New Report on Municipal Financial Empowerment
By Mitchell Kent, Guest Contributor on 12/13/2011 @ 10:00 AM
EDITOR’S NOTE: Mitchell Kent is Director of Legislative Policy and Special Counsel for the New York City Department of Consumer Affairs (DCA). DCA’s Office of Financial Empowerment was profiled in CFED’s 2011 report, Building Economic Security in America’s Cities: New Municipal Strategies for Asset Building and Financial Empowerment, and was a key collaborator on the report, along with other members of the Cities for Financial Empowerment coalition.
New York City’s Department of Consumer Affairs just released a report about its work embedding financial empowerment initiatives within core City social service programs. The new Report, Municipal Financial Empowerment: A Supervitamin for Public Programs, is exciting because it offers cities and states a way of enhancing existing programming during difficult economic times. The Report, the first in a series on the role of financial empowerment in public programs, focuses on professional, one-on-one financial counseling. It shows how New York built its network of privately-funded Financial Empowerment Centers and how financial counseling may make traditional social service programs achieve better and longer-lasting outcomes.
The City’s Department of Consumer Affairs has been working closely with nonprofit organizations across New York City to run this initiative. A Wall Street Journal article about the approach, City Now Offering Financial Counsel, ran on December 7th. The article featured a Financial Empowerment Center client, Margarita Mora, who was “too embarrassed by the foreclosure proceedings against her to seek help.” Because of the integration of financial counseling in the City’s foreclosure prevention efforts, a judge led Ms. Mora to a financial counselor at a Financial Empowerment Center run by Credit Where Credit is Due.
The Bloomberg administration is set to expand this initiative next month, putting $2.4 million behind the Centers, which previously were paid for by private funds donated to the nonprofit Mayor's Fund. The four-year trial included 16 financial counselors, reached more than 13,000 New Yorkers and helped pay down $6.3 million in personal debt.
Click here to see the Department of Consumer Affairs report.
Rep. Chu (D-CA) Introduces Entrepreneurship Legislation
By Sean Luechtefeld on 12/12/2011 @ 02:45 PM
Federal legislation based on CFED’s Self-Employment Tax Initiative (SETI)
Last week, Representative Judy Chu of Los Angeles introduced the Entrepreneur Startup Growth Act, a bill designed to provide low-income self-employed people with tax support and business development. CFED is thrilled to support this legislation as it is based on our Self-Employment Tax Initiative, which you can read more about here.
Click below to watch the video of Rep. Chu’s address on the legislation, and then read the press release from Rep. Chu’s office below. As always, we appreciate your support in bringing business development assistance to low- and moderate-income entrepreneurs!
Rep. Chu Introduces Bill to Drive Economic Opportunity for Entrepreneurs
Young startup companies, our nation’s real job creators, would benefit from the Entrepreneur Startup Growth Act
WASHINGTON – On Tuesday, Rep. Judy Chu, D-Calif., introduced a bill to provide low-income start-up companies with financial and business assistance. The Entrepreneur Startup Growth Act provides self-employed individuals with tax support and business development.
"Economists point to young developing businesses as the key drivers of economic growth. On average each year about one third of the jobs created in this country are a result of new startup businesses. These entrepreneurs take risks and make it on their own," Chu said. "The most critical time of the year for these new owners is tax season as they learn how to comply with the different tax standards for businesses. The Entrepreneur Startup Growth Act turns this tough time into an opportunity by offering affordable business tax assistance in conjunction with business development services so these companies can continue to grow and create jobs."
The Entrepreneur Startup Growth Act builds on the Self-Employment Tax Initiative launched by CFED, a nonprofit economic opportunity organization. The legislation creates a grant program that would offer free business tax preparation services to low-income self-employed individuals who file a schedule C tax return. This will help their businesses grows and it promotes asset-building for low-income households.
"This program will help entrepreneurs save money and ensure that they access all the tax credits for which they are eligible,” continued Chu. “By building their economic security and helping them grow their business we drive American job growth.”
