By Sarah Schaefer on 05/20/2011 @ 11:30 AM

Tags: Entrepreneurship

Myth #5: Filing taxes comes at a great cost with little benefit to self-employed individuals

Yesterday, we examined how the tax code creates challenges for self-employed individuals. Although the tax code can be a barrier to startup business growth, we explained how it also offers a unique opportunity to reach new entrepreneurs and to use tax time as a learning opportunity. Most importantly, filing taxes helps entrepreneurs reach their full potential to grow their businesses, thereby creating jobs, generating wealth and contributing to economic vitality.

For example, an estimate 4 million small businesses are in the “informal” economy, preventing them from receiving assistance through capital and loans and making it difficult for them to expand their businesses. By filing taxes, businesses in the informal economy take their first step in joining the “formal” economy, which provides them with more business opportunities and a better chance of financial sustainability.

Additionally, by filing taxes, some self-employed entrepreneurs become eligible for tax credits and refunds, such as the Earned Income Tax Credit, which can give them extra money to save or to invest in their businesses.

By paying taxes, the self-employed also begin contributing to social safety net programs, such as Social Security and Medicare, which provides them greater long-term financial security.

Although it can be burdensome and complex, the tax code actually offers ways for entrepreneurs to become more financially stable and secure. In contrast, not paying taxes can lead entrepreneurs to fall into long-term debt from which they may never recover. This is why SETI’s strategy of offering free or low-tax preparation to entrepreneurs is so valuable: business owners who fail to pay taxes miss out on the opportunity for growth and financial stability.

This post concludes our National Small Business Week blog series, but we don’t want the conversation to end here! Use the comments section below to describe what other myths about entrepreneurship are out there, share your personal experiences with self-employment or post resources that you think might be helpful to the CFED learning community!

National Small Business Week, May 16-20, 2011, celebrates the contributions of small businesses to the economic well-being of America. CFED would like to thank our sponsor, Sam’s Club Giving Program for its commitment to help start and grow small businesses and for its support of the Self Employment Tax Initiative. To find out more about National Small Business Week, click here. To find out more about how Sam’s Club is helping small businesses, click here.

By Sarah Schaefer on 05/19/2011 @ 11:30 AM

Tags: Entrepreneurship

Myth #4: Lack of capital is the entrepreneur’s primary barrier to successful business development

Small business owners must overcome a number of challenges in their first few years. The complexity and high cost of paying taxes as a self-employed person is a major, and often overlooked, barrier to success for new entrepreneurs. New entrepreneurs who file their business taxes using a Schedule C may not be aware of what taxes they owe and when they owe them.

For example, the self-employed are required to estimate and pay their payroll taxes on a quarterly basis, which is especially tough for new business owners who may not be able to predict their how much profit they will earn; therefore, they do not know how much they will owe in taxes. Additionally, the self-employed are required to pay both the employer’s and the employee’s share of payroll taxes, which can be especially burdensome for new businesses that are not yet on stable financial footing.

To make matters worse, if the self-employed fail to pay these taxes on a quarterly basis, they may face expensive tax arrearages and late penalties.

Because their tax responsibilities are complex, many small business owners may seek assistance from a commercial tax preparer at a cost that CFED estimates to be between $300 to $500 per tax return. Not only is this a very high cost for many new businesses to pay, but it means that new business owners do not learn from the tax preparation process.

CFED’s Self-Employment Tax Initiative (SETI) views the complexity of the tax code as a learning opportunity: by providing free or low-cost tax preparation services for low-to-moderate income entrepreneurs, we can teach hundreds of business owners about their tax liabilities and the financial position of their businesses. Offering affordable, quality tax preparation services for low- and moderate-income sole proprietors can make the tax interface less intimidating, especially for first time filers.

Additionally, the “tax prep moment” provides a perfect opportunity to talk with business owners about how to overcome other challenges they face, such as limited access to capital and insufficient collateral to take out loans.

With the right help navigating the complex tax code, self-employed individuals can start and grow businesses that create long-term financial sustainability for them and their families.

Check back tomorrow for the final installment in our National Small Business Week blog series, where we explore the final myth of entrepreneurship.

National Small Business Week, May 16-20, 2011, celebrates the contributions of small businesses to the economic well-being of America. CFED would like to thank our sponsor, Sam’s Club Giving Program for its commitment to help start and grow small businesses and for its support of the Self Employment Tax Initiative. To find out more about National Small Business Week, click here. To find out more about how Sam’s Club is helping small businesses, click here.

By Sarah Schaefer on 05/18/2011 @ 11:30 AM

Tags: Entrepreneurship

Myth #3: Only those with financial means can start their own businesses

The term ‘entrepreneurship’ is often associated with wealthy venture capitalists who can easily secure their financial futures, yet many entrepreneurs are low- and moderate-income Americans. Indeed, self-employment has proven to be an effective income-earning strategy for some traditionally-disadvantaged groups, including immigrants and those living in rural communities.

Immigrant-owned businesses, for example, make substantial contributions to the economy, especially in particular sectors and geographic areas. Immigrants are 30% more likely to start a business than non-immigrants (Fairlie, 2008), and these business owners generate nearly one quarter of all business income in places such as New York, New Jersey and Florida. Likewise, data from the Center for Rural Entrepreneurship shows that rates of self-employment are higher in rural areas than in urban areas.

In other words, some of the same groups that are most vulnerable to poverty are the ones who are likely to turn to entrepreneurship. As we discussed in yesterday’s post, this is especially true during times of economic downturn when low job availability means many people have no other choice than self-employment. Some research finds that entrepreneurship can generate higher earnings for some low- and moderate-income individuals, compared to what they would earn in traditional wage-earning employment. In addition to opening the door to upward economic mobility, entrepreneurs in low-income areas contribute to community revitalization by strengthening the local economy.

