Public Policies to Build Assets:Public Policies to Build Assets:What’s Working; What’s to ComeWhat’s Working; What’s to Come

National Community Reinvestment CoalitionNational Community Reinvestment CoalitionMarch 16, 2007 March 16, 2007

Ellen SeidmanEllen SeidmanNew America FoundationNew America Foundation

Washington, DCWashington, DC

202-986-2700202-986-2700 seidman@newamerica.netseidman@newamerica.net

www.newamerica.netwww.newamerica.netwww.AssetBuilding.orgwww.AssetBuilding.org

Wealth Inequality Exceeds Income Wealth Inequality Exceeds Income InequalityInequality

QuintileQuintile IncomeIncome WealthWealth

Bottom 40%Bottom 40% 10%10% 1%1%

Bottom 60%Bottom 60% 23%23% 4.5%4.5%

Top 20%Top 20% 56%56% 83%83%

And It Matters:And It Matters: 40-50% of American families have so few 40-50% of American families have so few

assets that they could not survive more assets that they could not survive more than 4 months LIVING AT THE POVERTY than 4 months LIVING AT THE POVERTY LEVEL, which is far below the level most LEVEL, which is far below the level most are used to.are used to.

Asset Building Policies WorkAsset Building Policies Work(if Inefficiently) at the Top(if Inefficiently) at the Top

Mortgage Interest and Property Tax DeductionsMortgage Interest and Property Tax Deductions• $92 Billion+ in FY 2005$92 Billion+ in FY 2005

Reduced Rate for Capital GainsReduced Rate for Capital Gains• $57.8 billion in FY 2005$57.8 billion in FY 2005

Taking these three togetherTaking these three together• 45% of benefits went to households with incomes over 45% of benefits went to households with incomes over

$1 million$1 million• 88.7% went to households with incomes over $80,000 88.7% went to households with incomes over $80,000

(top income quintile)(top income quintile)• 3% went to households in bottom 60%3% went to households in bottom 60%

Employer-Based Retirement PlansEmployer-Based Retirement Plans• $103 billion in FY 2005$103 billion in FY 2005

Less than half of employees participate, disproportionately Less than half of employees participate, disproportionately large employers, higher wagelarge employers, higher wage

• $11.6 billion for IRAs$11.6 billion for IRAs

Programs For Low-Income Families Programs For Low-Income Families Focus on IncomeFocus on Income

The largest programs that benefit low-income people, The largest programs that benefit low-income people, such as TANF, SSI, Medicaid, food stamps, focus on such as TANF, SSI, Medicaid, food stamps, focus on incomeincome• Asset limits in these programs can result in choice Asset limits in these programs can result in choice

between building the platform to get out of poverty between building the platform to get out of poverty tomorrow and surviving todaytomorrow and surviving today

The EITC, which is worth over $40 billion annually, is a The EITC, which is worth over $40 billion annually, is a hybrid: meant as an income support, but no asset test, hybrid: meant as an income support, but no asset test, and often used to jump-start savingsand often used to jump-start savings

The Savers Credit, while aimed at helping low-income The Savers Credit, while aimed at helping low-income people build savings, is small, and ineffective because people build savings, is small, and ineffective because of limits on what kinds of savings are eligible and of limits on what kinds of savings are eligible and because of non-refundability.because of non-refundability.

Direct outlays for low-income asset-building are tiny, Direct outlays for low-income asset-building are tiny, such as the $30 million supporting IDAs through the such as the $30 million supporting IDAs through the Assets for Independence Act Assets for Independence Act

Some Recent Policy Changes That Some Recent Policy Changes That Show PromiseShow Promise

Automatic enrollment in 401(k) programs (401(k) opt-out)Automatic enrollment in 401(k) programs (401(k) opt-out)• Pre-legislation experiments show promise:Pre-legislation experiments show promise:

EmployeeEmployee Opt-inOpt-in Opt-outOpt-outFemalesFemales 35%35% 86% 86%HispanicHispanic 19%19% 75% 75%Under 20KUnder 20K 13%13% 80% 80%

Split refundsSplit refunds• New for this tax yearNew for this tax year• Provides opportunity to both spend and save a tax refund, Provides opportunity to both spend and save a tax refund,

rather than one or the otherrather than one or the other• Must have account, probably requires encouragement by Must have account, probably requires encouragement by

willing and able tax-preparerwilling and able tax-preparer• Prior test: Participants saved $606, or 47% of their refunds.Prior test: Participants saved $606, or 47% of their refunds.

The one-fourth with prior savings saved $924, +a 90% The one-fourth with prior savings saved $924, +a 90% increase in their savingsincrease in their savings

The three-fourths with no prior savings saved $479The three-fourths with no prior savings saved $479

U.S. Policy AgendaU.S. Policy Agenda

““Two track” agenda—pursue low-cost Two track” agenda—pursue low-cost ideas while laying the foundation for ideas while laying the foundation for bolder ideasbolder ideas

Getting defaults right, making saving easy Getting defaults right, making saving easy and automaticand automatic

Federal, state, and localFederal, state, and local

Accumulate and protectAccumulate and protect

Low and Moderate Cost IdeasLow and Moderate Cost Ideas

Automatic IRAs (employer-required payroll deduction for IRAs; Automatic IRAs (employer-required payroll deduction for IRAs; required default enrollment option)required default enrollment option)

New Savers bill:New Savers bill:• Bank accounts on tax returns, building on split refundsBank accounts on tax returns, building on split refunds• Improve ETAs; connect benefits to bank accountsImprove ETAs; connect benefits to bank accounts• Create “Young Savers Accounts” (Sen. Baucus proposal)Create “Young Savers Accounts” (Sen. Baucus proposal)• Add college savings to the Savers CreditAdd college savings to the Savers Credit• Revive and promote Savings BondsRevive and promote Savings Bonds• Improve 529 college savings accountsImprove 529 college savings accounts• Promote asset building and financial education at tax timePromote asset building and financial education at tax time

Raise asset limits in the Food Stamp Program (Farm Bill)Raise asset limits in the Food Stamp Program (Farm Bill)

Expand Individual Development Accounts via the Savings for Expand Individual Development Accounts via the Savings for Working Families Act (or successor)Working Families Act (or successor)

Regulatory issues such as CRA services test, disclosure Regulatory issues such as CRA services test, disclosure effectiveness, service under community credit union designationeffectiveness, service under community credit union designation

Bolder, Larger Cost IdeasBolder, Larger Cost Ideas

Need big money on the table—Social Security reform, budget deal, Need big money on the table—Social Security reform, budget deal, estate tax, tax reform, etc.estate tax, tax reform, etc.

Three possibilities (among many others):Three possibilities (among many others):

1. 1. Retirement SecurityRetirement Security• Universal 401(k)s (default system for payroll deduction, potentially with Universal 401(k)s (default system for payroll deduction, potentially with

match)match)• Refundable Savers CreditRefundable Savers Credit

2. 2. Savings Accounts at BirthSavings Accounts at Birth• ASPIRE Act (account with $500 at birth, progressive, locked up until ASPIRE Act (account with $500 at birth, progressive, locked up until

age 18)age 18)• Baby Bonds (British system, voucher to open accounts)Baby Bonds (British system, voucher to open accounts)• PLUS Accounts (mandatory employer and employee retirement PLUS Accounts (mandatory employer and employee retirement

accounts)accounts)

3. 3. More broadly raise or repeal asset limitsMore broadly raise or repeal asset limits