Public Policies to Build Assets: Whats Working; Whats to Come National Community Reinvestment Coalition March 16, 2007 Ellen Seidman New America Foundation Washington, DC

Wealth Inequality Exceeds Income Inequality Quintile IncomeWealth Quintile IncomeWealth Bottom 40%10%1% Bottom 60%23%4.5% Top 20%56%83% And It Matters: 40-50% of American families have so few assets that they could not survive more than 4 months LIVING AT THE POVERTY LEVEL, which is far below the level most are used to % of American families have so few assets that they could not survive more than 4 months LIVING AT THE POVERTY LEVEL, which is far below the level most are used to.

Asset Building Policies Work (if Inefficiently) at the Top Mortgage Interest and Property Tax Deductions Mortgage Interest and Property Tax Deductions $92 Billion+ in FY 2005$92 Billion+ in FY 2005 Reduced Rate for Capital Gains Reduced Rate for Capital Gains $57.8 billion in FY 2005$57.8 billion in FY 2005 Taking these three together Taking these three together 45% of benefits went to households with incomes over $1 million45% of benefits went to households with incomes over $1 million 88.7% went to households with incomes over $80,000 (top income quintile)88.7% went to households with incomes over $80,000 (top income quintile) 3% went to households in bottom 60%3% went to households in bottom 60% Employer-Based Retirement Plans Employer-Based Retirement Plans $103 billion in FY 2005$103 billion in FY 2005 Less than half of employees participate, disproportionately large employers, higher wage Less than half of employees participate, disproportionately large employers, higher wage $11.6 billion for IRAs$11.6 billion for IRAs

Programs For Low-Income Families Focus on Income The largest programs that benefit low-income people, such as TANF, SSI, Medicaid, food stamps, focus on income The largest programs that benefit low-income people, such as TANF, SSI, Medicaid, food stamps, focus on income Asset limits in these programs can result in choice between building the platform to get out of poverty tomorrow and surviving todayAsset limits in these programs can result in choice between building the platform to get out of poverty tomorrow and surviving today The EITC, which is worth over $40 billion annually, is a hybrid: meant as an income support, but no asset test, and often used to jump-start savings The EITC, which is worth over $40 billion annually, is a hybrid: meant as an income support, but no asset test, and often used to jump-start savings The Savers Credit, while aimed at helping low-income people build savings, is small, and ineffective because of limits on what kinds of savings are eligible and because of non-refundability. The Savers Credit, while aimed at helping low-income people build savings, is small, and ineffective because of limits on what kinds of savings are eligible and because of non-refundability. Direct outlays for low-income asset-building are tiny, such as the $30 million supporting IDAs through the Assets for Independence Act Direct outlays for low-income asset-building are tiny, such as the $30 million supporting IDAs through the Assets for Independence Act

Some Recent Policy Changes That Show 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: Employee Opt-in Opt-out Females35% 86% Hispanic19% 75% Under 20K13% 80% Split refunds Split refunds New for this tax yearNew for this tax year Provides opportunity to both spend and save a tax refund, rather than one or the otherProvides opportunity to both spend and save a tax refund, rather than one or the other Must have account, probably requires encouragement by willing and able tax-preparerMust have account, probably requires encouragement by willing 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% increase in their savings The one-fourth with prior savings saved $924, +a 90% increase in their savings The three-fourths with no prior savings saved $479 The three-fourths with no prior savings saved $479

U.S. Policy Agenda Two track agendapursue low-cost ideas while laying the foundation for bolder ideas Two track agendapursue low-cost ideas while laying the foundation for bolder ideas Getting defaults right, making saving easy and automatic Getting defaults right, making saving easy and automatic Federal, state, and local Federal, state, and local Accumulate and protect Accumulate and protect

Low and Moderate Cost Ideas Automatic IRAs (employer-required payroll deduction for IRAs; required default enrollment option) Automatic IRAs (employer-required payroll deduction for IRAs; 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 Working Families Act (or successor) Expand Individual Development Accounts via the Savings for Working Families Act (or successor) Regulatory issues such as CRA services test, disclosure effectiveness, service under community credit union designation Regulatory issues such as CRA services test, disclosure effectiveness, service under community credit union designation

Bolder, Larger Cost Ideas Need big money on the tableSocial Security reform, budget deal, estate tax, tax reform, etc. Three possibilities (among many others): 1. Retirement Security Universal 401(k)s (default system for payroll deduction, potentially with match)Universal 401(k)s (default system for payroll deduction, potentially with match) Refundable Savers CreditRefundable Savers Credit 2. Savings Accounts at Birth ASPIRE Act (account with $500 at birth, progressive, locked up until age 18)ASPIRE Act (account with $500 at birth, progressive, locked up until 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 accounts)PLUS Accounts (mandatory employer and employee retirement accounts) 3. More broadly raise or repeal asset limits