Trivia question of the day: Besides immigrants and those living in rural communities, which population is increasingly (and successfully) turning to self-employment as a means of securing their financial future? Use the comments section below to share your guess.

National Small Business Week, May 16-20, 2011, celebrates the contributions of small businesses to the economic well-being of America. CFED would like to thank our sponsor, Sam’s Club Giving Program for its commitment to help start and grow small businesses and for its support of the Self Employment Tax Initiative. To find out more about National Small Business Week, click here. To find out more about how Sam’s Club is helping small businesses, click here.

Posted on 05/18/2011 @ 11:15 AM

Tags: Federal Policy, Financial Empowerment, Economic Inclusion

Recruit original cosponsors for Supplemental Security Income asset limit reform!

Congressman Tom Petri (R-WI) and Congresswoman Niki Tsongas (D-MA) plan to reintroduce a bill that would reform the asset limit test of the Supplemental Security Income (SSI) program by the end of May.

ASK your legislators to become original cosponsors of the SSI Savers' Act. The legislation would reduce the disincentive to open bank accounts, save and work for people with disabilities.

Click here to TAKE ACTION and send a message to your legislators urging them to support SSI asset limit reform. Follow-up with a call. The Switchboard's number is 202.224.3121. The operator can connect you to your legislator's office.

Background

In general, eligibility for SSI is limited to those who have no more than $2,000 in assets for an individual and $3,000 for a couple. The SSI test also generally counts all resources deemed accessible to an individual, including defined-contribution retirement accounts, such as 401(k)s and IRAs, as subject to the asset limit. These outdated rules pose as a serious obstacle to becoming financial self-reliant.

Beneficiaries of SSI are allowed little in savings to fall back on. This rule leaves them vulnerable to predatory lenders and deeper poverty, and requires them to ultimately rely on greater government assistance.

The SSI Savers Act of 2011 proposes the following:

• Increase asset limits from $2,000 (single) and $3,000 (married) to $5,000 and $7,500 respectively, and indexes those limits to inflation.
• For recipients younger than 65, the bill excludes retirement accounts, education savings, and individual development accounts from counting against the limit.
• For recipients 65 and older, it allows retirement accounts up to $50,000 (single) / $75,000 (married) to reduce SSI benefits accordingly instead of creating an immediate cut off.

The bill is similar to HR 4937 introduced last session by Representatives Petri and Tsongas.

By Sean Luechtefeld on 05/17/2011 @ 01:45 PM

Tags: Events, Innovation, Innovators

CFED and the San Francisco Office of Financial Empowerment are excited to announce a webinar titled Financial Empowerment through Employer Engagement: Opportunities, Challenges and Next Steps, to take place Wednesday, June 15 from 3 – 4:30 pm EDT. The webinar will feature the findings of research highlighted in a new report, Financial Empowerment through Employer Engagement: Migrating a City to a Paperless Payday, and the discussion will include the authors of this report along with other experts working to bring paperless payday efforts to fruition.

Leigh Phillips, Manager, San Francisco Office of Financial Empowerment and Eugénie FitzGerald, project consultant for the Office of Financial Empowerment, authored the report, which describes original research with businesses and employees designed to understand the impact of direct deposit and electronic pay on businesses and low-income employees throughout San Francisco. FitzGerald and San Francisco Treasurer José Cisneros were among the inaugural class of CFED Innovators-in-Residence, a role designed for creative individuals to bring their concepts to application and scale with assistance from CFED.

Ida Rademacher, CFED’s Vice President for Policy and Research, will introduce and moderate the webinar. Also presenting will be Cathy Beyda, Attorney and Chairperson of the American Payroll Association’s Government Affairs Task Force on Payroll Cards and the Association’s Paycard User Group.

Sign up now for the webinar, which will provide insight into research with businesses and employees about the benefits of and challenges from direct deposit and electronic pay, as well as the implications for future action by city leaders, businesses, state policymakers, advocates and others interested in building assets and financial security for low- and moderate-income individuals.

By Sarah Schaefer on 05/17/2011 @ 11:30 AM

Tags: Entrepreneurship

Today is the second installment in a series of posts about entrepreneurship in recognition of National Small Business Week. Click here to read and leave comments on yesterday’s post about startups and job creation.

Myth #2: Few people start their own business during recessionary periods

There’s no doubt that starting a small business has risks – as anyone who has created their own enterprise can tell you, self-employed people always face a number of challenges. As a result, you would think that few people start their own business during a recession. However, in 2009, the self-employment rate actually increased to its highest point in 14 years. Although the self-employment rate decreased slightly in the last three quarters of 2010, this may indicate that self-employment and startup businesses are actually more resilient to economic downturn than traditional wage-earner jobs, and can be viewed as a shock absorber during periods of high unemployment.

To be sure, the number of startup businesses decreased in the most recent recession. However, between 2007 and 2009, the number of self-employed declined by about 760,000 (Hipple, 2010) while the economy as a whole lost an estimated 8.1 million jobs.

Furthermore, times of economic recession may actually encourage entrepreneurship. When unemployment levels rise, newly laid off individuals may turn to self-employment because they have no other alternative. This group of “necessity” entrepreneurs is demographically diverse – African-Americans and older individuals were well represented among them.

Has the recent economic downturn led you to try your hand at entrepreneurship? Share your story below and be sure to check the blog tomorrow for our next myth about self-employment!

