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Election 2004

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”. Old Tax Code $0 - $26,250: 15% $26,251 - $63,000: 28%

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Election 2004

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  1. Election 2004 Bush vs. Kerry

  2. 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”

  3. Old Tax Code $0 - $26,250: 15% $26,251 - $63,000: 28% $63,001 - $132,000: 31% $132,001 - $288,000: 36% $288,000 + : 39.6% New Tax Code $0 - $7,000: 10% $7,001 - $28,000: 15% $28,001 - $143,000: 25% $143,001 - $311,000: 33% $311,001 + : 35% EGTRRA (2001) and JGTRRA (2003)

  4. 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

  5. EGTRRA (2001) and JGTRRA (2003) • Due to the political process, these tax cuts are scheduled to expire after 2010.

  6. Bush Make the existing tax cuts permanent. Kerry Make the existing tax cut 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

  7. Bush Make the existing tax cuts permanent. Kerry Reduce the corporate tax rate 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

  8. Kerry vs. Bush on Taxes (Year 1)

  9. Kerry vs. Bush on Taxes (10 Years)

  10. Taxes and the Economy

  11. Taxes and Growth

  12. 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

  13. 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.

  14. 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!

  15. Annual Income

  16. Share of Income

  17. The Bush Tax Cut

  18. The Bush Tax Cut

  19. Taxes and the Deficit

  20. Taxes and the Deficit

  21. Bush Against re-importation of drugs Kerry For re-importation of drugs Healthcare

  22. 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

  23. 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 HospitalCare Physician &Clinical Services Prescription Drugs Source: CMS; available at www.cms.gov

  24. Drug Spending Accounts for Only a Small Portion of Premium Increases 2003–2004 Forecasted Premium Increasesfor Plans With and Without Rx Coverage 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

  25. 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.

  26. 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

  27. Example: Within Arizona, Drugstore Prices Can Vary by 50% or More for the Same Prescription Source: Update on Prescription Drug Prices Sept 2002, Arizona Attorney General.www.attorneygeneral.state.az.us/pcalc/Prescription%20Drug%20Report%202002.pdf

  28. US Generic Drugs Are Cheaper

  29. 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 Source: P. Kanavos, “The Economic Impact of Pharmaceutical Parallel Trade: A Stakeholder Analysis,” London School of Economics, 2004

  30. 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 controlsthat 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.

  31. Price Controls in Canada Lead to Months-Long Wait for Urgent Cases Median Waiting Time (in Weeks) for Treatment in Canada, 2003 Source: Fraser Institute. Waiting Your Turn: Hospital Waiting Lists In Canada. 2003, Page 47

  32. Medicines are No Different – Canadians Have to Wait for New Therapies, Too Average Delay for Products That Are Launched (number of months between initial global launch and launch in country) Percentage of Global New Medicines Reaching Country* 86% USA 4.2 US Consumers Get More Medicines, and Get Them More Quickly 78% Germany 8.8 73% Sweden 7.8 12.2 66% Canada 58% Spain 15.7 France 14.9 53% Italy 17.2 52% Poland 20.5 36% 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.

  33. New Product Development – A Risky and Expensive Proposition Years Compound Success Rates by Stage 0 5,000–10,000Screened 2 Discovery (2–10 Years) Preclinical Testing Laboratory and Animal Testing 4 250Enter Preclinical Testing 6 Phase I 20–80 Healthy Volunteers Used to Determine Safety and Dosage Phase II100–300 Patient Volunteers Used to Look for Efficacy and Side Effects 8 5Enter ClinicalTesting 10 Phase III1,000–5,000 Patient VolunteersUsed to Monitor AdverseReactions to Long-Term Use 12 FDA Review Approval 14 Additional Post-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.

  34. 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 After exhausting all Canadian supplies, still would need to supply medicines for 3.1 billion prescriptions 331 Million Source: IMS Health

  35. 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)

  36. 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.

  37. 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

  38. 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

  39. Kerry Expand eligibility for Medicaid and SCHIP Cover kids up to 300% of federal poverty level (FPL) Cover parents of kids up to 200% of FPL Cover all others up to 100% of FPL Kerry “swap” Federal government assumes all costs for children in Medicaid in exchange for states expanding SCHIP Bush Tax credits Tax credit of up to $3,000 per family/$1,000 per individual Some will take as $1,000 HSA contribution/$2,000 insurance ($300/$700 for individuals) Non means-tested credit for small businesses that set up HSAs Tax deduction for high-deductible insurance Individuals who purchase low-premium, high-deductible insurance policies can deduct premium from taxable income Healthcare

  40. Kerry Federal government would reimburse employer insurance plans for 75% of per person costs that exceed a threshold Threshold set so that savings average 10 percent Threshold= $36,000 in 2006 (AEI), $30,000 (Kerry campaign) To qualify, employers and insurers would have to: provide health insurance to all employees adopt disease management programs pass all savings along to employees Bush Tax credits Tax credit of up to $3,000 per family/$1,000 per individual Some will take as $1,000 HSA contribution/$2,000 insurance ($300/$700 for individuals) Non means-tested credit for small businesses that set up HSAs Tax deduction for high-deductible insurance Individuals who purchase low-premium, high-deductible insurance policies can deduct premium from taxable income Healthcare

  41. Kerry Plans with FEHBP contracts would offer similar plans to all comers Premium would depend on risks of enrollees Separately priced from FEHBP plan Tax subsidies for purchasing coverage through the CHP Bush Tax credits Tax credit of up to $3,000 per family/$1,000 per individual Some will take as $1,000 HSA contribution/$2,000 insurance ($300/$700 for individuals) Non means-tested credit for small businesses that set up HSAs Tax deduction for high-deductible insurance Individuals who purchase low-premium, high-deductible insurance policies can deduct premium from taxable income Healthcare

  42. Healthcare • Why is health insurance tied in with employment? • Convenience • Taxes • Risk Pooling

  43. 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

  44. 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

  45. Costs & Impact (Kerry) Newly Insured 27 M 25 M 26 M

  46. Costs & Impact (Bush) Newly Insured 7 M 8 M 2 M

  47. 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)

  48. Kerry Essentially, Kerry wishes to “Fully Fund” NCLB by increasing federal spending on education by $30B. The goal is to hire 500,000 new teachers. Bush Continue to implement NCLB (This would amount to increasing federal spending by $6B (Budget projections) Education

  49. Federal Education Spending

  50. Federal Education Spending

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