While most countries are trending toward stronger IP protections and better enforcement of existing IP laws, among some a troubling disregard for international IP norms persists. With the recent decision by its Supreme Court to deny patent protection to Novartis AG for its Gleevec cancer medication, India provides an example of a country that may be sacrificing its long-term economic fortunes for a perceived short-term gain.  The patent denied by India’s Supreme Court is recognized by 40 countries including the US, China and Russia, and the Court’s decision drew strong criticism from the Office of the United States Trade Representative (USTR).  Supporters of the decision contend it will enable the marketing of a less expensive generic version increasing patient access to the drug, however 95 percent of Indians receive the drug for free from Novartis AG, and the other five percent at a subsidized rate making this a somewhat specious claim.

India’s Supreme Court ruling may have a chilling effect on pharmaceutical innovation where the development of a single new life-saving treatment requires an average $1.3 billion investment and 10-15 years of research.  Without the promise of effective patent protections, pharmaceutical companies lack the incentive to make such a significant investment in research that might not even result in a marketable product, which hurts us all.

The implications of this decision go beyond pharmaceuticals as without clear and consistent IPR protections, innovative companies that require significant up-front costs have little incentive to invest billions of dollars and many years of research to create the new products and technologies that enhance all of our lives and promote economic growth.  The blatant disregard for IPR exhibited by the Indian Government will give pause to any innovative industries considering investment there.

The far-reaching ramifications of India’s Supreme Court decision are not lost on USTR which commented earlier this month in the 2013 Special 301 Report that “there are serious questions regarding the future condition of the innovation climate in India across multiple sectors and disciplines” and that “recent actions by the Indian Government [including the Supreme Court decision] risk hindering the country’s progress toward an innovation-focused economy.” Their comments underscore the fact that while technology was an important factor in re-attracting investment to our shores, America’s strong regard for IPR protections undoubtedly played a significant role too.

The idea that cable, satellite, and other multichannel video providers should offer consumers an “a la carte” programming option – where consumers get to pick and choose the individual channels – as an alternative to bundling – where the channels are sold as a package deal – has been around for some time. Although it sounds great in theory, in reality it doesn’t work.

In 2003, the U.S. Government Accountability Office found that going from bundling to an a la carte model could cost video providers advertising revenues that would result in an increase in subscriber fees. Brent Skorup at the Mercatus Center explains why bundling works: “Bundling is efficient because in a high fixed-cost industry, like cable, cable channel bundles provide cost savings that outweigh the costs of providing ‘wasted’ channels consumers don’t watch.”

Even economic thinkers on the left dispute the notion that an a la carte model is a solution. Matty Yglesias at Slate notes that a la carte “starts with a fundamental misunderstanding: the delusion that if your basic package contains plenty of channels you never watch, you’re paying for many channels you don’t watch. It’s understandable that people would think in those terms, but it’s wrong.”

It’s also difficult to see how an a la carte requirement is necessary given the state of the marketplace today. The Federal Communications Commission has observed that the video marketplace is marked by several important trends including: “increased deployment of digital technology, consumers’ rising demands for access to video programming anywhere and anytime, and the evolution of online video from a niche service into a thriving industry.

Consumers have a constantly growing number of choices for watching video nowadays. Cable, satellite, and telephone providers compete against each other for the same consumers and offer hundreds of channels along with other services. Traditional providers now also give consumers the option to watch individual shows, movies, and other entertainment on demand and almost anywhere thanks to things like digital video recorders and mobile devices with apps like HBOGo and WatchESPN. Online options like Netflix, Hulu, and iTunes also allow consumers to download and watch individual shows and movies; even live broadcast television is becoming an online option.

Over the past few weeks, a lot of ink has been spilled and bits consumed in an ongoing conversation about competition in the marketplace for video. The conversation has gotten so loud that policymakers have now turned their attention to the topic, complete with Congressional hearings. Legislation has also been introduced that aims to “encourage cable providers and broadcasters to offer a la carte video to consumers.”

Given the fact that so many options exist to serve consumers video, it does not appear necessary for the government to either intervene or to encourage a particular model for offering video in the marketplace. The state of competition in the video marketplace is strong and getting even better. It is clear that the marketplace is offering consumers what they want and will continue to do so.

If anything, the government should focus its investigations on examining whether laws and regulations on the books that were written long before the advent of broadband and digital television might hinder continued growth and innovation in the video marketplace.