National Small Business Week, May 16-20, 2011, celebrates the contributions of small businesses to the economic well-being of America. CFED would like to thank our sponsor, Sam’s Club Giving Program for its commitment to help start and grow small businesses and for its support of the Self Employment Tax Initiative. To find out more about National Small Business Week, click here. To find out more about how Sam’s Club is helping small businesses, click here.

By Sean Luechtefeld on 05/16/2011 @ 03:15 PM

Tags: Entrepreneurship

Today marks the beginning of National Small Business Week. To highlight the importance of entrepreneurship as an asset-building strategy, we’ll be discussing and debunking one myth about small businesses and self-employment each day this week. Check back daily to learn more about how small businesses create financial sustainability for millions of Americans across the country.

Myth #1: Startup businesses make an insignificant contribution to job creation

A common misconception is that new, or “startup,” businesses don’t create many jobs. In fact, startup businesses create millions of jobs every year and are vital to economic growth. Many people pursue entrepreneurship as an alternative to traditional wage-earning jobs, especially when employment opportunities are limited, as in a recession.

According to recent research by the Kauffman Foundation, three million jobs are created annually by startups, without which there would have been no net job creation. Tim Kane of The Kauffman Foundation notes that “startups [less than a year old] aren’t everything when it comes to job growth; they’re the only thing.”

Other research finds that startups are responsible for one-third of annual job creation, a number that far exceeds traditional conceptions of just what small business startups are capable of. Even businesses that don’t have many employees still create jobs for the entrepreneurs who create the vision for the business in the first place.

Check back tomorrow as we discuss how small businesses are more resilient to financial recession, and be sure to use the comments section below to share your thoughts on entrepreneurship.

National Small Business Week, May 16-20, 2011, celebrates the contributions of small businesses to the economic well-being of America. CFED would like to thank our sponsor, Sam’s Club Giving Program, for its commitment to help start and grow small businesses and for its support of the Self Employment Tax Initiative. To find out more about National Small Business Week, click here. To find out more about how Sam’s Club is helping small businesses, click here.

By Sean Luechtefeld on 05/13/2011 @ 09:00 AM

Tags: Entrepreneurship, Events

Next week is National Small Business Week! The event, sponsored by the U.S. Small Business Administration, recognizes the top entrepreneurs in the country each year. This year’s dates are May 16-20.

To commemorate the event and bring more visibility to issues surrounding entrepreneurship and self-employment, we’ll be featuring a blog series about the top five myths of entrepreneurship. A number of misconceptions surrounding entrepreneurship exist, and we’re excited to share some resources to educate people about how self-employment can be a viable strategy for low-income individuals to build wealth and secure their financial futures.

So, each day we’ll feature a different post, and we hope you’ll get involved in the conversation. Check back on Monday for our first myth!

By Sean Luechtefeld on 05/12/2011 @ 11:30 AM

Tags: Events

The National Community Tax Coalition (NCTC) will be hosting its 8th National Conference June 7-9 in Chicago, IL! The Conference, titled Mapping the Future, is the year’s premiere conference for the community tax preparation and asset building field.

We realize “mapping the future” is a lofty goal, but we’re not alone. We have secured several high-profile keynote speakers and panelists to help guide us.

• Dr. Robert (Bob) Giloth is Vice President, Center for Family Economic Success at the Annie E. Casey Foundation, and will be kicking things off with his keynote speech on Day 1.
• Gary Rivlin is a journalist and author of BROKE USA: From Pawnshops to Poverty, Inc. – How the Working Poor Became Big Business and will discuss his experiences with predatory practices in low-income communities.
• Dr. Avis Jones-DeWeever is Executive Director at the National Council of Negro Women and will be discussing societal challenges for low-income families later on Day 2.

As always, the Conference remains the best place to get the practical knowledge you need to take your organization to the next level. With these experts and our amazing network of workshop presenters, you are guaranteed to walk away better equipped to serve your clients!

Learn more and register at the Mapping the Future website!

By Sean Luechtefeld on 05/10/2011 @ 12:15 PM

Tags: Events

Connecting Children’s Savings, Financial Access, and Financial Education to the Federal GEAR UP Program: Forming and Funding Partnerships

Wednesday, May 18, 4 – 5 pm Eastern Daylight Time

Register for this online event at https://www.livemeeting.com/lrs/8002458282/Registration.aspx?PageName=hxszl7zwdsmt4kj3

Join a free webinar co-hosted by CFED and the New America Foundation, in partnership with the U.S. Department of Education and the National Council for Community and Education Partnerships, to learn about ways to incorporate financial education, financial access, savings accounts, and other savings activities into FY ’11 GEAR UP applications, as well as forge partnerships that link the asset-building field with those who are creating efforts to increase educational attainment for low-income students. GEAR UP is a $300 million grant program designed to increase the number of low-income students who are prepared to enter and succeed in postsecondary education, and this year, GEAR UP applicants are being encouraged to include such strategies in their proposals.

Webinar panelists will highlight research, policies, and practices related to asset building and educational attainment. Topics will include:

• What is the impact of savings and financial literacy efforts on educational attainment?
• What asset-building policies could most facilitate the creation and expansion of college savings, financial access, and financial education programs?
• How can financial education, financial access, and savings programs be integrated into schools and communities?
• What kinds of GEAR UP partnerships could be created between state, local, nonprofit and financial institutions, and how could those partnerships be facilitated?
• What other informational and programmatic resources are available to GEAR UP applicants?

