The (Tax) Transformers: More Savings For All?


After spending a few hours on the Hill this morning, we have both good news and bad news. The bad: No one in Congress appears to be working to avert the so-called "sequester." The good: key tax writing committees of both the House and Senate are hard at work evaluating proposals and developing plans to reform the tax code. Those reforms could make it easier for Americans to save money, and become more financially secure – if they’re done correctly. How do we help ensure that the reforms will help – not hurt – average Americans? CFED (an organization dedicated to promoting economic opportunity) hosted a forum today called "Can America Save Itself?" to highlight a range of promising (and often bipartisan) strategies to leverage the tax reform process to promote asset building, thereby making it easier for Americans to cope with emergencies, save up for a big purchase like a home, or live comfortably in retirement. As CFED President Andrea Levere noted, Americans of all income levels struggle to save and remain financially stable. Roughly 44 percent of all Americans are living in liquid asset poverty, meaning they do not have enough funds on hand to survive at the poverty level for three months in the absence of income. While concentrations of liquid asset poverty are higher at low-income levels, the challenge of living "paycheck to paycheck" is still present well up the income ladder.

As the Assets Report depicts (and CFED's own Upside Down report shows), the tax code in its current state delivers tremendous benefits in the form of tax-preferred savings accounts (such as 529 college savings plans and 401(k) retirement accounts) and tax deductions (such as the mortgage interest deduction). However, higher-income Americans currently receive the overwhelming majority of these benefits. This creates an upside-down subsidy system, where those with the greatest need actually receive the least.

Two members of Congress who have managed to work across the aisle to promote more equal access to savings opportunities spoke at the forum. Representative Richard Neal (D-MA) and Representative Jim Gerlach (R-PA) discussed the need to support the savings ambitions of all Americans regardless of income level. Doing so ensures a stable future for individuals and families, but is also critical to the country’s stability as a whole. Neal pointed to the Auto-IRA, a legislative proposal that would build upon existing retirement savings infrastructure, as one way to improve financial security in a bipartisan way. He also conveyed support for maintaining tax incentives that help Americans put money away for retirement. Gerlach emphasized three key priorities for the tax reform conversation. As Congress debates the merits of various changes to the tax code, Gerlach would like to see the system simplified, made more equitable, and used to promote more domestic investment. Both sought policy strategies that encourage responsible savings behaviors.

Read the full post on the Asset Building Program blog, The Ladder.