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About CSD |
Asset Building | State Assets Policy
| Civic Service |GAP
| Projects | SEED
|
Publications |
Search |
Contact
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SEED Research and Related Publications SEED for Oklahoma Kids Experiment
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Why
Asset Building, Children's Accounts, Income support has been the defining characteristic of social policy during the past century. Today there is increasing questioning of income as sole definition of poverty and well-being. Nobel Laureate Amartya Sen and others are looking toward capabilities. Asset building can be seen as part of this larger discussion, one measure of long-term capabilities. Asset-based policy would focus on development of individuals, families, and communities. In this sense, asset-based policy is a complement to the support goals of income-based policy. Can public policy aim for asset accumulation? Asset-based policy is not new. The United States and many other countries already have large asset-based policies. In many cases, these operate mostly through the tax system, i.e., public transfers occur via tax benefits (either tax deferments or tax exemptions). In these circumstances, the poor, who have little or no tax liability, often do not receive any benefits. Examples of US asset-based policy include: home ownership tax benefits; investment tax benefits; defined contribution retirement accounts with tax benefits at the workplace, such as 401(k)s, 403(b)s (named after sections of the internal revenue code); and defined contribution accounts away from the workplace, such as Individual Retirement Accounts (IRAs), and a more generous version known as Roth IRAs. Other asset accounts with tax benefits include Individual Training Accounts, Educational Savings Accounts, State College Savings (529) Plans, and Medical Savings Accounts. Asset-based policies in the United States are growing rapidly. Individual account policies have all appeared since 1970, and there are more variations of these all the time. Total tax expenditures for asset building in homes, retirement accounts, and investments are growing rapidly. Altogether, asset-based policies in the United States are large and regressive. Over $300 billion annually in tax expenditures for assets (homes, investments, retirement accounts), and over 90 percent of this goes to households with incomes over $50,000 per year. At the same time, the poor in Welfare States do not have the same opportunities and subsidies for asset accumulation. The reasons are threefold. First, the poor are less likely to own homes, have investments, or have retirement accounts, where most asset-based policies are targeted. Second, the poor have little or no tax incentives, or other incentives, for asset accumulation. Third, asset limits in means-tested transfer policies discourage saving by the “welfare poor,” and probably also the “working poor”. In effect, the United States and many other countries have a dual policy, consisting of asset building subsidies for the non-poor, and asset building disincentives for the poor. This dual policy is both unfair and counterproductive. If asset building is a key pathway for individuals, families, and communities to develop, then a sensible public policy would be asset building for all, because this would have the greatest payoff in social and economic and social development. Given these conditions, we ask: Why not asset accumulation by everyone? The goal should be inclusion in asset-based policy. By inclusion, we mean: (1) universal: bring everyone into asset-based policy; (2) progressive: greater subsidies for the poor; (3) life-long: birth to death, and flexible across the life course; and (4) adequate: sufficient assets to achieve policy purposes. As examples, we turn briefly to a proposal for a large, inclusive saving plan in the United States, and a new policy of universal children’s accounts in the United Kingdom. President Clinton proposed Universal Savings Accounts (USAs) in his State of the Union address in 1999. In his State of the Union address in 2000, Clinton offered a similar proposal, saying:
The 1999 USA proposal did not take off politically, and it was reconceptualized as the Retirement Savings Accounts (RSAs) in 2000. The RSA proposal channeled tax credits to financial institutions to cover administrative costs of the accounts, plus match funds deposited by financial institutions into the account. Despite the limited political impact, these proposals elevated the idea of inclusive, progressive saving policy to a new level. Occasions when government leaders have made large and progressive asset building proposals have been few. The USA proposal in 1999, which was like a 401(k) for all workers, with deposits and matching funds for those with lowest incomes, was budgeted at an expenditure level of $38 billion per year, while RSAs were estimated to cost $54 billion over ten years. A serious discussion of asset-based policy began in the United Kingdom in 2000. In a major policy development in April 2001, Prime Minister Tony Blair proposed a Child Trust Fund for all children in the United Kingdom, with progressive funding. Blair said:
In April 2003, Prime Minister Blair announced that he would go forward with the Child Trust Fund. Beginning in April 2005, each newborn child in the United Kingdom will be given an account, retrospective to children born from September 2002. All children will receive an initial deposit of at least 250 pounds, and children in the bottom third of family income will receive 500 pounds. Additional government deposits are not yet specified. The Child Trust Fund will provide universal and progressive contributions to the child’s account, and life-long accumulation. This idea is also developing in the United States. As noted in this RFP, the Ford Foundation and several other foundations are now in the process of demonstrating and testing children’s saving accounts (CSA) in the form of the Saving for Education, Entrepreneurship, and Downpayment (SEED) initiative. The goal of SEED is to model, test, and inform a universal CSA policy for the United States. SEED was conceived and initiated by CFED, with the leadership of Bob Friedman. Also, recently introduced federal CSA legislation, known as the ASPIRE Act, has bipartisan support in the Congress. Ray Boshara and his team at NAF provided leadership in policy discussions that led to the ASPIRE Act. The potential of CSAs compared to adult accounts as a long-term pathway to universal asset building may be greater simply because newborns are more politically appealing than adults. A universal, progressive CSA has been a longstanding goal at CSD. CSD director Michael Sherraden’s original proposal for individual development accounts (IDAs) was for a universal, progressive account beginning at birth. At the request of the George H.W. Bush White House during 1991-92, Sherraden presented a plan to give every newborn in America an account with an initial deposit of $1,000. Similar proposals have come from Duncan Lindsey, author of The Welfare of Children, Fred Goldberg, former Commissioner of the Internal Revenue Service, and others. State 529 college savings plans have the potential to become building blocks for an inclusive CSA policy. With the support of the Ford Foundation during 2001-04 and led by Margaret Clancy, CSD has undertaken research on inclusion in 529 savings plans. This research has put CSD at the center of discussions on this topic. Achieving a universal CSA policy will require the expertise and talents of many organizations. We are in the very fortunate position to have CFED, KU, NAF, and IFS as partners. With this group, the Universal Model initiative in SEED can inform and influence a future universal CSA policy in the United States. |
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Center for Social Development |