Event Presenters:

• Mark Huelsman – Policy Analyst, College Savings Initiative and Asset Building Program, New America Foundation
• Leigh Tivol – Director, Savings and Financial Security, CFED

Welcoming Remarks

• Phil Martin – Assistant for Financial Education and Student Aid, U.S. Department of Education

By Sean Luechtefeld on 05/09/2011 @ 12:00 PM

Tags: Recommended Reading

This morning, I came across an article from Nonprofit Quarterly about the role social media is playing in the nonprofit sector. Exactly a year ago tomorrow (purely coincidental timing), I blogged about this topic – as someone who does communications work for an organization like CFED, I’m constantly seeing new ways to think about how to make what we do relevant.

In last year’s post, I explored what was right about social media and how it was a blessing to nonprofits. At that point, we were even excited to have earned our 400th follower on Facebook! And, while I would still contend that social media has changed in a positive manner the way nonprofits do business, the article I read today paints somewhat of a shadier picture.

So, start by reading the Nonprofit Quarterly article here.

This thoughtful piece points to an interesting phenomenon – when organizations have disputes, social media quickly turns them into public relations gaffes by giving them more visibility. For example, when the Detroit Symphony Orchestra musicians tried to negotiate a smaller pay cut with their employer who was seeking to balance the budget, the entire dispute played out online. While Facebook was responsible for allowing the DSO to connect with potential donors in a way that would have otherwise been impossible, so too was it to blame for making obvious to those donors the problems facing the organization internally.

What, then, do we make of social media? Was my argument last year about the ability to connect with audiences too glass-half-full? Or does the Nonprofit Quarterly article point to a problem unique to those organizations who mismanage their social media resources?

Ultimately, I think both observations are correct, and it really comes down to accountability. Social media forces organizations – nonprofit or otherwise – to be accountable. So, whether you’re being praised for the good you do or blamed for the bad, sites like Facebook and Twitter ultimately mean for better or worse, organizations are forced to be accountable.

By Sean Luechtefeld on 05/06/2011 @ 10:00 AM

Tags: Events

On May 23 & 24, the third annual Microfinance USA Conference will be held in New York City. CFED is proud to announce that Vice President for Policy & Research Ida Rademacher and Director of Research Genevieve Melford will both be presenting at this years gathering of the microfinance field!

Ida’s first session, Achieving Household Financial Security: The Critical Role CDFIs are Playing, will explore the many factors necessary for a household to achieve financial security. From gaining skills to increasing income, and from leveraging savings to protecting financial gains, Community Development Financial Institutions are playing a key role. This panel will explore that role, starting with CFED’s new Household Financial Security framework.

Ida will also be presenting on a panel called Cities for Financial Empowerment. Participants in this panel will learn about the range of creative value-added roles municipal governments can play in educating, empowering and protecting residents within the financial marketplace. This panel will also include our close friend Leigh Phillips of the City and County of San Francisco Office of the Treasurer and Cathy Mahon of the New York City Department of Consumer Affairs.

Finally, Gen’s panel is titled Lasting Access: How Pioneering Institutions are Making a Business Case for Serving the Unbanked. While we all know that many financial institutions and nonprofit practitioners are exploring creative ways to bank the un(der)banked, it is unclear whether these strategies will last beyond a few political or business cycles. This panel will explore a few of the creative approaches out there that practitioners are taking to create a lasting solution for un(der)banked Americans.

We hope you’ll be able to attend Microfinance USA 2011. To register for the event or for more information, visit the Microfinance USA website today!

By Katherine Lucas McKay on 05/05/2011 @ 03:45 PM

Tags: Federal Policy, Global Economy, Recommended Reading

Recently, a paper coauthored by CFED Federal Policy Analyst Katherine Lucas-Smith was published in the Suffolk University Law Review. Katherine and coauthor James. H. Carr of the National Community Reinvestment Coalition wrote “Five Realities about the Current Financial and Economic Crises” as a companion to Mr. Carr’s keynote address at an April 2010 symposium on consumer financial protection at Suffolk University Law School.

“Five Realities about the Current Financial and Economic Crises” addresses the root causes of the Great Recession, how low-income and minority populations have been effected relative to the nation as a whole, critiques federal policy responses, and offers policy recommendations to address the specific needs of the hardest-hit communities. The full article, as well as the complete contents of the current issue of the Suffolk University Law Review, is available online. The following is a brief summary of the article.

The financial crisis and resulting economic contraction were predictable and avoidable, but policy responses in the decade leading up to the start of the recession were inadequate. Consumer advocates and affordable housing experts documented predatory and misleading practices in the subprime home mortgage market over more than ten years, but their concerns were dismissed by the federal regulatory agencies responsible for protecting the financial wellbeing of the American public. A critical lesson of the Great Recession is that stronger regulatory oversight of consumer financial markets and products should be a long-term characteristic of the financial regulatory regime.

Policymakers’ inaction in the years leading up to the financial crisis enabled the damage to concentrate disproportionately in communities of color. Poorly regulated and irresponsible subprime lending concentrated in communities of color and resulted in disproportionately higher foreclosures rates in those areas. The foreclosure crisis has hit African Americans especially hard: black homeownership has declined three percentage points since the rate peaked in 2004. The disproportionate levels of foreclosure are likely adding to the racial wealth gap because the share of total wealth held in a household’s primary residence is almost double for people of color than for non-Hispanic whites.

The primary federal response to the foreclosure crisis, the Home Affordable Modification Program (HAMP), was ineffective. It was able to avert only a small handful of the millions of foreclosures that have taken place in recent years. Since HAMP was launched in April 2009, fewer than 600,000 permanent mortgage modifications have been made, far short of the administration’s initial goal of three to four million. HAMP suffers from a variety of challenges, including inadequate program design, poor implementation, and failure to keep pace with changing market conditions. The limited success of the program is apparent in its low spending: only $58 million of the program’s $75 billion budget (less than one percent) was spent in its first year.