9.8 million self-employed individuals – nearly two-thirds of all self-employed people – are operating business startups: unincorporated businesses less than five years old that are still in their developing stages and feature just one employee, the business owner himself. Startups in their first year of existence create an average of 3 million jobs per year. Nearly all net job creation since 1980 has occurred in small business startups less than five years old.
Upcoming Event: 'Ready, Set, Save'
By Johanna Barrero on 12/12/2011 @ 09:30 AM
Ready, Set, Save: Assessing IDA Participants' Readiness (part of the "Tools for Success" webinar series for AFI Grantees)
Join us this Wednesday, December 14 from 1:00 – 2:00 pm EST for a webinar that will offer strategies to help determine whether prospective applicants are ready for an IDA program. We’ll also explore ideas for helping current savers make steady progress toward purchasing their assets. The webinar will include examples from real-world IDA practitioners who have improved program performance by targeting their outreach and enrollment efforts and monitoring participants to ensure they are on track to achieve their savings goals.
Presenters will include:
- Ingrid Holguin, IDA Program Manager at Opportunity Fund in San Jose, California
- Mindy Maupin, Asset Builders Program Coordinator at Southern Good Faith Fund in Helena-West Helena, Arkansas
- Johanna Barrero, Program Manager, Savings & Financial Security, CFED (moderator)
Click here to register now!
The webinar is free to all interested participants. In advance of the webinar, please send any questions you would like our panelists to address during the session to Johanna Barrero at email@example.com or call 202.207.0117.
Resources from Webinar on Northern Plains
By Ethan Geiling on 12/06/2011 @ 04:18 PM
On December 6, CFED and the Northern Plains Initiative held a webinar on the strength of state policies in Montana, North Dakota, South Dakota and Wyoming.
The webinar covered four topics:
1. How residents are faring in the Northern Plains
2. New Scorecard data on the strength of state policies
3. Policy opportunities in the Northern Plains
4. Two dozen low-cost, politically viable stroke-of-a-pen policy ideas.
A recording of the webinar and the PowerPoint presentation are available online.
Beyond Credit Score: FICO and Credit Bureaus Get Personal
By Chelsea Prescotti, Guest Contributor on 12/06/2011 @ 02:30 PM
For over half a century now, credit scores generated by credit bureaus and analytics companies, most notably the Fair Isaac Corporation (FICO), have been the gold standard in determining whether consumers are “creditworthy.” Although credit scores have historically served to give lenders an accurate risk-assessment of perspective borrowers, in our age of personal data, more information is now being used in determining potential outcomes in other, disparate areas—for example, the likelihood that you will take your prescription medications.
The New York Times reported earlier this year on FICO’s latest foray into personal data. According to an NYT article, FICO’s newest invention, the Medication Adherence Score, compiles publically available data in order to give doctors and insurance companies an assessment of the probability that any given patient will take their prescription medications as instructed by their clinician.
Interestingly enough, the factors used in determining the Medication Adherence Score are various and not necessarily related to health. For example, individuals who have lived in one home and have had a steady job for a long period of time are more likely to take their medications as prescribed. Being female is a risk factor, considering that women are more likely to take their medications incorrectly. Those who live by themselves or who are unmarried are also more likely to skip or not refill prescriptions.
The purported idea behind the Medication Adherence Score is to help doctors and insurance companies target at-risk patients with email and phone reminders. While this may seem benign, the fact that these scores are calculated without patient consent raises eyebrows. As a consumer, you may be wondering what the broader implications of scores that use personal data could be. The Wall Street Journal raises this concern as it describes how credit scores are used in various disparate settings.
In addition to FICO’s latest innovation, the big three credit reporting agencies are likewise mining personal data for purposes that extend beyond mere creditworthiness. Experian, for example, uses credit information to estimate a consumer’s income. Credit card companies now use this service, called Income Insight, to deny or extend consumers credit. Equifax offers its Ability to Pay Index and Discretionary Spending Index, which estimate how much extra money consumers may have to spend.
