Federally Assisted Asset Building: For Whom and How?

By Melissa Wells

Assets and savings help families weather economic downturns and unexpected financial crises. The President’s budget continues a longstanding federal approach to asset building. According to the recent Assets Report released by New America Foundation, the President’s FY 2013 budget provides nearly $548 billion to support asset-building activities and policies. However, middle and upper-income families, rather than low-income families, reap the lion’s share in benefits from federal policies that support asset-building and savings, especially through tax subsidies.

Tax subsidies account for 92 percent of federal spending on asset-building in the President’s FY 2013 budget. Of the nearly $508 billion provided in tax spending, $478.5 billion is provided for policies that  primarily benefit upper-income households, such as the mortgage interest deduction,  deductions for  contributions to retirement accounts, and exclusions for capital gains.  For example, at least 89 percent of mortgage interest deductions and 77 percent of IRA tax subsidies accrue to households that earn more than $75,000 per year, while these households constitute only 31 percent of all households in the country. Low-income and poor households typically benefit from tax policies that receive considerably less funding, such as post-secondary education tax credits and deductions, which are allocated only $28.93 billion in funds in the budget.

Although low-income and poor households benefit less from tax subsidies than do middle- and upper- income households, they do benefit more from direct spending to support savings and investment, homeownership and post-secondary education. The largest portion of direct spending to build assets is for Pell Grants ($36 billion), a post-secondary education program that provides financial resources for low-income college students.  In addition, $1.19 billion is allocated to programs that prevent foreclosure and subsidize mortgage down payments for low-income households. An additional $602 million is provided to support entrepreneurship through microloan and small business lending, both of which contribute significantly to small business development and in turn can support job creation.  A meager $52 million supports savings and investment through the Assets for Independence program, the Bank On USA initiative and the Volunteer Income Tax Assistance (VITA) program. These programs provide direct services that link low-income and poor households to financial literacy and tax preparation resources. But, again, the sum total of these programs is only a small fraction of the sum total of direct and tax expenditures aimed at asset-building.

The disparity in access to federal asset-building resources limits economic opportunity for low-income populations.  Ensuring low-income households have access to asset-building programs is important because these programs can make it possible to purchase a home, retire with financial security, or send a child to college. As such, the Administration should consider not only how to make existing asset-building programs serve more low-income households but also how to develop new programs that can more effectively help them save and develop assets.

Melissa Wells is Policy Assistant, Asset-Building at the Civic Engagement and Governance Initiative of the Joint Center for Political and Economic Studies.