The foreclosure crisis is still ongoing. As long as unemployment remains elevated and the housing market sluggish, more families will get behind on mortgage payments. Throughout 2009, more than 300,000 homes entered foreclosure each month. The pace eased slightly in 2010, though a record number of homes were repossessed by lenders last year. At the end of the first quarter of 2011, the rate of new foreclosures is decreasing—the Mortgage Bankers Association reported that just over 8 percent of all mortgages were delinquent or in foreclosure, as compared to fully 10 percent a year before—but most of these loans are unlikely to recover. Foreclosure will continue to be a drag on economic recovery for years to come.

“Five Realities about the Current Financial and Economic Crises” details a three-pronged policy approach to prevent foreclosures, provide a sense of certainty about the future of regulation to financial firms, and begin to replace jobs and revitalize communities.

First, there are low-cost alternatives to stem the foreclosure crisis and mitigate the damage from unavoidable and strategic defaults. One option is to require pre-foreclosure mediation and conciliation between servicers and borrowers. Under such a policy, states could implement procedures tailored to fit their needs. Servicers would be required to meet face-to-face with borrowers to discuss loan modification options prior to proceeding to foreclosure. Borrowers should be guaranteed access to legal representation and/or representation of a HUD-certified homeownership counselor. Such a program could be modeled after Philadelphia’s successful Residential Mortgage Foreclosure Diversion Program. The Philadelphia program has enabled approximately one third of those who participated in conciliation conferences with pro-bono attorneys and servicers to modify or refinance their loans and avert foreclosure. Another option is to reform the bankruptcy code to better protect homeowners. This includes fully exempting primary residences. Bankruptcy judges would structure mortgage modifications based on borrowers’ income, the properties’ current value, and lenders’ interests.

Second, the new Consumer Financial Protection Bureau (CFPB) should be structured in a manner that maximizes its capacity to ensure the safety and soundness of consumer financial products. CFPB should have comprehensive jurisdiction over all consumer protection laws and authority over all institutions that extend credit to consumers. The new agency should act swiftly to allow states to enact and enforce existing consumer protection laws that are stricter than the federal floor established in the Dodd-Frank financial reform law. CFPB was carefully designed to have robust rulemaking and enforcement authority over consumer financial protection laws, independent decision making capacity and reliable and diverse streams of funding. It is critical that Congress protect these characteristics as CFPB transitions from the implementation stage to full operations.

Third, job creation strategies should be linked to efforts to rebuild the hardest-hit communities. In some communities, home values have dropped 50%, foreclosure rates are above 15%, and unemployment remains in the double digits. Residents’ credit scores have plummeted, their capacity to be reemployed is diminished, and they have spent any savings they had accumulated before the recession. Efforts to support these communities should focus on housing, employment and community infrastructure. Homeowner assistance programs can help some new buyers, and redeployment of foreclosed and abandoned properties will help stabilize values. Intermediary steps are needed, however, to bridge the gap between renting and owning for low-wealth households and those with impaired credit scores. Lease-to-purchase and shared equity homeownership are promising approaches. Supporting small businesses and new entrepreneurs is also crucial for job creation, economic development, and community reinvestment. Job training programs should integrate entrepreneurship training into their curricula. Finally, federal funding for infrastructure investment should prioritize these hardest-hit, disadvantaged urban and rural communities. Improving public transportation, upgrading communications systems, renovating and building schools and community facilities, and other investments to improve basic livability in impoverished neighborhoods will create efficiencies in local economies, produce jobs, and provide targeted training opportunities.

These strategies offer a path forward for an economic recovery that continues to struggle to take hold. Over the course of the recession, the United States shed approximately 8 million jobs; since the economy began to grow again, it has added only 1.6 million. New policy responses such as those detailed in “Five Realities about the Current Financial and Economic Crises “ are necessary to spark additional job growth and help struggling communities recover from the damage they have suffered.

By Steve Crawford, Senior Fellow on 05/05/2011 @ 03:15 PM

Tags: Entrepreneurship, Recommended Reading

This post examines a long-simmering tension within the entrepreneurship advocacy community – a tension between those who focus on entrepreneurs with high-growth potential (“gazelles”) and those who emphasize entrepreneurship as a path out of poverty. On one side are such influential organizations as the Kauffman Foundation, the Council on Competiveness, and increasingly, the U.S. Department of Commerce. On the other side are broad segments of the poverty-reduction community, especially its asset-building wing.

Those who favor targeting future gazelles note that while virtually all net job growth is attributable to firms less than five years old, only a tiny fraction of those firms create most of the new jobs. A major new World Economic Forum study, Global Entrepreneurship and the Successful Growth Strategies of Early-Stage Companies, finds that “the top 1% of all companies...contributes 44 % (40%) of total sector revenue (job) creation.” The general argument is that the founders of high-growth firms are more innovative and ambitious than most small-business owners and succeed by commercializing new technologies. Therefore, public policy should focus on identifying and assisting such high-potential startups.

This view is enjoying increasing favor among policymakers. At the federal level, President Obama’s Startup America is specifically designed “to celebrate, inspire, and accelerate high-growth entrepreneurship” (emphasis added). Many states, well-tracked by SSTI, support VC funds aimed at facilitating the growth of early-stage firms. Even regions are getting into the act, a good example being the Minneapolis Saint-Paul region’s Entrepreneurship Accelerator. In the words of a recent Brookings report, its mission is “to provide the financial resources and expert entrepreneurial assistance needed to transform high-potential opportunities into high-value startups capable of attracting angel or venture capital.”

