Reporting on the movement for 'assets development'
ASK THIS | March 01, 2005
The press should report on existing programs and new proposals to enable low-income Americans to earn and save their way out of poverty. (Last in a series)
By Joel Berg
Q. What is the importance of the growing movement to promote “assets development” as an alternative to “income maintenance,” which has been the dominant theme in anti-poverty policy for decades? Why is the assets development movement attracting both liberals and conservatives?
Q. Why is the disparity between the assets of poor people and rich people so much greater than the disparity between their incomes? Can additional assets help low-income families earn, learn, work, and save their way out of poverty?
Q. Are the Individual Development Accounts (IDAs), created under President Clinton with the backing of a Republican Congress, effectively helping low-income families save money and move out of poverty?
Q. What are the strengths and weaknesses of the ASPIRE Act – recently introduced in Congress by both leading liberals and conservatives – that would create KIDS Accounts that would enable all American families, but particularly low-income ones, to be able to save for their futures? Has President Bush considered any of these ideas as part of his “ownership agenda"?
A growing number of poverty and hunger researchers and advocates now believe that, to help low-income families move “beyond the soup kitchen” toward economic self-sufficiency, the nation should adopt fundamentally new anti-poverty policies at the federal, state, and local level that supersede the current paradigm of “income maintenance” with a new paradigm that empowers low-income families to develop “assets.” In plain English, this means helping low-income people move beyond everlasting debt by purchasing assets of their own – such as businesses and homes – that boost their upward mobility. Or to put it another way, families would be able to move from owing to owning.
The original embodiment of the assets development idea is the Individual Development Account (IDA) program, created a few years ago by an ideological odd couple: then-President Bill Clinton and then-Chair of the House Budget Committee, conservative John Kasich. These accounts allow low-income families to match their own savings with funds from government and private sector sources for job training, home ownership, or business start-ups. This program now exists in the form of relatively small pilot projects scattered throughout the country.
Building on this idea, there has been a Congressional proposal to create KIDS accounts as part of the Americans Savings for Personal Investment, Retirement, and Education Act (the ASPIRE Act, S.2751/H.R.4939), bi-partisan legislation introduced on July 22, 2004 by Senators Rick Santorum (R-PA) and Jon Corzine (D-NJ) and Representatives Pat Kennedy (D-RI), Harold Ford (D-TN), Tom Petri (R-WI), and Phil English (R-PA).
The legislation would provide every American child, at birth, with a small savings account that could be used to build assets. Children living in households below the national median income would be eligible for a supplemental contribution of up to $500; they also would be eligible to receive a dollar-for-dollar match on the first $500 contributed to their accounts each year. Accounts would be redeemable beginning at age 18, restricted to use for education, home ownership, or retirement. Funds in this account would not be considered in assets tests for federal assistance programs such as food stamps and TANF.
The importance of asset building has long been overlooked in anti-poverty policy. According to the New America Foundation, wealth inequality outstrips income inequality by large margins: In 2001, the wealthiest 10 percent held nearly 70 percent of total net worth (assets minus debt) in this country, while the poorest 50 percent held only 2.8 percent.
Racial asset inequality is also great; in 1995, median white households held seven times the assets of median black households.
The government has long encouraged asset development for the middle and upper classes through tax incentives. The government spends over $300 billion per year on what amount to asset-building policies, but approximately 90 percent of those benefits go to individuals earning more than $50,000 annually. The poor, however, do not enjoy such benefits. Asset accumulation is disallowed or even criminalized by many federal assistance programs.
Current federal law actually punishes low-income families who seek to develop assets and enter the middle class. For instance, under current federal law, families lose eligibility for food stamps if they have more than $2,000 in assets. While Earned Income Tax Credit (EITC) refunds do not count as assets in determining food stamps eligibility for the first year after they are received, they do count as assets after one year.
Thus, if two low-income working families were to both receive EITC refunds of $2,500, and family “A” were to spend the money immediately but family “B” were to put the money into a bank account to save for their children’s higher education, family “A” would continue getting the same food stamps allotment but family “B’ would start their losing food stamps benefits. That is obviously a counter-productive social policy.
The ASPIRE Act would solve much of this problem for most families, ensuring that savings in a KIDS account would not force families to lose other vital benefits simply because they are saving money to enter the middle class.
Additional experts who can be contacted by the press:
Ray Boshara, Director, Asset Building Program, The New America Foundation
Margy Waller,Visiting Fellow, Brookings Institution
Center on Urban and Metropolitan Policy
Edward M. Cooney, Executive Director, Congressional Hunger Center
Ellen Vollinger, Legal Director, Food Research and Action Center