Summaries of Important Research
Edited By Eli Lehrer
POLITICS
A Tax Cut By Any Other Name
John Snow et al., “Tax-Free Savings and Retirement Security Opportunities for All Americans,” U.S. Department of the Treasury, February 2004 (ustreas.gov)
Hamstrung by a growing deficit, President George W. Bush is unlikely to propose any cuts in tax rates in the near future. His campaign economic plan, however, proposes a variety of new savings vehicles to make it easier for Americans to accumulate money tax-free for large purchases or retirement. The Treasury Department provides some details as to how Bush’s plan, currently under debate in Congress, would work. If implemented in full, the plan would effectively provide another large, although targeted, tax cut (by allowing people to save income without being taxed) while simultaneously increasing government assistance for people with low incomes.
Under Bush’s proposal, Individual Retirement Accounts, 401(k)s, 403(b)s, and a dozen other retirement savings vehicles would be consolidated into two types of accounts: Retirement Savings Accounts and Lifetime Savings Accounts. A new type of account, Individual Development Accounts, would be created for people with low incomes.
The new Retirement Savings Accounts, both individual and employer-supported, would replace all current retirement vehicles. They would have higher contribution limits, and these would be indexed for inflation. As with current retirement accounts, individuals could make contributions with pre-tax or after-tax dollars. The new accounts, however, would be less flexible: Current rules allow people to spend retirement funds penalty-free for a variety of expenses, from paying for medical care to purchasing a home. Nearly all of these loopholes for early withdrawals would vanish. Rules and regulations governing employers would be eased in a variety of ways in an effort to prune regulation and encourage employers to offer accounts to their workers.
Lifetime savings accounts, on the other hand, would replace a variety of tax-privileged college investment plans. Money going into the accounts would be taxed as it goes in but not when it comes out, like today’s Roth IRAs. Nearly everyone could contribute a maximum of $5,000 per year.
Finally, low-income individuals would get Individual Development Accounts (which a few states have already experimented with). Through a system of tax credits, those with an annual household income of $30,000 or less would have their savings matched dollar-for-dollar. These savings could be used to buy a home, get an education, or start a small business.
Bush’s plan would retain current Medical Savings Accounts and Flexible Spending plans, but nearly every other type of savings program would be abolished. “The proposals make saving simple for everyone and for every purpose,” summarizes assistant Treasury secretary Pam Olson. “They stress the importance of getting off the spending couch and into the savings gym.”
ECONOMICS AND REGULATION
Law of the Jungle
Marco Iansiti and Roy Levien, “Strategy as Ecology,” Harvard Business Review, March 2004 (hbr.org)
Microsoft and Wal-Mart, both great avatars of American capitalism, appear to utterly dominate their respective industries. Marco Iansiti, a Harvard Business School professor, and Roy Levien, a business consultant, attribute these companies’ success not to their aggressive practices but to business strategies that take into account the health of the commercial “ecosystems” in which they operate.
Instead of trying to extract as much revenue as possible from other companies in the same industries, Microsoft and Wal-Mart follow business strategies that turn them into industry “keystones” that help other companies doing similar things. For example, in a diverse ecosystem of nearly 40,000 firms that sell, work with, or otherwise link to Microsoft’s products, only five out of every 1,000 employees, and a roughly proportional share of profits, belong to Microsoft itself. By providing a platform—the Windows operating system and related development tools—Microsoft helps other companies perform specialized roles, like providing related software, or manufacturing the personal computers that run it.
In a similar way, Wal-Mart offers to providers of goods and services detailed sales information that, in turn, helps them develop new and better products. eBay, likewise, nurtures an enormous community of sellers by creating an easy-to-use, powerful, and widely trafficked forum that is shared by all for selling a bewildering variety of goods.