For the first time in forty years, Mr. van Agtmael’s visit to China brought complaints from Chinese manufacturing executives concerned with American competition. After years of China dominating the manufacturing market, it seems like an unlikely role reversal to many, but Mr. van Agtmael assures skeptics that “U.S. manufacturing is becoming more competitive than you would think.” While a decade ago an overwhelming majority of executives looked to build their next plant in China, Mr. van Agtmael estimates the number today is more like 3 out of 10—with 5 of those 10 hoping to instead build in the U.S.

After forays into China, India and Brazil, Robert Livingston, the chief executive of the industrial plant Dover Corp. is eyeing expansion near Atlanta, Georgia. Similarly, Whirlpool Corp. is cautiously bringing the production of small appliances back to the US from overseas. According to Bill Good, plant manager in Greenville for Whirlpool Corp., producing in Asia “is not as big of a no-brainer as it was 10 years ago.”

Many regard claims of this “industrial renaissance” skeptically, pointing to America’s high factory closure rates and China’s unrivaled ability to cut costs. Even with a decade of dramatic wage increases, Boston Consulting Group estimates Chinese factory workers earn less than $3.50 per hour while, for example, Whirlpool’s Greenville plant pays workers $16.50 per hour, plus benefits. Yet, for today’s U.S. executives, focusing on domestic markets has little to do with lowering costs. Instead, it’s about finding a comparative advantage. For American corporations, this advantage lies in an ability to communicate with consumers, respond to their demands and provide products of unparalleled quality. And this advantage depends on technology.

The clothing industry’s American Giant hoodie exemplifies this value-focused industrial reawakening. Following rave Internet reviews, the American Giant hoodie sold out for months. Bayard Winthrop, the man behind the now-infamous sweatshirt, understands that the Internet is revamping the way America conducts business and how a deep understanding of and ability to respond to consumer demands—in near real-time—gives U.S. manufacturers a leg-up on competition. The results of the American Giant company’s highly skilled workforce and close connection with consumers were perfectly tailored, high quality clothes—clothes for which Americans were more than willing to pay.

Venture capitalist Randy Komisar believes that mass-market manufacturing practices are a thing of the past and Winthrop observes that “[B]ig players comprised by old-world distribution mechanisms are now getting beat up on quality,” a phenomenon that other nations are starting to realize. Commerce Ministry spokesman Shen Danyang recently admitted that China “can’t keep relying on a low-cost competitive advantage,” and that the nation must “accelerate to the value-added upgrading of [their] products.”

Komisar predicts that successful manufacturers will continue the trend towards quality service that fosters customer loyalty and, as the estimated 200 factories that recently pulled production back onto US soil have learned, this is difficult to accomplish from a continent away. None of this means that factories will come back to the US in droves, but it does mean that the key to proving Mr. van Agtmael’s prediction correct lies in fostering technological advancements. Technology gave the US manufacturing industry the first leg-up on global competitors in over a decade. Just imagine what America’s unmatched cellphone infrastructure and advancement in promising technologies like 3-D printing can do for the rest of the economy.

By The Honorable William (Bill) Payne, NM (SD-20)

Senator Payne is the NM Minority Whip and ALEC’s National Security Subcommittee Chair.

As our grateful nation observes Armed Forces Day on Saturday, May 18, the American Legislative Exchange Council joins in honoring those who have bravely and admirably served our country. We believe that helping ensure our returning veterans can begin their civilian lives with a good job is an important way to show our profound appreciation for their service. But while the overall US unemployment rate dropped to 7.5 percent earlier this month, the unemployment rate among post-9/11 veterans continues to exceed the national average at 9.2 percent. This unacceptably high figure does not even contemplate those returning veterans who are underemployed or have given up looking for work. Meanwhile the Canadian province of Alberta enjoys enviable 4.4 percent unemployment, and companies involved in the development of Alberta’s oil sands have difficulty finding the skilled workers needed to fill a projected 170,000 additional positions for oil sands projects.

The American Legislative Exchange Council’s Task Force on International Relations may have come up with an idea to help meet both challenges. During a fact-finding mission of ALEC state legislator members to Alberta to learn more about the oil sands, we noticed that the skills sought by oil sands development facilities are common in returning US veterans. Additionally, the lifestyle of oil sands workers – barracks-style housing and the relative isolation of the oil sands region – would be familiar to those just back from overseas deployments, and the jobs pay well with starting salaries of $100,000 per year. A partnership between the US and Canadian governments to match willing and qualified returning US veterans with unfilled oil sands jobs in Alberta seemed a mutually beneficial, partial solution to two intractable problems.