While the credit bureaus assure consumers that crunching new numbers will be a boon to consumers, since lending agencies and the like will have a more whole picture of the consumer beyond the limited picture that a credit report draws, it may be too early to tell. A recurring problem for consumers has occurred when employers begin using these analytics for hiring decisions, even though research demonstrates that credit history is not a good indicator of job performance.
Reducing consumers to different numbers and scores may be a questionable practice, one that consumer adviser Gary Gentry criticizes. As quoted in the WSJ article, Gentry notes, "People make character judgments about you based on that FICO credit score that may or may not be accurate. It's not the real world. It's just a computer program."
As a consumer, what do you think about the extended use of credit reports and personal data?
Chelsea Prescotti is a consultant for www.creditscore.net. The Inclusive Economy thanks Chelsea for her thoughtful contribution!
CFED, NPI to Host Assets & Opportunity Webinar Tomorrow
By Sean Luechtefeld on 12/05/2011 @ 02:45 PM
Tomorrow, we’re joining forces with Rural Dynamics, Inc.’s Northern Plains Institute to host a webinar titled “Developing an Assets & Opportunity Policy Agenda.” Here’s the invitation that our friends at NPI sent out. We hope you’ll consider joining us!
Join us Tuesday, December 6 at 1:00 MST for an in-depth conversation with national experts from the Corporation for Enterprise Development (CFED) on strategies to move assets and opportunity policy forward in 2012.
On this call we will have the chance to learn about what newly released data tells us about asset building policies on the national and regional level, how we can use this data to impact change in our rural Northern Plains region, and what opportunities exist for 'easy wins' by acting on low-hanging-fruit action items. This is a chance to have an intimate conversation about next steps; taking research to action.
View the Household Financial Security Framework to gain a better perspective of how policy recommendations are categorized and organized.
Visit newly released Scorecard data for state-by-state performance and policy measures across five issue areas: Financial Assets & Income, Business & Jobs, Housing & Homeownership, Healthcare, and Education.
Download A Stroke of A Pen Guide, which presents 24 low-cost, politically-viable policy ideas to increase financial security and opportunity in tough times to see what is recommended nationally, and discern what might work regionally.
Register today for the next Mobilizing Rural Communities webinar on December 6, 2011 at 1pm Mountain by clicking here.
Vote Next Step as Your Fan Favorite!
By Lauren Williams on 12/05/2011 @ 02:15 PM
Vote for CFED's Partner, Next Step, as Fan Favorite in the McKinsey Video Contest
McKinsey on Society is holding a video contest for social innovators. Their goal is to “create a hub where we can highlight the incredible work taking place around the world and where changemakers can share new ideas and best practices. We want to create a platform that draws attention to these innovators, so that we can celebrate their hard work and have them take their place alongside the world’s most recognized voices in social innovation.”
The Next Step team entered a video into this competition and has a chance at being honored with interviews, online features and other media recognition if they win.
Please vote for Next Step's video as the Fan Favorite in McKinsey on Society's Social Innovation Video Project. Follow the link below and vote by tweeting, using the Twitter button under the video. Voting is open from November 30 to December 9, 2011. Thank you!
Vote and share the Next Step video here.
Highlights: Bank On Webinar
By Sean Luechtefeld on 12/05/2011 @ 10:00 AM
Yesterday, I had the honor of presenting on a webinar with some awesome colleagues, including Louisa Quittman (U.S. Department of the Treasury), Leigh Phillips (San Francisco Office of Financial Empowerment), Laura Fischer (National League of Cities) and Genevieve Melford (CFED). We had almost 300 attendees, many of whom provided thought-provoking questions that led to what I felt like was a fascinating conversation about the landscape of the financial access field.
