The Tipping Point: Policy

As the year 2010 draws to a close and the 111th Congress prepares for its remaining days in session, opportunities abound for Congress to choose an asset building agenda moving forward. While several important policy decisions compete for political attention during this lame duck session of Congress, one near certainty remains; a tax bill will get done by the end of the year to address the 70 billion dollars in so called Bush tax cuts which expire at the end of 2010. How these dollars are spent is still a matter of some debate. Will the tax cuts be continued to support people earning in the top 2% of all earners in the United States, or shall a portion of those dollars be used to help working families and people with disabilities start to build a more secure financial future? The debate will rage on TV in sound bites delivered through the radio and through countless Internet postings. 

What is, however, even to the casual observer, no longer of any debate is the historical income and asset inequality taking place within the United States over the last few decades. It used to be that income inequality was best demonstrated by examples gathered from various banana republics from across the globe.  However, as recently illustrated by New York Times columnist Nick Kristof, “Inequality in the United States has soared to levels comparable to those in Argentina six decades ago.” (http://www.nytimes.com/2010/11/07/opinion/07kristof.html?_r=2)

According to the data, in the 1940s the top one percent in Argentina controlled more than twenty percent of incomes. That was roughly double the share at that time in the United States, a level of inequality satirized in political cartoons and held up as examples of economic despotism. Of course, since then, the United States, without much fuss, has reversed places. The share controlled by the top one percent in Argentina has fallen to a bit more than fifteen percent, not representing a revolution in economic thinking but certainly indicating a more equitable distribution. Conversely, here in the United States, inequality has soared to levels much greater to those in Argentina six decades ago with one percent controlling twenty-four percent of American income in 2007.

According to the Kristof piece, the C.E.O.’s of the largest American companies earned an average of 42 times as much as the average worker in 1980, but 531 times as much in 2001. Perhaps the most astounding statistic is this: from 1980 to 2005, more than four-fifths of the total increase in American incomes went to the richest one percent of Americans.

One of the drivers of this consolidation of both income and wealth is the United States tax system. CFED has vividly demonstrated how the U.S. tax system disproportionately benefits higher income and net worth households. For example, in 2009, more than half the tax benefits went to the wealthiest five percent of tax payers earning over $1 million annually; they received more than $95,000 in tax benefits. Middle-income families receive only a few hundred dollars, and poor families who rely on public benefits actually face penalties for saving!

This just in, an economy with ever increasing levels of income and asset inequality is likely to grow more slowly, or even contract, over the long term and be subject to greater financial instability. This recent study (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1690612) examines recent census data for the 50 states and the 100 most populous counties in America and found that places where inequality increased the most also endured the greatest surges in bankruptcies. The study’s authors suggest that one of the explanations for these results is that as inequality rises, the richest buy even bigger mansions and fancier cars. Those a notch below then try to catch up and end up depleting their savings or taking on more debt than is prudent, making a financial crisis more likely. Sadly, an additional consequence of financial hardship and the income inequality is a predictable rise in the divorce rate, yet resulting in even further financial individual difficulties.

This idea of income inequality is hardly new. One can imagine State Department officials of half a century ago with practiced examples and speeches arguing precisely against the current economic conditions within the United States. Robert Reich, former Secretary of Labor and now with the Goldman School of Public Policy at UC Berkeley, has observed that we may, as illustrated by this most recent economic calamity, reached a tipping point where the inequality has resulted in a shrinking of the United States economic pie. He argues that it is actually in the best interest of the country’s economic elite to embrace more egalitarian economic and tax policies. Simply put, it is better to have slightly less of a healthily growing economy than more of a shrinking and contracting one.

One aspect to building a stronger and more vibrant economy is to enact a plethora of new asset building policies recently discussed at the CFED Assets Learning Conference. The “2010 ALC Assets Movement at Its Moment: Creating the Save and Invest Economy” provided attendees with a multitude of asset building and economic empowerment policy opportunities to begin to change economic outcomes for all Americans.