The poverty-reduction community worries that such a focus on gazelles obscures the contributions of other entrepreneurs and draws resources from them. It claims that self-employment itself is job creation, and emphasizes the productive potential of those who lack opportunities to achieve it. It favors public policies that support individual development accounts, micro-enterprise programs, and entrepreneurship training for anyone trying to start a business. It likes the federal Self-Employment Assistance program and Self-Employment Tax Initiative, about which more in future postings. It is less enthusiastic about programs that target high-growth entrepreneurs – individuals who are usually well educated and middle-class.

It bristles in particular at the writings of Case Western University economist Scott Shane, the award-winning author of The Illusions of Entrepreneurship (Yale U. Press, 2008) and “Why encouraging more people to become entrepreneurs is bad public policy” (Small Business Economics). Shane argues that the typical start-up is less productive than existing firms and that their owners work longer hours, earn less, and face higher insecurity than those with similar levels of human capital who work for someone else. He is particularly critical of policies that promote self-employment by the unemployed and those with low levels of human capital, arguing that they are less likely than others to succeed.

Shane makes important points, but assumes that the self-employed can find jobs. He also overlooks the value of the skills learned while trying to launch a business of one’s own, the value of having and pursuing a goal when down on one’s luck, and the impact on one’s children of role-modeling work and initiative. Finally, while he makes a good point about the tendency of typical entrepreneurs to start businesses in unpromising industries, he does not consider the possibility that entrepreneurship programs can steer clients accordingly. In fact, he does not examine the outcomes, as far as I know, of microenterprise programs, such as the fairly positive ones reported by FIELD’s MicroTest project.

On the other hand, the market is precisely what the poverty-reduction folks too often fail to consider. That is, in helping one client start a pizza parlor, child-care service or landscaping business, they tend to downplay the difficulties of succeeding in such competitive markets. Equally serious, they ignore the risk of their clients’ success reducing the incomes of unseen other providers who are also struggling to survive.

One key to market expansion – and thus prospects for normal start-ups --is the kind of innovation-based entrepreneurship (and “intrepreneurship”) that enhances a region’s competitiveness. This is all the more true in a global economy where other regions are also innovating rapidly, thus threatening even the existing markets for any one region’s tradable services and products. A new report on innovative entrepreneurship in Maine points out that while the number of technology start-ups is high, their subsequent growth rate is not because they don’t focus on markets that are growing, which lie far beyond Maine’s borders. In short, those concerned about poverty-reduction should support targeted investments in high-growth entrepreneurship.

At the same time, the advocates for high-growth entrepreneurship should do more to promote entrepreneurship broadly. The reason is not that it represents an efficient way to grow the economy and create jobs. Rather, it is that “done right,” promoting self-employment expands opportunity for those left behind by an innovative economy’s “creative destruction,” and thus serves the goal of shared prosperity. It also broadens the pool of entrepreneurs in a world where there is no magic formula for pre-identifying gazelles. As Graham Toft has shown, the growth of young firms is often quite uneven. And the ambitions of entrepreneurs themselves often change, with today’s life-style or survival-oriented entrepreneur discovering new possibilities and new interest in exploiting them.

The tension between advocates of high-potential and broad-based entrepreneurship echoes the debate between the advocates and critics of international development aid. In their new book, More than Good Intentions, Dean Karlan and Jacob Appel make the good point that sometimes aid works, sometimes it doesn’t, that the key questions are which kinds and when, and that answering those questions requires rigorous evaluations and the application of behavioral economics. Similarly, the advocates of high-growth and broad-based entrepreneurship should show more respect for each other, more skepticism about the claims of their own champions, and more commitment to the empirical evaluation of specific policies and programs.

By Sean Luechtefeld on 05/04/2011 @ 11:45 AM

EDITOR'S NOTE: We received an email announcing One Away, a new campaign of the National Council on Aging, and thought it might be a useful tool to our followers. Please direct all inquiries via email to See3 Communications.

See How Video Storytelling Helps Win Economic Security for Seniors

Over 13 million elderly and aging Americans are now living in (or on the edge of) poverty. That's not just a lot of zeroes. That's a lot of stories. 13 million human stories of living in uncertainty, making painful sacrifices, choosing between food or medicine, and struggling to live with dignity.

Our clients at the National Council on Aging (NCOA) recently launched the One Away campaign because they saw the growing need to raise awareness and advocacy on this issue and they understood that each of these elder Americans, living one mishap away from poverty, has a story to tell. NCOA also recognized that powerful stories didn't always need hours of scripting, state-of-the-art equipment, or huge professional production teams— they need authenticity. What NCOA wanted was a way to arm their affiliates in the field to help elderly constituents to tell their own stories using video. This is where See3 had the privilege of helping by bringing our skills in organization training to into the mix.

See3's team has been doing quite a bit of training lately and this time we built NCOA's advocacy partners capacity to capture the stories and create video content that showed the world the issue at stake. We led 3, 3-day "bootcamp" style workshops on how to talk about their issue using video, best practices for audio, how to stage and how to make an advocacy video from start to finish and have one more session to go! We also consulted with NCOA on video messaging. Armed with clear direction and skills, the partners went out and captured the stories of elderly folks like Andre in Illinois. Finally we gathered the footage from the partners and edited the first of three videos that NCOA is promoting to a national audience through the “One Away” campaign.