Keystone players, however, can misbehave or begin to act like dominators, damaging other niche players and eventually themselves in the process. Enron, AOL, and Yahoo adopted a domination strategy and reaped sizeable profits by following business practices that hurt their industries. AOL and Yahoo charged exorbitant advertising rates at the height of the dot-com bubble, thus destroying many startups, while Enron ran roughshod over those who bought and sold the commodities it traded. All of the companies realized they were part of larger organisms, but had no way of assessing the health of their business partners. As a result, write Iansiti and Levien, they “optimized short-term financial gains while undermining critical domains in their ecosystems.”
NATIONAL SECURITY
A Case for a Bigger Army
Lawrence Korb, “How to Update the Army’s Reserves,” Foreign Affairs, March/April 2004 (foreignaffairs.org)
Are America’s reserve armed forces overstretched? Lawrence Korb, an assistant secretary of defense under Ronald Reagan who now works at the Center for American Progress, thinks so. Korb contends that homeland security issues and peacekeeping duties in Afghanistan and Iraq mandate that the military reorder its personnel structure to place less pressure on reserve and National Guard units.
According to Korb, there are three problems with our current reserve force structure that hurt our overall military readiness. Due to peacekeeping duties in Afghanistan and Iraq, American armed forces are thin and therefore vulnerable in places such as the Korean Peninsula. National Guard and reserve units, he claims, are sometimes mobilized without sufficient notice or training. And National Guard and reserve units called to duty overseas would be crucial in responding to a terrorist attack at home.
To confront these problems, Korb offers several suggestions. Add more regular soldiers, particularly to active duty military police and civil affairs units. This would allow the United States to occupy large countries with or without help from other countries, and strain on combat units would be reduced. Create “stabilization units”—Army forces that are more reconstruction units than fighting forces. Keep paramedics, firefighters, and other vital first responders in their communities.
—Amy Thoma
SCIENCE AND ENVIRONMENT
Before Columbus?
Jacqueline Olin, “Evidence That the Vinland Map Is Medieval,” Analytical Chemistry, November 2003 (pubs.acs.org)
Ever since the 1930s, the Vinland map has intrigued scholars and scientists alike. The map, written on what everyone agrees is fifteenth-century parchment and bound with another indisputably fifteenth-century document, shows the northeastern coast of North America and appears to date from roughly 50 years before Columbus’ first voyage.
While significant evidence exists that Norsemen established small colonies in what is now Atlantic Canada, the map, which Columbus might have seen, would provide unimpeachable evidence that the Italian explorer was not the first European to visit the Americas.
Many scholars, however, have doubted the map’s authenticity because its inks contain a form of anatase titanium dioxide that appears not to have been used in the creation of other medieval inks. Jacqueline Olin, a historian at the Smithsonian Institution, however, finds that anatase was present in other medieval inks and comes from the impure sulfates used to prepare these inks.
Olin’s paper does not prove that the Vinland map is real—one chemist writing in the same journal has already disputed her findings—but it does offer significant evidence that the map could indeed date from the Middle Ages.
The Prescription Drug Mess
Joseph Antos, “Don’t Ask, Don’t Tell,” AEI Health Policy Outlook, March/April 2004 (aei.org)
No matter how one looks at it, the drug benefit Congress and President Bush added to Medicare last year will cost a great deal of money. Originally estimated to cost around $400 billion between 2004 and 2013, it may end up costing nearly $550 billion. Hardly anyone is happy about the bill’s cost. Republicans who hoped to rein in Medicare spending dislike the massive increases the bill will entail, and liberals realize that the expensive drug benefit will leave little money in the budget for new domestic programs.
AEI fellow Joseph Antos contends that “the actual cost will be much higher than either estimate reveals, because the drug benefit represents a permanent commitment of resources to seniors. Program spending will grow more rapidly in the near term than many expect, he says, and there is little doubt that the benefit will become even more generous as politicians add to it over time. Antos warns that the most commonly proposed solutions to reduce spending—capping the total cost of Medicare or regulating drug prices—aren’t fixes at all, but just price controls that might actually make things worse.
