The Perils and Promise of An Ownership Society 2005 Community Development Policy Summit Federal Rese

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The Perils and Promise of An Ownership Society
2005 Community Development Policy Summit
Federal Reserve Bank of ClevelandJune 22, 2005

• Ray Boshara
• New America Foundation
• Washington, DC
• 202-986-2700
• boshara_at_newamerica.net

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What is the Ownership Society?

• An ownership society values responsibility,
  liberty, and property. Individuals are empowered
  by freeing them from dependence on government
  handouts and making them owners instead, in
  control of their own lives and destinies. In the
  ownership society, patients control their own
  health care, parents control their own children's
  education, and workers control their retirement
  savings. - CATO Institute
• "Ownership brings security and dignity and
  independence. In all these proposals, we seek to
  provide not just a government program, but a path
  a path to greater opportunity, more freedom and
  more control over your own life. - President
  Bush, August 2004
• Democrats Some reject the framework, others say
  we need a progressive ownership agenda

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Ownership Society Policies

• Structured through individual or personal
  savings accounts
• Main proposals would privatize Social Security
  (Social Security Choice) and reduce taxes on
  saving for retirement, health care, upgrading
  skills, and education (RSAs, ERSAs, LSAs, MSAs)
• Would also encourage more business ownership and
  homeownership

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Who Owns America?

• Quintile Income Wealth
• Bottom 40 10 1
• Bottom 60 23 4.5
• Top 20 56 83
• Income inequality slowing, wealth inequality
  rising
• Nearly 400 billion a year in federal
  expenditures to support wealth accumulation, but
  primarily helps upper-half of population
• Starting point of our ownership policies must be
  majority of Americans who are asset-poor.

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Pros - Ownership Society - Cons

• Expanding ownership is exactly the right policy
  idea
• Structuring more policies through private,
  portable, flexible accounts works well for the
  21st century global economy
• Returns to capital are greater than returns to
  labor
• Choice and responsibility are the new, broadly
  accepted quid pro quo of the new social contract
• Politically astute plays into aspirations

• Excludes millions who lack bank accounts, tax
  liabilities, and savings
• Poorly targeted subsidies encourages asset
  shifting, not new savings
• Only 5 make maximum contributions to IRAs and
  401(k)s, so why raise limits?
• Undermines social insurance some risks should
  be pooled
• Fiscally irresponsible accounts not private
  and thus distorts political choices

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Ownership Society The Verdict?

• Right idea that needs the right set of policies
• Ownership society proposals are good for some
  policy challenges, but not all must determine
  where account-based, savings-based, and tax-based
  accounts make sense, and where programs make
  sense

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Ownership Society The Response

• Rare, if not historic moment, that we should
  seize
• Social Security Reform debate, leading to
  retirement saving and general saving/ownership
  debate whats the deal, are we part of it?
• Tax reform could also offer an opportunity to
  increase savings and ownership for low-income
  persons

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Whats on the Table?

• Low-cost ideas Split refunds, getting 401(k)
  defaults right, savings bonds. Enormous
  potential of linking tax refunds to savings.
• Modest cost IDAs - Savings for Working Families
  Act (450 million to 1.8 billion)
• Higher cost (38-40 billion over 10 years)
• Savers Credit - make it permanent, refundable
• Aspire Act to create Kids Accounts
• Other big ideas Reform 529s, Universal 401(k),
  LSAs, RSAs?

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ASPIRE Act / Kids Accounts

• 500 at birth, up to 1,000 for low-income kids
• Voluntary contributions up to 1,000 from any
  source
• 1-1 matching deposits, up to 500 a year for
  low-income kids
• No withdrawals until 18, then becomes at Roth IRA
• Modeled on Thrift Saving Plan low cost, limited
  investment choices
• Can keep in TSP like system or roll out to a FI
  of your choice
• Financial education tied into to accounts through
  schools

• Santorum, Corzine, Schumer, DeMint
• Similar in House
• Phases in universal infrastructure, plumbing --
  permanent platform for lifelong asset
  accumulation and retirement security
• Increase national saving over long term, reduce
  reliance of foreign investment
• 8-1 spending for seniors rethink generational
  equity
• National debt rests on their shoulders
• We expect their earnings to support our
  retirement

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New Social Contract

• Repeal the Social Contract, or Redefine it?
• Adults work and save, enable you to build
  assets
• Kids get you started on a path of lifetime
  saving and investing, teach you how this economy
  works but we expect you to make smart decisions
  with your future

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Resources

• New America Foundation
• www.NewAmerica.net
• www.AssetBuilding.org
• Cato Institute
• www.cato.org
• Brookings Institution
• www.brookings.edu