If you weren’t able to listen in yesterday afternoon, that doesn’t mean you missed your only opportunity. The webinar was recorded, and the recording can be downloaded for your listening pleasure by clicking here. Included in the recording are not only the speakers’ remarks and the Q& A session, but also the PowerPoint and the demonstration of the new JoinBankOn.org.
Looking back, what stands out to me the most is how incredibly clear it is that the Bank On movement is exactly that – a movement. Laura mentioned how since she and her colleagues finished their first-ever Scan of the Bank On Field (which you can access here), nearly 20 new programs have started and at least a dozen more are in the works. That programs continue to coalesce from the ground up not only speaks to the recognition that financial access is no longer a conversation being had only on the fringes, but also that community-based, public-private partnerships really can be a force for good in helping bring all Americans into the mainstream economy.
Whether you listened to the webinar yesterday or you watch the recording in the coming days, I hope you’ll consider sending us feedback about this partnership by using the comments section below or by emailing firstname.lastname@example.org.
New Working Paper by New America Foundation
By Stephanie Halligan on 12/01/2011 @ 11:00 AM
Beyond Barriers: Designing Attractive Savings Accounts for Lower-Income Consumers
In the midst of the current economic recession, we have witnessed the emergence of many lower-cost savings products geared toward the low-income consumers. These "small-dollar savings accounts" help eliminate some of the many barriers to saving for these consumers, as seen in pilot programs across the country in recent years. Models include FDIC’s Model Safe Accounts – a template of account terms for banks across the country to follow, and SaveUSA – a program started through the NYC Office of Financial Empowerment offering low-income tax filers savings accounts and incentives to save a portion of their refund at tax time. Yet while accounts in these and other programs have helped remove economic barriers to account ownership, they do not necessarily make for an attractive consumer product.
In November, the Asset Building Program at New America Foundation released a working paper, "Beyond Barriers: Designing Attractive Savings Accounts for Lower-Income Consumers." This paper explores several promising ways to go beyond removing barriers to savings account ownership for lower-income consumers and investigates how small-dollar savings accounts can become more attractive for this targeted market to both acquire and maintain. Among the recommendations to increase uptake and use of low-income consumer products are:
- “Must-have” account basics, such as reduced costs, convenience and security
- Varying savings incentives that are tailored to a specific population’s needs and preferences
- Withdrawal restrictions and automatic deposit opportunities
- Financial counseling to support a consumer savings plan
Individual development accounts represent a subset of these recommendations, including reduced cost, protections, savings incentives, and financial education and support. Yet while IDAs helps support the longer-term savings aspirations of needy individuals and families, traditional IDA programs do not support a low-income consumer’s more immediate savings needs – like emergency savings. Unlike an industry-wide small-dollar savings account, IDA programs cannot yet serve lower-income populations at scale. The recommendations presented in this paper represent both a challenge and an opportunity to create a savings product that will meet the needs of target consumers across the country without over-burdening financial institutions. While further market research is needed to test the true impact these recommendations would have on account enrollment and participation, it is clear that consumer insight and preferences are key elements to designing a savings product for low-income consumers that is both effective and useful.
(Beyond Barriers: Designing Attractive Savings Accounts for Lower-Income Consumers page 10)
Cordes Fellowship Application Window Now Open
By Sean Luechtefeld on 11/30/2011 @ 12:30 PM
Opportunity Collaboration, the annual convening in Mexico which takes place each October, is now accepting applications for their Cordes Fellowships. Cordes Fellows are exceptional social entrepreneurs and nonprofit leaders engaged in poverty alleviation and economic justice enterprises.
According to Opportunity Collaboration’s website, “the purpose of the Cordes Fellowship program is to (a) open doors, minds and networks for emerging social entrepreneurs and nonprofit executives, (b) enrich the Opportunity Collaboration with new, emerging leaders, and (c) infuse the collaborative discussions with a diversity of perspectives.
Applications are being accepted now through January 31. To apply, visit the Opportunity Collaboration website.