As a result, Congress will have to revisit Medicare, perhaps as soon as next year. “The key to cost savings,” Antos argues, “is fundamental reform that changes the incentives facing patients, providers, and health plans.” Alas, that was almost entirely left out in the rush to give away a new prescription drug benefit.
OTHER COUNTRIES
Northern Rights
Conservative Party of Canada, “Draft Policy Statement,” February 4, 2004 (conservative.ca)
After almost a decade and a half in power in the 1980s and early 1990s, Canada’s Progressive Conservative Party suffered a disastrous defeat in the 1993 elections. After their fall, the Canadian conservatives split into a Progressive Conservative remnant that had strength mostly in Ontario (Canada’s economic engine and population center) and a western party, variously called the Reform Party and Canadian Alliance, which controlled provincial governments in the resource-rich West. After significant intra-party warfare, the two factions agreed on a merger and formed the Conservative Party of Canada earlier this year. A Liberal Party government, which holds near-absolute power in Canada’s parliamentary system though it has never gotten a majority of the vote, currently controls the nation’s levers of power. But a series of scandals and anger over high tax rates mean that Canadian conservatives may have a chance of taking control of the country’s institutions when prime minister Paul Martin next calls elections.
The new Conservative Party’s founding document, essentially a preliminary campaign platform, sets out an agenda that would turn Canada sharply to the right. Among other things, it promises simplified and lower tax rates (Canada’s personal income tax is the highest in the world), free trade, and compensation for landowners who lose control of their property after government scientists discover endangered species.
It also promises deregulation of Canada’s agricultural sector, increased penalties for those who commit crimes, and tighter immigration policies. Finally, it also promises a stronger military (Canada’s military is the weakest among large NATO powers), a crackdown on terrorist groups operating in Canada, and improvements to Canada’s intelligence operations.
The platform is silent about many social issues—eastern Canadian conservatives typically support legal abortion while many western Canadian conservatives oppose it—but it does promise that a Conservative Party government will allow “free votes” (which allow members of parliament to vote against their own party’s government without bringing it down) on “matters of conscience and deep personal conviction.”
Russia Withers
Nicholas Eberstadt, “The Emptying of Russia,” AEI On the Issues, February 2004 (aei.org)
Russian birth rates had tumbled even before the Soviet Union began to fall apart. Coupled with a death rate matched only in the Third World, this has sent the Eurasian giant’s population into a steep decline. Recovering, writes AEI demographer Nicholas Eberstadt, may not be easy.
At the Soviet Union’s dissolution in 1992, Russia had 149 million residents. Today, the population is 145 million and falling. Although this 3.1 percent decline is not the world’s largest, all the other countries with similar declines saw either mass emigration or violent upheaval. Russia saw neither, instead combining exceptionally low birth rates with massive death rates.
The demographic implications are startling. While Italy, which is often cited as Exhibit A in Europe’s low birth rate crisis, has 103 deaths for every 100 live births, Russia has 170 deaths for every 100 live births.
A variety of circumstances make things even worse. Russian infertility rates are the world’s highest. Much of the problem may stem from the frequency of abortion and the poor conditions under which it is performed, leaving somewhere between 10 and 20 percent of Russian women unable to have children. Curable venereal diseases also run rampant. Health in general is not good in Russia; cardiovascular disease has recently surged, for instance. Family decline is a second problem. Marriage has fallen on hard times; Russia now has three divorces for every four marriages. Finally, alcoholism is epidemic. Russians drink enormous quantities of spirits, vodka in particular. This contributes to increased disease, sickness, and a startlingly high accidental death rate.
Eberstadt sees this situation as nothing short of a disaster for Russia. The nation’s population of men between 15 and 24, which averaged between 10 and 13 million over the past 25 or so years, will decline to 6 million unless the government takes corrective action. Russia simply cannot develop in anything resembling a normal fashion unless things change.