What if rather than extending all the Bush era tax cuts, some of those tax dollars were used to pay for these asset building policies? What if families were able to more fairly participate in the promise of America’s financial future? What if Washington actually started to represent all the people in this great nation, and all of us together started to build a stronger, more sustainable and growing economy? With only a few weeks left in the 111th Congress, there is still time to affect change. Below are seven policy opportunities for asset building champions to push. Send a letter, contact your representative and let your voice be heard. Help make this holiday season deliver the gift of financial opportunity to millions of American all across the country.

1. Expand the Saver’s Credit (http://capwiz.com/idanetwork/issues/alert/?alertid=14408256) (H.R. 1961). The Savings for American Families' Future Act (http://cfed.org/assets/pdfs/savers_credit_one_pager_april_2010.pdf) simplifies the Saver’s Credit, provides a flat 50% match on up to $500 saved in a retirement account for households earning under $65,000 a year, and automatically deposits matching funds into designated personal retirement accounts by using account information listed on IRS tax filings through IRS Form 8888.  Contact Diane Oakley at diane.oakley@mail.house.gov.

2. Make college savings eligible for the Saver’s Credit. Mr. Pomeroy and Mr. Tiberi’s bill, The Savings Enhancement for Education in College Act (H.R. 1351) (http://cfed.org/assets/pdfs/hr1351_one_pager.pdf) already has nearly 90 bipartisan cosponsors. Contact Diane Oakley at diane.oakley@mail.house.gov or Kelli Briggs at kelli.briggs@mail.house.gov.

3. Enact Children’s Savings Accounts (http://cfed.org/assets/pdfs/Childrens_Savings_Accounts(1).pdf), The Americans Saving for Personal Investment, Retirement and Education Act (ASPIRE, H.R. 4682) (http://capwiz.com/idanetwork/issues/alert/?alertid=14723901). Representative Kennedy, Petri and Cooper’s bill provides accounts at birth for every child with an initial, one time deposit of $500.  Contact Daniel Murphy in Mr. Kennedy’s office at daniel.murphy@mail.house.gov or in Mr. Petri’s office - Rich Markowitz at Rich.Markowitz@mail.house.gov.

4. Enact the Savings for Working Families Act (H.R. 2277) (http://cfed.org/assets/documents/SWFA/IDA_One_Pager_5_12_09.pdf) provides matches for 2.7 million individuals saving in Individual Development Accounts.  Representatives Pomeroy, Pitts, Schwartz and Kevin Brady’s bill enables nonprofits to include matched savings accounts and financial education in their social services provision. Contact Diane Oakley at diane.oakley@mail.house.gov or Ben Stoltzfoos at ben.stoltzfoos@mail.house.gov.

5. Automatic Individual Retirement Account Act (H.R. 6099) (http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h6099ih.txt.pdf), sponsored by Representative Neal, expands savings coverage (http://cfed.org/policy/federal_policy_advocacy/auto_ira_one_pager.pdf) by enabling employees not covered by qualifying retirement plans to save through automatic IRA arrangements (http://capwiz.com/idanetwork/issues/alert/?alertid=15712631). Contact Melissa Mueller at melissa.mueller@mail.house.gov.

6. The SSI Savers Act (H.R. 4937) (http://cfed.org/policy/SSI_Asset_Limits_One-Pager_HR_4937.pdf), sponsored by Representatives Tsongas and Petri, would raise the asset limits and remove disincentives for savings. Contact in Tsongas’ office Sarah Christopherson at sarah.christopherson@mail.house.gov or in Petri’s office - Rich Markowitz at Rich.Markowitz@mail.house.gov.

7. The IDA Protection Act: (http://cfed.org/policy/federal_policy_advocacy/ida_protection_act_one_pager.pdf) This bill eliminates a coal tax credit and uses the funds to provide an additional $50 million for matched savings accounts through the Assets for Independence program. Please contact Mark Libell in Congresswoman Linda Sánchez’s office at mark.libell@mail.house.gov.