As an agency, we love working on campaigns that tell the stories of the people behind the issues. But maybe more importantly, we know that every organization has to learn to tell these stories themselves. If your organization is interested in building capacity and training staff, program participants or advocates in the field contact us. We'd love to teach you how to “fish.”

Speaking of video - if you haven't signed up the Daily DoGooder (shame on you, it's free!) you can do that right here right now.

In case you haven't heard, the Daily DoGooder is a free service designed to help nonprofit leaders (and people who just like good videos) see what nonprofits are doing with online video. By signing up you'll get just one video, reviewed by our curators, sent your inbox each day. There's a lot out there. Let us send you the very best.

Interested in Learning More? Check us out and we’ll get started. Email us or call 773-784-7333 to speak with a member of the See3 team.

By Sean Luechtefeld on 05/03/2011 @ 03:30 PM

Tags: Economic Inclusion, Federal Policy

NOTE: The following article appeared on Huffington Post's Business page, linked here. Special thanks to Preeti Vissa for covering CFED's Updisde Down report and the counterproductive nature of the US federal asset-building budget.

A while back I wrote about asset poverty and how asset-building, not just income, is critical to achieving financial stability. The good news is that the federal government has a number of programs aimed at helping individuals and families build assets such as retirement savings or owning a home. The bad news is that this assistance is heavily skewed toward those who are already well-off, with very little help available to those who need it most.

The Annie E. Casey Foundation and the Corporation for Enterprise Development laid all this out in depressing detail in a report issued last year that should have gotten more attention than it did. The report explains that most of this asset-building assistance doesn't come in the form of government checks or loans, but rather as income tax breaks -- deductions for mortgage interest, for example, or tax-deferred contributions to a retirement account. This means that the poor, who pay relatively little in income taxes, get next to nothing from these breaks. And even those of moderate income, who typically still don't itemize deductions, get very little:

"A typical middle-class household making $50,000 a year receives less than $500 in benefits from the most expansive of these federal policies annually; families making $100,000 get about $2,000. By contrast, taxpayers bringing in more than $1 million enjoy $95,820 in annual support through mortgage and property tax deductions and investment tax breaks."

The millionaires, in other words, get a 9.5 percent break, while those making $50,000 get only one percent.

"Expressed differently," the report notes, "more than half of the $400 billion in benefits go to the top 5 percent of taxpayers, those earning more than $167,000. Meanwhile, low-income families get next to nothing."

The mortgage interest deduction, for example, skews overwhelmingly toward higher-income taxpayers with large, expensive homes. Those of modest means trying to buy a more basic dwelling often find that this deduction doesn't change their tax liability at all.

And while the tax code is larded with breaks for big corporations, there is precious little aid for what are called "micro-entrepreneurs" -- individuals with businesses that have five or fewer workers and involve under $35,000 in startup capital. Yet owning a small business is a proven way to build wealth and financial stability: Households with a business owner have more than double the likelihood of having an annual income exceeding $50,000 than those without a business owner.

And at the very low end of the income scale, many federal programs actually punish attempts to save by cutting off benefits for those with even a small amount of assets.

There are ways to fix this. Programs based on refundable tax credits rather than deductions are more likely to give meaningful help to low-income families. Caps on the value of homes or other deductible assets (particularly for second homes) would help level the playing field. And asset limits that bar those on government assistance from saving and building even minimal financial security need to be rethought.

Many politicians get indignant when you talk about "income redistribution." But right now, we have lots of policies that redistribute income upward, and it's time for that to change.

By Sean Luechtefeld on 05/02/2011 @ 11:00 AM

Tags: Financial Empowerment, Recommended Reading

Longtime friend of CFED Mariko Lin Chang forwarded us the link to a recent op-ed that she has published on the Ms. Magazine blog. The post discusses the top four myths about the wage gap and the challenges women face as a result of unequal wages.

To read Mariko’s editorial, click here.

This year, Equal Pay Day was on April 12, marking how far into 2011 the average woman would have to work to earn the same wages the average man earned in 2010. That’s right: women must work 467 days out of the year in order to earn wages equal to those of men.

While data seems to suggest that the wage gap is getting smaller, it is by no means a thing of the past. So, what can we do? Leave your thoughts or share resources in the comments section below.

By Anne Li on 05/02/2011 @ 10:00 AM

Tags: Children's Savings Accounts, Economic Inclusion, Financial Empowerment, Innovation

We want to congratulate Margaret Libby, executive director of Mission San Francisco Community Financial Center, recipient of two national awards. The Dora Maxwell award for social impact and a Desjardin award for innovation and leadership in youth financial education were recently presented to Mission SF for PLAY and Make Your (MY) Path.

PLAY and Make Your (MY) Path are both designed to build savings, savings habits and shift child and youth aspirations – ultimately to support children and youth to uncover and achieve their full potential. Margaret has shared this link to a four-minute ABC News video that features young PLAY savers and their parents talking about why they save. Children learning from their peers, and the littlest savers called “Big Dreamers” are two great reasons to watch.

Mission SF Community Financial Center is the non-profit affiliate of Mission SF Federal Credit Union. The Center’s aim is to expand economic opportunity and access to financial services by:

• Raising awareness of affordable, quality financial services as an alternative to high-cost financial providers
• Providing education about financial planning and management
• Increasing income and earning power of low-wealth individuals and business owners
• Improving community financial services, resources and opportunities through partnerships and education

In some more exciting news, effective April 8, 2011, Mission SF Federal Credit Union became a division of Self-Help Federal Credit Union. Self-Help Federal Credit Union is part of the non-profit Center for Community Self-Help family of organizations founded in North Carolina in 1980. Since 2008, Self-Help Federal Credit Union has been building a network of branches throughout California serving the state’s working class families.