We mentioned the proposal to industry representatives and Alberta government officials and discovered that the idea had been discussed but never officially pursued, prompting us to draft and consider a  Resolution on Partnering with Canada to Create Job Opportunities for Returning US Veterans. The resolution received unanimous Task Force support, was approved by the American Legislative Exchange Council Board and oil sands development companies greeted it positively.

In his 2013 State of the Union address, the President pledged to give “our veterans the … job opportunities that they have earned.”  We agree and have an idea to help him honor this commitment!

Most of the paper’s assertions have already been discredited in blog posts by the Exchange Council, the Tax Foundation, the Small Business and Entrepreneurship Council, a Beacon Hill Institute press release, and our recent publication, Tax Myths Debunked, but it’s worth briefly rehashing these responses and pointing out some of the study’s major failings.  First and foremost, it’s worth noting the conclusions of Chapter 7 of Tax Myths Debunked, summarized in the chart below. Counter to Fisher’s analysis, the economic outlook rankings in Rich States, Poor States are strongly correlated with economic growth:

Fishers’ own analysis of RSPS, originally published in near identical form as a stand-alone study with the title Selling Snake Oil to the States, is full of methodological errors that are documented extensively in Tax Myths Debunked and the Exchange Council’s aforementioned blog post. The bottom-line conclusions of these separate critiques of Fisher: Any potential value of his study is rendered null by its overwhelming errors. Fisher’s brief attempt in Grading Places to excuse and explain away these errors demonstrates that he either does not fully comprehend his own study’s faults and the damage they cause his larger argument or he has chosen not to publish the conclusions of a more rigorous study given his ideological bias.

More broadly, Fisher criticizes RSPS and the other business climate indices for not having identical rankings of the states, for supporting free-market competition to determine wages and compensation, for encouraging responsible government regulation of business and for promoting fiscal responsibility to lower taxes.

Let’s discuss these flawed criticisms one at a time. Fisher is right that the various indices don’t have conforming rankings of the states, but as the Tax Foundation pointed out in their blog response to Grading Places, the indices don’t necessarily set out measure the same criteria, hence a diversity of rank orders.

Moreover, Fisher uses tired class warfare arguments to accuse the Exchange Council of favoring wealthy business interests. However, Rich States, Poor States highlights the group of policies with the greatest proven track record of advancing economic growth and opportunity for Americans of all income levels. All Americans should be afforded an opportunity to secure a job, advance up the earnings ladder, and if they desire, a chance to open their own business, all of which put themselves in the driver’s seat of their own economic destiny. A job and pathway to financial advancement is the real anti-poverty program citizens of every state so dearly need.

Most problematically, the paper asserts that there is no evidence to support the conclusion that economic freedom broadly, or in component parts, advances economic growth. Those who have studied economic development broadly and the relevant economic policy topics will find this claim laughable. Not only are Fisher’s flawed findings at odds with the economic research on both the international level and state level, but  they defy simple common sense. To the extent a governmental jurisdiction creates higher costs for business; those businesses will struggle more, particularly small business. Tax Myths Debunked and a recent survey of the research on taxes and growth by Tax Foundation Chief Economist Dr. Will McBride both establish the connection between taxes and growth extensively.

In conclusion, we commend Fisher and GJF for revising their report to correct a few errors, but there remain significant errors and inaccuracies that lead to an imprudent conclusion. Moreover, instead of offering insight and refinement of the state business tax climate rankings, Fisher and GJF have decided to instead incorrectly assert the true source of growth and prosperity is increased government spending rather than a competitive business climate. Regardless of their poor research, the results from the state laboratories of democracy cannot be ignored: Those states that embrace a sound business climate in their state see more economic growth.

Putting the merits of professional licensure aside, it is difficult to fathom how preventing someone from receiving free health care in any way serves their best interest, particularly when the volunteering provider holds a license. The policy rationale for in-state licensure as a means to protect patients breaks down when, in many cases, the choice isn’t between a licensed provider and an unlicensed provider, but a choice between a licensed provider from out-of-state and no care at all.

Stan Brock, founder of the Tennessee-based charity care group Remote Area Medical, points to the problem—”[y]ou cannot get enough volunteers from one place, a hometown, in order to meet incredible demand.” Brock says his group, which has delivered over $60 million in charity care across the United States with over 300,000 patient interactions, has been blocked from giving away free glasses in Missouri, been told not to come back in Georgia, and has had to turn away droves of patients in California—not because there weren’t enough volunteers, but because the volunteers were from out-of-state.