NCER Work Ready Communities Orientation
By Lisa Buckley on 11/29/2011 @ 11:15 AM
North Carolina’s Eastern Region (NCER) hosted the state’s first Work Ready Communities orientation session on November 7, 2011. Over 100 workforce, economic development, and education representatives attended the orientation from all 13 counties in the region.
CFED partnered with NCER, the Eastern Carolina Workforce Development Board, and the North Carolina Community College System in 2011 to pilot this community-based workforce certification system. Georgia and Oklahoma established successful Work Ready programs in 2006, and CFED sought to tailor and launch an effective program in North Carolina with the help of regional partners. The Eastern Region is the ideal demonstration site because it is home to several community colleges that lead the state in their issuance of Career Readiness Certificates, a key part of the certification criteria.
The purpose of the demonstration project is to assess and award communities that meet Work Ready criteria, evaluate the standards proposed for certification, motivate broad county participation, introduce the Work Ready Initiative to employers, and capture the lessons learned at the regional level for potential application across the state. A county earns the designation ‘Work Ready Community’ by advancing its high school graduation rate, increasing the number of Career Readiness Certificates, and obtaining letters of support from key employers and county leaders.
The benefits of the Work Ready Community certification extend to employers, job seekers, and the community at large. For existing and potential employers, the Work Ready Communities certification signifies a talented and qualified applicant pool from which to choose employees. For employees, the program presents a way to improve individual marketability, and increase odds of placement in a job that fits his or her strengths. As multiple companies participate in the program, certified Work Ready Communities as a whole will experience less job turnover, better job-fit for employees, a lower unemployment rate, and a qualified workforce that will serve as a selling point for large industries and firms seeking relocation in their area.
Eastern Region counties are invited to apply to the program through December 15, 2011. More information is available at www.ncworkready.org. Support for the Work Ready Communities demonstration project was provided by the North Carolina Rural Center.
CFED’s Levere Featured on Bay Area Public Radio
By Sean Luechtefeld on 11/28/2011 @ 04:30 PM
This morning, CFED’s President Andrea Levere was a featured guest on “Forum with Michael Krasny” on KQED Public Radio in San Francisco. Andrea discussed topics from economic mobility to the racial wealth gap with Krasny and Erin Currier, Project Manager for Pew Research Center’s Economic Mobility Project. You can download the 51-minute recording of the “Forum” discussion here.
“Savings is critical, not just for the financial value, but also for the psychological value,” Levere said, describing the importance of giving low- and moderate-income people the tools they need to save. What’s important to note, Levere argues, is that it’s not just about having a job or having a savings account, especially when it comes to minority communities. “There’s not just one route” to financial security, but a “combination of routes” that are required, especially given the complicated financial landscape facing so many Americans.
During the discussion, Levere also discussed the importance of Children’s Savings in enhancing economic mobility. As Currier mentions in the “Forum” segment, the seeming lack of mobility doesn’t mean people are stuck where they are forever. For example, CFED finds that children who have savings accounts for college in their own name are seven times more likely to go to college than those students who do not. In other words, with the right tools, people can achieve upward mobility. The challenge, then, as Levere and Currier concur, is figuring out how to ensure those tools are made available.
A number of valuable resources were referenced during the “Forum” discussion, so we wanted to provide links to them here.
- CFED’s Upside Down: The $400 Billion Federal Asset-Building Budget
- CFED’s Household Financial Security Framework
- San Francisco’s Kindergarten-to-College (K2C) Initiative
- Bank On (an initiative dedicated to financial access)
- San Francisco Office of Financial Empowerment
If you’re looking for more information or resources you don’t see here, don’t hesitate to let us know by sending us an email.
New Book: The Innovation Master Plan Framework
By Sean Luechtefeld on 11/28/2011 @ 11:45 AM
Last month, innovation@cfed Strategic Advisor Langdon Morris released a new book titled The Innovation Master Plan Framework: The CEO’s Guide to Innovation. The book is available for purchase here, and we’re excited to congratulate Langdon on his newest work!
