Bridging the Asset Gap - Investing in Americans
In my last featured blogpost, at the One America Committee, I talked about poverty and how it could "happen" to any one of us at any unexpected time in our lives. Have you ever seen the despair of a friend or neighbor who's suddenly lost his job or who has become ill and cannot support his (or her) family? We are all in this American experiment together. Our neighbor's poverty affects us all. In a healthy democracy, our government should be accountable for the conditions that affect us all, for we are only as strong as our weakest link. In his book titled "One Nation, Underprivileged - Why Poverty Affects Us All", Professor Mark R. Rank reminds us that, if we are serious about alleviating poverty, we must seek to change the conditions that produce poverty instead of blaming the poor for their plight. In the book he uses a "musical chairs" analogy. He shows that we need to focus on creating more "chairs" for those who are participating in the game so that we produce fewer "losers" in the first place.
In this post, I'd like to briefly discuss some ideas and policies that might bring about a change by providing a more efficient social safety net for low-income Americans. In subsequent posts, I will delve more deeply into each of them.
In the song "Down N Outer" songwriter, Nanci Griffith sings about a poor American on a street corner who only "wants to earn his piece of America," but he`s "just a bank account away" from it. The accumulation of assets in America is dependent upon having a job, first and foremost. It is also largely dependent upon an income surplus combined with the faith that one's income will be there and will remain stable from week to week; month to month. In today's economy, with manufacturing jobs being sent to other shores, automobile companies downsizing, pensions disappearing, and low-wage jobs with no benefits coming in to replace once decent-paying jobs that provided a full benefits-package, faith in the system is broken. Policies currently exist for the accumulation of assets for many middle and upper class workers, delivered mainly through the tax code. Examples would be deductions on home mortgages and lower tax rates on capital gains.
A significant percentage of the American population, however, lacks financial assets such as savings and/or stocks. According to a 1990 study [Oliver and Shapiro], one-third of American households had no financial assets at all. A study [by Wolff] in 1998 has shown that middle-income families could maintain their standard of living without income for 1.2 month while those at the bottom-income level would not be able to replace their income for any period of time.
What can be done to build up financial assets for those who are "just a bank account away from America?"
We can discuss big ideas, keeping an honest eye on the fact that we are facing an incredible mountain of national debt, thanks to five years of the Bush administration's policy of giving billions of dollars in tax breaks for the wealthiest 1% of Americans and the delivery of subsidies for just about any corporate interest you can imagine. Let's not forget that when the Republican-led majority in Congress decided to trim the debt with sweeping budget cuts last fall, hardly a dime of the tax cuts for millionaires and breaks for Big Energy and Oil was touched. President Bush and his rubber-stamping Congress have rewarded wealth and turned their backs to the rewarding of hard work done by the willing hearts and calloused hands of the poorest Americans. Alleviating poverty and lifting all boats on a rising moral tide will take belief, commitment, cooperation, and caring from us all.
I have heard Senator Edwards offering solutions in the form of policies that will reward work by creating and increasing assets of the poorest working Americans. He has said that there is an asset gap in America that is every bit as important as the income gap.
A direct way to build assets for low-income workers is by expanding the Earned Income Tax Credit (EITC). Since 1975, the expansion of this federal tax credit has provided an income supplement to low-wage workers. In the 1990s, the EITC helped move 7 million Americans out of poverty and into the middle class. As one of the biggest cash-transfer programs for low-income families, the EITC reflects congressional and public preferences to support increased work efforts and self-sufficiency and less dependency on welfare programs for low-income population. One of the chief aims of the EITC is the "rewarding of work." The EITC promotes and rewards low-wage work by reducing the taxes that low-wage workers pay on their earnings and by supplementing their wages. Senator Edwards wishes to make this tax credit more available to single workers and to get rid of the marriage penalty that presently exists. Female heads-of household can especially benefit from an expansion of the EITC. In a Grogger study (2003), it was found that the EITC may be the `single most important' policy parameter for explaining recent declines in welfare and increases in work and earnings among female-headed families. [source: tc.umn.edu]
Work bonds would help by setting up accounts for low income families to the extent that workers would be saving money while the government would match any savings they could manage to accrue. This would help them save to buy homes and send their children to college. Low-income working families would receive an extra credit of up to $500 per year that would be directly deposited into a new account held by a bank or a safe stock fund with low fees. If families put away more, the amount in the account would grow, and it would be available not just for retirement, but also for a small business or a personal emergency. [source: Senator Edwards' speech at CAP, September 19, 2005]
Senator Edwards suggests an enhancement of housing vouchers for the poorest workers and setting aside up to $1,000 in an account to help low-income workers entering the workforce to make home payments for the first five years they are working. After five years, they will have up to $5,000 for a down payment on a home of their own. Senator Edwards has also stated his aim to crack down on predatory lenders and their shameful practices because they prevent low-income workers from building assets.
In Britain, there is a program that issues Baby Bonds for low-income families. They set up an account for a child when they are born and then by the time the child reaches 18 years of age, they make that money available to them. Whether they want to go to college, buy a house, or start their own small business, they can use that money to do so. Senator Edwards has proposed similar ideas to help all Americans build their savings for the future. [source: One America Committee blog/Serb Hall celebrator]
All of these strategies are about investing in people and rewarding their hard work. The creation and building of assets for low-income families would be a direct investment in the American people. By bridging the asset gap, it would not be only their lives that would be beneficially affected. The communities where they live and work would also be enhanced by the increased opportunity. When Senator Edwards says he's fighting to alleviate poverty, I also hear him asking us to develop the political will to invest in American workers and allow them to live up to their full potential. This is so directly tied to the benefit of the entire American population that we can no longer sit back in silence as we see our elected representatives turn their backs on those who want to learn and to work hard to earn their piece of America.
*This entry was cross posted from the One America Committee blog.