that makes shoes can’t be done in a day.

Racial Wealth Inequality and the Dream Deferred

Ferguson Eric Garner protest

(Photo: scottlum / Flickr)

The marches in the streets may have been provoked by police conduct in Ferguson and Staten Island.  But there is a deeper dream that has been deferred.

The gap between white wealth and Black wealth has grown since the end of the Great Recession of 2007-2009.

According to a new Pew Research Center analysis, the 2013 median wealth of white households is 13 times greater than the median wealth of Black households, up from 8 times greater in 2010.  White households have 10 times more wealth than Hispanic households, up from 9 times greater in 2007.

Median wealth for Black households in 2013 was $11,000, down from $16,600, a staggering decline of 33.7 percent.  For white households, the median wealth was $141,900, up from $138,600 in 2010, an increase of 2.4 percent.

Between 2010 and 2013, the median wealth of white households declined 14.3 percent, from $16,000 to $13,700.

There is a high correlation between wealth — what you own minus what you owe — and security.  Wealth provides a cushion, reserves to fall back on in the face of hardship.  Homeownership has been a foundational asset, something to pass on to one’s children.

While people of all races saw their net worth implode during the recession, white wealth has slightly recovered. This is because whites own more financial assets, such as stocks and bonds, which have rebounded since 2009.  Meanwhile home values, which represent the largest share of assets for households of color, have not rebounded at the same rate.

This study does not pull out the richest 1 percent of white households, which have captured a huge percentage of wealth growth in the last decade.

Politicians are quick to point to the good news of declining unemployment and foreclosure rates, but there are other signs of deeper distress in the economy.

The U.S. homeownership rate has been steadying declining, from 69 percent in 2004 to 64.4 percent in the third quarter of 2014.  For Blacks, the homeownership rate fell from 45.6 percent in 2010 to 42.9 percent in the third quarter of 2014. Over 40 million people have student debt averaging $33,000.  And over 43 million households are holding medical debt.

Defense Contractors Venture into Health Care

Mental Healthcare: Underappreciated and Underfunded

(Image Money/Flickr)

The new champions of the Affordable Care Act are — so the Washington Post’s Business section reported last weekend — defense contractors? As their diet of military contracts gets leaner, the major feeders have been fattening up on new work helping to implement health care reform.

General Dynamics has been staffing the call centers that help consumers navigate the healthcare.gov website.  Northrop Grumman has been managing data-sharing for the National Institutes of Health.  Lockheed Martin has been doing the same for the Centers for Medicare and Medicaid Services.

There are obvious reasons to celebrate this development.  Who could fail to cheer when, as Jay Hancock writes in the Post article, “In a way that is deeply changing Washington contracting, growth opportunities from the federal government have increasingly come not from war but from healing”?

Federal spending is shifting, in a modest way, from guns to butter. Following this money should allow the contractors to let up a little on their clarion calls on behalf of weapon systems the country doesn’t need, including the ones the Pentagon doesn’t even want.

The big contractors are “systems integrators,” as they frequently tell us.  This gives them, in principle, rare capabilities to solve problems for the system that is integrating to provide health care for all.

But here’s why we need to worry:  One year ago, Northrop Grumman paid $11.4 million to settle a case brought by the Justice Department charging the company with improperly billing the government for costs on “hundreds of 2004 contracts.”  This is the very same company that the Department of Health and Human Services hired to help it detect Medicare fraud and control costs.

In 2011, the Commission on Wartime Contracting estimated the cost of waste and fraud related to contracting for the wars in Iraq and Afghanistan to be between $31 and $60 billion.  The range is so large because the Defense Department’s multiple accounting systems — our nation’s largest discretionary account remains unauditable — make hiding costs so easy and counting them nigh impossible. The companies that created so much of this waste are now entrusted with designing systems to control the costs of health care?  We’d better be watching.

From his perch as the next chair of the Senate Armed Services Committee, Sen. John McCain (R-Ariz.) plans to be the scourge of waste in defense contracting. Last week he identified one of his main targets: “cost-plus” contracts. This is the practice going back many decades which guarantees that contractors will be paid for all the allowable expenses they incur in the course of building a weapon system plus an agreed-upon profit. It is a system that reduces incentives to control costs. The cost overruns on the F-35 Joint Strike Fighter, for example — the most expensive weapon system and cost-plus contract in history — were reported earlier this year at $163 billion and have climbed since.

McCain told CongressWatch that he wants to ban all cost-plus contracts: “If you don’t ban them, here’s what happens: They come in with a lowball contract, so they can get the contract, and then that’s why the costs mount.”

Now back to those call centers that General Dynamics is staffing for healthcare.gov. The last line in the Post article reports that the company’s contract with the Department of Health and Human Services is indeed “cost-plus.”

While McCain is mounting his charge against Pentagon waste and these contracts in the Armed Services Committee, his colleagues over at the Health, Education, Labor and Pensions Committee — now charged with oversight of health care contracts performed by defense contractors — had better be doing the same.

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