To give readers a preview of the book’s contents, Langdon sent us an excerpt from the introduction. Check it out below, and let us know your thoughts in the comments section!
Is there any doubt in your mind about the importance of innovation? Do you feel that innovation is vital to the future of your company? And perhaps to your own future as a business leader?
Since you’re reading this, it’s reasonable to assume that you do. And of course I agree with you.
If you’re thinking about innovation, then it’s likely that you’ve already discovered that the process of innovation is difficult to manage. It’s risky, expensive, and unpredictable.
This explains why Einstein supposedly said, “It’s called ‘research’ because we don’t know what we’re doing.” If we did know what we were doing we’d call it something else, like “engineering,” or “product design,” or “marketing.” And even when we think we do know what we’re doing, the results from the innovation process frequently fail to live up to our expectations.
Further, our innovation efforts must bring improvement not only to our products and services, but also the very processes we use to run the business. Louis Gerstner puts it this way: “In almost every industry, globalization is leading to overcapacity, which is leading to commoditization and/or price deflation. Success, therefore, will go to the fittest – not necessarily to the biggest. Innovation in process – how things get done in an enterprise – will be as important as innovation in the products a company sells.”
By Sean Luechtefeld on 11/23/2011 @ 12:00 PM
On behalf of all of my colleagues here at CFED, Happy Thanksgiving!
The Inclusive Economy will be on hiatus for the rest of the week as we celebrate the season with friends and family near and far. Check back daily next week as we return to our regularly-scheduled programming, including a forthcoming book review and highlights from next Thursday's Bank On webinar.
Stay safe, eat lots and enjoy one another!
Child Trust Funds and the Demise of the Asset Agenda
By Stephanie Halligan on 11/23/2011 @ 11:00 AM
In September 2002, the Labour party in the United Kingdom launched a ground-breaking initiative supporting asset building for families and children: Child Trust Funds (CTFs). Under this policy, every newborn child in the UK was entitled to a £250 savings voucher with the promise of another payout at age seven, and as of 2010, almost 5 million families had enrolled in a CTF.
From an asset-building perspective, CTFs represented the “holy grail” of public asset building policy: it meant that every child in the UK would have an asset beginning at birth. CTFs were a “rare” example of asset-based welfare policies. These accounts served as a model for the rest of the asset-building world as a policy designed and implemented by central government, offering opportunities for low-income and disadvantaged families to build assets for their children’s future. However in 2010, the Coalition government abolished this progressive program and eliminated one of the very few universal welfare policies supporting asset building for children.
In a new report titled "Asset Stripping: Child Trust Funds and the Demise of the Assets Agenda," our colleagues at the Institute for Public Policy and Research (IPPR) argue that a universal measure like CTFs could not survive without the support of a broader, governmental asset-building agenda and that this type of government policy requires wide and diverse support to withstand political change.
While we regret the decision by the coalition government in the UK to phase out this important investment in the future of children, CFED applauds the UK for its leadership in building assets for the next generation. This paper from IPPR highlights the need to engage policymakers from both sides of the isle in order to take positive steps to support asset-building legislation at the federal, state and local level.
For more information on CFED’s Asset Building for Children initiatives, please visit cfed.org/programs/abc.
Upcoming Event: Bank On Webinar
By Sean Luechtefeld on 11/22/2011 @ 10:30 AM
Earlier this month, a partnership between CFED, the National League of Cities, the San Francisco Office of Financial Empowerment and the New America Foundation launched a newly-redesigned JoinBankOn.org with support for the U.S. Department of the Treasury. The site contains a series of exciting features, including a new data tool that allows you to generate customizable reports of the unbanked population in your community.
