The Inclusive Economy
Open Doors to the Economy
By Bob Friedman on 03/18/2011 @ 12:30 PM
The policies in our history that have resulted in the most significant, widely shared and sustained increases in economic prosperity and opportunity have been policies that invested in the common genius of the American people – policies like universal education, the Homestead Acts, the creation of the 30-year fixed rate mortgage (by the Federal government) and the GI Bill. Though often containing elements that excluded people of color and women, these policies brought millions of low and moderate income Americans to the marketplace as educated workers, entrepreneurs, homeowners, savers and investors. The answer to our current economic woes – recession, unemployment, poverty, business stagnation – will come once again by opening the American economy to millions of working families.
Too many – in fact, most – Americans have been sidelined by our economic and social policies. A majority of American families – and supermajorities of people of color, women, people with disabilities – lack the few thousand dollars they need to make college, business or homeownership seem possible. This asset poverty – so much deeper even than income poverty – is the real faultline of inequality, but, more importantly, opportunity, in this country. And it is the product of policy, not a reflection of individual merit (or lack thereof). The Homestead Acts, to which 25% of American households can trace their wealth, distributed land stolen from Native Americans. The creation of the 30 year mortgage which brought home ownership within the purview of the middle-class and became the major wealth-building opportunity of the 20th Century, was limited to new construction in the suburbs backed by restrictive covenants – effectively denying this opportunity to our African American and Latino fellow citizens. The Federal government spends $400 billion a year to encourage savings, higher education, business creation, homeownership and retirement security of individual families, largely through tax deductions and deferrals. These subsidies are upside down – more than half go to the wealthiest 5% of taxpayers (in fact, 45% goes to the top 1%) while less than 5% goes to the bottom 60% of earners. The top 1% get annual benefits of more than $95,000 while the poorest half get less than $5. No wonder that we are more unequal than at any time since just before the Great Depression. Now, like then, we must re-open the doors to the American economy to the productive might of common Americans.
We know from extensive research and grassroots programs, that, if given the opportunity, average and even very poor working families will save, pursue higher education, buy (and maintain) homes, start businesses and build economic futures for themselves and their families. The global and domestic experience with microenterprise proves the wisdom of providing poor and unemployed people to start businesses and create jobs and incomes for themselves. Rigorously evaluated demonstrations of matched savings programs for low-income working families have proved that given the incentive of a savings match, even very poor people (those living at half the poverty line) will save and move forward economically. Poor families who bought homes with savings from these programs were 1/3 as likely to lose their homes as wealthier families in receipt of predatory variable-rate mortgages. The challenge now is to make these paths available to the millions of American families who could traverse them, rather than just the hundreds of thousands who have proven their efficacy.
The sooner we unleash the economic power of working families of all colors, urban and rural, people with disabilities, the young and the old, the sooner we will emerge from the Great Recession. We therefore endorse:
- The Expansion of the Saver’s Credit and Auto IRA as President Obama has proposed, that would provide an annual savings match of $250-500 per family to 50 million low and moderate income families for college, home ownership and retirement savings.
- The establishment of a universal system of Child Accounts at birth so that every child born in the U.S. grows up knowing there is a nest egg if s/he wants to go to college, start a business or buy a home. (Recent research finds that a child who grows up in a family with savings is seven times as likely to attend and complete college as one who does not.)
- A New Entrepreneur Tax Credit which would reduce the tax barrier that faces the new self-employed so that people who create jobs for themselves pay no more in payroll taxes and penalties than folks who take jobs.
- Remove the penalties in our safety net programs that penalize low income families eligible for benefits for saving, working, starting businesses and pursuing their education.
Taken together, these initiatives would cost less than 3% of what we give to the wealthiest taxpayers and could easily be funded by capping some of those expensive, unfair and ineffective subsidies. And they would unleash the entrepreneurial energy and investment – the promise of millions of hard working American families to build their economic futures and ours.