It’s easy, perhaps, in the context of the current Medicaid expansion debate, to lose sight of the value of free care and simply assume that needs will be met. Demand for uncompensated care, however, continues to climb regardless of public insurance. A recent chart from the American Hospital Association shows that uncompensated care costs incurred by hospitals since 1980 have increased despite significant growth in both Medicare and Medicaid.

While so much has and will continue to be said about the demand for lower cost and higher quality health care in America, let’s not forget another demand—the demand for licensed health care professionals to help meet these challenges if given the opportunity, providing free, quality care to many of the nation’s most vulnerable. States like Tennessee, Illinois and Connecticut are meeting that demand and the American Legislative Exchange Council’s model Out-of-State Charity Care Act provides a blueprint for other states to do the same.

By The Honorable AJ Griffin, OK (SD-20)

Have you ever had a neighbor who lived close to you, but about whom you knew little? Before the ALEC International Relations Task Force trip to visit the oil sands of Alberta, that was my relationship with our neighbors to the north in beautiful Canada.

As a native Oklahoman, the importance of oil has always been clear to me. Energy is the bedrock of Oklahoma’s economy. We are very aware of the rich abundance of these sources of energy and take pride in leading the nation as innovators of new energy technology. But lying just to our north is another rich source of oil being captured using the newest of technologies. Companies led by Devon Energy in partnership with the government of Alberta are demonstrating the newest methods of extracting once inaccesible sources of fuel and doing so in an environmentally responsible manner. The result is a thriving economy and the potential for the US and Canada to work together toward energy independence.

Getting to know a neighbor better can help forge life-long friendships based on common roots and interests. Likewise our neighbors in Canada have much to offer us. The trip with ALEC was an eye-opening experience. I am now better informed regarding the importance of the oils sands to our future as a nation and am encouraged by the partnerships I saw demonstrated in the energy industry.

More information on the Keystone XL Pipeline is available in the links below.

http://www.americanlegislator.org/comments-of-support-for-the-keystone-xl-pipeline-needed-by-monday-april-22-2013/

http://www.americanlegislator.org/alberta-bound-observations-from-the-canadian-oil-sands/

http://www.americanlegislator.org/international-trip-provides-education-for-the-states/

http://www.americanlegislator.org/the-keystone-xl-excuses-for-inaction-are-disappearing-fast/

Source: Tax Myths Debunked

In this inflation-adjusted graph, it does seem clear that the highest 40 percent, or two highest quintiles, have grown both to a higher income and at a higher rate than the lower 60 percent, or three quintiles.  Some would see this as proof-positive that the rich are getting richer, while the poor are getting poorer.

Of course, that is not the whole story.  What the quintile graph above cannot tell, is who are in the different income brackets, how strong their purchasing power is, or for how long they stay in those brackets before moving up or down.  Drs. Fruits and Pozdena used U.S. Treasury data to track the movement of taxpayers across the brackets from one year to the next, known as income mobility.

Source: Tax Myths Debunked

What they found was that an individual in the lowest quintile in 1996 had a 58 percent chance of moving up the income scale by 2005.  The chance of moving up quintiles diminishes as the earner’s starting place moves higher, but is still quite high.  Likewise, the chance of losing income, or falling down the brackets is equally high for top earners.  The top 1 percent of earners in 1995 had a 58 percent chance of falling to a lower category by 2005.  Just as there is bountiful opportunity to improve a low income in America, there is stiff competition and abundant opportunities to lose fortunes for the wealthy.

When progressive advocates talk about the stagnation of income in the United States, they sweep under the rug a fundamental fact about our economy: the American Dream.  Individuals in America enjoy robust economic opportunities and economic mobility is strong.  The American dream is an equality of opportunity, not necessarily an equality of income at every point in life.  Americans who are right now struggling with low income are not bound to their place.  They can know that opportunity in America is rewarded, and that they can make a better life for themselves.  That is a powerfully optimistic message.

To read more about the relationship between tax policy, stimulus spending, and their effects on an economy during a recession, check out Tax Myths Debunked. Co-authors Dr. Pozdena and Dr. Fruits use overwhelming evidence to confirm that the path to prosperity is in free-market, pro-growth policies. The report is available for free download at www.alec.org/tax-myths-debunked.

Later today, the Senate is expected to begin consideration of a proposal that would give states long-sought authority to require out-of-state retailers to collect taxes on online purchases. Although proponents have pitched this proposal as an important reform to promote tax fairness and economic growth, we have been struck by how little actual tax reform the proposal would accomplish.