Join us for a webinar that will take place on Thursday, December 1 from 3:00 – 4:30 pm EST. The purpose of the webinar is to provide background on the Bank On initiative, discuss highlights of the first-ever Scan of the Bank On Field, and offer a brief, hands-on tutorial for using some of the most exciting features of the new website.
Presenters for the December 1 webinar include:
- Laura Fischer (Associate for the Institute for Youth, Education & Families, National League of Cities)
- Sean Luechtefeld (Communications Associate, CFED)
- Genevieve Melford (Director of Research, CFED)
- Louisa Quittman (Director of Community Programs, U.S. Department of the Treasury)
- Leigh Phillips (Manager, Office of Financial Empowerment of the San Francisco Treasurer & Tax Collector)
The webinar is free to all interested participants, but advanced registration is required. To register for the webinar, click here. Also, in advance of the webinar, please visit JoinBankOn.org and test some of the site’s key features so any questions you have can be addressed during the interactive Q & A session.
New Research on Native American Entrepreneurship
By Lauren Stebbins on 11/21/2011 @ 12:45 PM
Last Thursday marked the official release of Native Entrepreneurship in South Dakota’s Nine Reservations, a research report that examines the small business development environment on South Dakota’s nine Indian reservations. The report provides a detailed overview of major barriers to private small business development in reservations communities, federal and South Dakota state government small business funding and technical assistance programs, and Native-specific small business funding and support resources on each reservation. The report also includes a wide range of recommendations for investing in Native small business development. Specific recommendations are outlined for federal government agencies, South Dakota state government agencies, Tribal governments, Native CDFIs, Native support organizations and commercial lenders.
CFED Vice President for External Relations and report co-author Kim Pate presented the findings last Thursday at the Native CDFI Network Gathering in Minneapolis, MN.
The report was funded by the Citi Foundation and commissioned by Four Bands Community Fund on behalf of the South Dakota Indian Business Alliance (SDIBA). Visit SDIBA’s website here to download the full report and report highlights.
Webinar recording and resources available online
By Ethan Geiling on 11/21/2011 @ 11:06 AM
On November 17, about 200 advocates, service providers, funders, financial institutions, academics and government agencies across the country joined us for a webinar on the new Assets & Opportunity Scorecard policy data and just-released guide, With a Stroke of a Pen: Two Dozen Low-cost, Politically Viable State Policy Ideas to Increase Financial Security and Opportunity in Tough Fiscal Times.
Three speakers presented and answered questions during the webinar: Jennifer Brooks (Director, State & Local Policy), LeElaine Comer (Senior Manager, State & Local Policy) and Kasey Wiedrich (Senior Program Manager, Applied Research).
You can access the powerpoint from the webinar and a recording of the webinar here.
Let's Talk Tax Policy
By Ethan Geiling on 11/18/2011 @ 10:00 AM
I’ve been really into state and local tax policy recently. I think it’s a phase we all go through at some point.
It’s a really interesting topic, especially in these tough budget times when state policymakers are making difficult decisions about how to balance budgets. A lot has happened with state Earned Income Tax Credits (EITC) over the past year. These policy changes were captured in our newly released Scorecard Resource Guide on Tax Credits for Working Families.
The biggest change happened in Connecticut, where after more than a decade of near-misses, the state successfully enacted an EITC at 30% of the federal credit. We wrote a great case study that tells the story behind this change. Unfortunately, a couple states went in the opposite direction: Michigan reduced its EITC from 20% to 6% and Wisconsin reduced its EITC for families with two or more children.
But state and local tax policy is about more than just the EITC (although it is a powerful credit that helps millions of families struggling with financial security every year). Almost every state’s overall tax system taxes low-income families far more heavily than wealthy families. A report by the Institute on Taxation and Economic Policy (ITEP) quantifies exactly how regressive states’ tax systems are.
In particular, the report points out the “terrible ten” most regressive states. In these states, the poorest residents pay a substantially higher portion of their income in taxes than the wealthiest residents. For example, in Washington State, the poorest 20% pay 17.3% of their income in taxes, while the wealthiest 1% pay only 2.9% of their income in taxes. In other words, the poorest pay almost six times more of their income in taxes than the wealthiest.