By Sean Luechtefeld on 04/28/2011 @ 04:00 PM

Tags: Federal Policy, Policy Alerts

ASK your legislator to include key investments in the 2012 budget. Click here to take action!

If you want to see federal programs such as Assets for Independence, SBA Microloan and Rural Development housing loans and grants funded in 2012, you need to ask your Representative to voice support for those programs in a letter submitted to the Appropriations Committee.

For Fiscal Year 2012, legislators must submit letters to the Chairmen of each of the Appropriations Subcommittees noting which programs they wish to see funded and at what levels.

Members of Congress must submit their letters detailing program funding requests for Fiscal Year 2012 soon. Some subcommittees have established May 13 as the deadline, though deadlines have not yet been issued for all subcommittees.

ASK your representative to submit a letter in support of asset programs such as IDA programs, rural housing programs and microenterprise by clicking the "Take Action" button below.

By Ethan Geiling on 04/28/2011 @ 03:30 PM

Tags: EITC, Financial Empowerment, Local Policy

“Umm…how old are you? Are you sure you know how to do taxes?” After taking one look at me, one of my first VITA clients was quite skeptical of my ability to prepare her taxes. I suppose her doubt wasn’t completely unfounded. I’m 22 and probably don’t look like someone who knows anything about taxes.

Over the past four months, I volunteered as a tax preparer for the DC EITC Campaign. Every Saturday afternoon I trekked over to Adams Morgan for my weekly four-and-a-half hour shift at the Jubilee Jobs tax site. Overall, I had a very positive experience and learned a great deal about both tax law and some of the hardships DC’s low-income residents face. Now that tax season is over, I want to share some stories, reflections, and takeaways from my experience. (For the record, my skeptical client ended up trusting my abilities, and even asked me to help her fill out her daughter’s financial aid forms after I finished her taxes). Finances are a very personal subject. They’re not something you generally discuss in depth with others. But they were something that I needed to discuss with all of my clients in order to accurately prepare their returns. Interestingly, when taking with someone about their finances, an invisible barrier is broken and they may start telling you all sorts of details about their lives -- details they normally wouldn’t tell a complete stranger. During my conversations with clients, which usually lasted between 30 to 90 minutes, I learned a great deal about their family structures, home lives, and financial welfare. Here are a few takeaways:

1. Many people are struggling to find steady employment in this tough economy.
   Many of my clients had been laid off in recent years and were trying to cobble together income from multiple jobs and sources. It was not uncommon for someone to come in with three or four W2s -- each with only a few thousand dollars or less -- from all of their employers over the year. Although many clients wished to be employed full time, their employers could only afford to hire them part time or for short periods. For example, I had one client who worked part time at a grocery store for half the year, had a short stint at a catering company, and occasionally worked the night shift as a security guard throughout. Sadly, stable employment was a rarity.
2. People use a wide variety of financial products beyond checking accounts to meet their financial needs.
   You often assume a checking account is the first and most basic account a person needs. I found that this often wasn’t the case. For example, a number of my clients used prepaid cards for their day-to-day banking instead of a checking account. They told me prepaid cards were easier to manage, let them pay bills simply, and provided almost all of the same features as a checking account, with very low fees. Surprisingly, a few of my clients had savings accounts but not checking accounts. They said savings accounts provided them with a structure to save, but they preferred to use check cashers and other methods for their day-to-day financial needs. In addition, one client told me that he purposefully doesn’t know the PIN for his checking account debt card, because he wants to make it difficult to access the money. He was essentially treating the checking account like a savings account in order to curtail impulse spending.
3. People recognize the value of savings, even if it is only a small amount.
   Even though almost all of my clients were struggling to make ends meat, many of them still understood the importance of savings. Many clients told me they planned to put aside at least a small portion of their refund for savings. One client even used Form 8888 to purchase a $100 savings bond with his refund (thanks D2D Fund for helping make this possible!). Few, if any, clients planned on saving their entire refund, which is understandable given their other pressing financial needs.

Doing taxes is kind of like a detective game where the goal is uncovering credits and deductions in order to maximize the refund. When preparing a client’s return, I would try to thoroughly understand the client’s financial situation so I could figure out every credit or deduction he or she might qualify for. And there are so many different credits out there! There are tax credits for children, education, retirement savings, housing, and more. Two credits in particular deserve a special mention:

• The Earned Income Credit: Since the DC EITC Campaign is named after this credit, it seems fair to give it a special mention. In addition to the federal EITC, the DC metro region has some of the country’s highest state EITCs, which are additional credits that build on the federal credit. The state EITC is 40% of the federal credit in DC (the highest rate in the country), 25% in Maryland, and 20% in Virginia (although the Virginia credit is not refundable). Montgomery County has an additional local credit that is 72.5% of the Maryland state EITC.
• The Schedule H Credit: Another credit that was particularly beneficial for my clients was the DC Homeowner and Rental Property Tax Credit, or Schedule H. This refundable credit of up to $750 is available to DC renters and homeowners with incomes below $20,000. Although $750 might not sound like much in the grand scheme of things, this credit was invaluable to many of my clients, especially given DC’s exceedingly expensive housing.

Overall, being a volunteer tax preparer was an incredibly valuable experience both for me and for my clients. I even had one 84 year-old lady who really wanted to leave me a tip, and couldn’t understand why I didn’t have a tip jar!

Thanks to our friends over at Capital Area Asset Builders and Community Tax Aid for organizing over 500 volunteers and making it all possible. I’m looking forward to volunteering again next tax season.