Under a long line of U.S. Supreme Court rulings, states are prohibited from placing “undue burdens on interstate commerce.” In the context of state taxation of interstate commerce, the Supreme Court held in Quill Corp v. North Dakota that businesses lacking a “substantial nexus” or link to a state through a physical presence or an employee or agent cannot be subject to that state’s sales and use tax requirements.

Undeterred, states have tried to enact changes to tax rules that aim to capture revenue by creating nexus to obligate out-of-state companies to collect taxes at the time of sale. Some states have chosen to deem an arrangement called “affiliate marketing” – an agreement by which an in-state website displays an advertisement or link to an out-of-state retailer and collects a commission for referrals – as sufficient nexus. Recently, the New York Court of Appeals upheld a law as a constitutional exercise of the tax laws, but courts in Illinois and Colorado reached the opposite conclusion.

Stymied by the Constitution, several states and brick-and-mortar retailers have sought Congressional authority to go over state lines to force online retailers collect tax revenues. Article I, Section 8 of the U.S. Constitution provides that “Congress shall have the power…to regulate commerce…among the several states.”

But rather than getting at the root of the online tax problem – a lack of required remittance by consumers – by reforming federal and state tax rules in a truly equitable manner, proposals before Congress aim to impose the old complicated tax code to the dynamic, global Internet, one of the few bright spots in our economy; according to market research firm comScore, U.S. retail e-commerce sales reached $186.2 billion in 2012, an increase of 15 percent – the strongest annual growth rate since before the recession.

What’s most troubling is that the proposals threaten to undermine states’ ability to experiment, innovate, and compete with each other through their tax codes, a hallmark of federalism. Consider the state of Montana and Red Oxx Bags, an adventure luggage company based in Billings and maker of the popular Air Boss carry-on sold largely via the Internet. Montana does not have a sales tax and Red Oxx does not have to worry about tax collection in other states so they can focus on making and selling a great product to travelers. But under the proposals before Congress, a small company like Montana’s Red Oxx must figure out and be ready to comply with at least 9,600 tax jurisdictions, with different rates and definitions, across the country and be prepared to face as many as 46 different tax audits per year.

Our organization supports constitutional nexus requirements for state taxation obligations and believes states are barred from imposing tax reporting or collection duties on out- of-state businesses where such businesses only connection to the state involve the use of common carriers such as the mail service or the licensing of software to an in-state resident. Attempts to tax beyond their boundaries run contrary to important principles of sound taxation and federalism.

At the same time, the Exchange Council recognizes that tax rules may have to change as the economy changes; tax rates for using buggy whips in 2013 makes little sense. But it is important that changes to the tax code be real reforms to promote equity and economic growth, and to preserve the federal system. Towards that end we have been hosting discussions between policymakers, businesses, and experts to brainstorm ideas. Some ideas that have been discussed so far include origin-based sourcing, single statewide sales tax rates, simplified remittance, and more designed to ease the compliance burden for retailers and consumers. It is our hope that these discussions will yield a consensus on a way forward.

Though time consuming, we believe these organic, bottom-up discussions will yield the best result in the end for sound tax policy for the states and the economy.

John Stephenson and Jonathan Williams are respectively the Directors of the Communications and Technology and Tax and Fiscal Policy Task Forces at the American Legislative Exchange Council.

For some perspective, the first year of sequestration cuts totaled $85 billion.  This report begs the question, why was it necessary to cancel self-guided White House tours, end the Blue Angels 2013 schedule, or furlough employees knowing there is enough duplication in the budget prevent the  indiscriminate cuts?

One could spend all day picking out line-items from the report.  It is filled with gems like the fact that military combat camouflage is redesigned by six different Defense programs for a waste of $82 million or the Commerce Department that charged other agencies over $1.5 million to generate reports that were already available through Google.

These instances of waste are as destructive to the economy as they are avoidable.  A growing trend among the states is to use “priority-based budgeting” rather than naively raising spending by percentages of the previous year, or hanging additional programs onto existing agencies like a Christmas tree.

In priority-based budgeting, legislators focus on providing core services of government.  With the revenue expectations for the given year in hand, the legislature can distribute the necessary funds to the governments highest priorities, and move on down until the expected revenue is exhausted.  This type of “budgeting for outcomes” has been successful in states such as Washington, Iowa, South Carolina, and Michigan.

Priority-based budgeting means a state has carefully considered priorities while funding essential functions.  Furthermore, it means that redundant or unnecessary programs like those highlighted in the GAO report, receive proper scrutiny.  Priority-based budgeting and other limited government solutions are available in ALEC’s State Budget Reform Toolkit.