Source: Institute on Taxation and Economic Policy, 2009
So what makes the tax systems in these states so regressive? First, most of these states do not have an income tax (or if they do, it is a flat income tax rather than a tax with graduated rates). Second, these states have high sales and excise taxes, which disproportionately tax the lowest income residents. And finally, these states do not have strong targeted tax credits that benefit low-income families. For example, out of the “terrible ten” states above, only Illinois has a fully-funded EITC, and it’s a mere 5% of the federal credit.
And if we want to get into federal tax policy, we should start by talking about the “upside down” nature of federal expenditures aimed at encouraged savings and investment. A report by CFED and the Annie E. Casey Foundation found that, of the nearly $400 billion spent by the federal government in 2009, most funds went toward tax breaks. However, more than half of these breaks went to the wealthiest five percent of taxpayers, who averaged a net benefit of $95,000 each. On the other hand, less than 5% of the federal expenditures benefitted the Americans earning the least. The bottom 60% of taxpayers averaged just $5 each.
There are two main takeaways from all of this:
- First, talking about taxes is super interesting and something we should do all the time. This blog post barely scratched the surface of these issues. (We didn’t even get into how taxes affect aspiring entrepreneurs.)
- And second, the tax system is a powerful force that touches virtually everyone in the country. We should not underestimate the power of tax policy as a means to create economic opportunity for low- and moderate-income residents.
Super Saver CD Helps Low-Income Earners Save
By Chelsea Prescotti, Guest Contributor on 11/17/2011 @ 11:45 AM
Saving money for the future is never an easy thing for anyone, no matter what our educational or financial background is. As the field of behavioral economics has established, instant gratification over long-term planning is both ingrained psychologically and culturally in consumer societies. For low-income earners especially, who do not have the luxury of financial planners or even the basic means to substantially contribute to their financial future, saving is doubly difficult.
A Connecticut-based organization, Innovations for Poverty in Action, however, hopes to encourage low-income earners to save with a relatively new product launched this past summer. Called the Super Saver CD, it has enabled selected participants to put away money regularly like a typical CD, but its minimum deposit of $15 makes the savings product an affordable one. Another unique aspect of the Super Saver CD is that it can mature when a certain goal has been met, as long as participants have committed to saving for at least three months. For example, if an individual using the Super Saver CD is saving for the purpose of paying school tuition, she may withdraw funds once the school year begins.
The Super Saver CD developed by Innovations for Poverty in Action was modeled after a similar program in New York City, reports the Financial Security Project of Boston College. But, unlike the New York-based program, the Super Saver CD offered through a federal credit union in D.C., will also send some participants text message and email reminders. This part of the program is designed to address one of the core problems that obstructs savings behaviors—short attention spans. According to Boston College article, not all participants will receive reminders so that developers of the pilot program will be able to determine whether such reminders are affective in getting people to consistently deposit money.
Although the Innovation for Poverty in Action Super Saver CD has been implemented for several months now, it is still too soon to track its success. A Chicago Tribune article followed up on the project in September and reported that interest in the Super Saver CD has been “encouraging,” according to project coordinator Rebecca Rouse.
Innovations for Poverty Action was founded in 2002 by Dean Karlan, a professor of economics at Yale University. Interested specifically in behavioral economics, Karlan founded the organization in an attempt to, as noted on the IPA website, “design and evaluate programs in real contexts with real people, and provide hands-on assistance to bring successful programs to scale.”
Using randomized controlled trials as the basis of its methodology, IPA works on various development projects both globally and domestically, including projects that involve agriculture; charitable giving; education; health; microfinance and enterprise; governance and community participation; and water and sanitation.
Chelsea Prescotti is a consultant for www.creditscore.net. The Inclusive Economy thanks Chelsea for her thoughtful contribution!
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