Sparking Prosperity for Everyone
As we observe the tenth anniversary of the 2008 economic crash, then Federal Reserve Chair Ben Bernanke and Secretary of Treasury Henry Paulson have both noted that while federal action stabilized the economy, it did not repair the financial well-being of ordinary Americans. Now is the time for a policy to cultivate prosperity for all: reforming our existing $700 billion of federal wealth-building tax incentives into an investment in the productive capacity of all Americans.
Without spending an additional dollar, the United States could match the first $1000 of savings of all men, women and children in the country on a sliding scale based on existing income and wealth. Investing in these proposed “Prosperity Accounts” would build the economy the old-fashioned way: from the bottom up, unleashing the untapped productive capacity of the American people. Think GI Bill meets 401k.
Today most Americans are mired in debt. When confronted by an unexpected expense of a few hundred dollars, they often are driven to predatory lenders. A majority of families and up to 80 percent of people of color lack the few thousand dollars necessary to buffer from inevitable accidents and illnesses. More important than protection from hardship, a few thousand dollars provides an ability to dream, plan and invest in the future, something ten years out from 2008, too few Americans are able to do. Yet, research demonstrates that a nest egg of only a few thousand dollars for each and every American could result in millions of new businesses, jobs, educational opportunities, homeowners, and billions in savings and investments.
While discussions about income inequality and how to solve it abound, few focus on wealth inequality although it dwarfs income inequality in both magnitude and effect. While one-sixth of Americans are income poor, two to three times as many are asset poor. Asset poverty is a lack of savings and investment; it is a poverty that slays confidence, hope, and possibility.
In 2016, white Americans had a median net worth of $127,200; Hispanic Americans had a median net worth of $12,550, African Americans had $9,250, and Native Americans had $8,000. The causes of that inequality reach back centuries, to slavery, Jim Crow, genocide, and immigration policies. We cannot change our history, but we can change the future.
The tax system is a major bulwark for wealth inequality. Three-quarters of a trillion dollars a year at the federal level (and hundreds of billions more at the state level) provides massive wealth-building tax incentives, including the home mortgage interest deduction, preferential capital gains rates, pension fund exclusions, and estate taxes. These tax incentives reward the rich, miss the middle, and penalize the poor. The wealthiest .1 percent of Americans, those earning a million dollars a year or more, get an annual tax benefit averaging $160,190 while working families earning under $55,000 a year get an average benefit of just $226. The poorest among us actually lose benefits if they seek to learn, earn, save, or invest. As Nobel laureate economist Joseph Stiglitz noted, democracy is incompatible with such levels of inequality.
A massive investment in addressing this inequality – averaging $2,200 for every man, woman and child in the country – could become an investment in the productive capacity of all people, providing the crucial nest egg for business capitalization, down payments on a home, college savings, and emergency reserves. Prosperity Accounts are the tool for building a nest egg for all Americans.
Through Prosperity Accounts, all Americans could save up to $1,000 tax-free. The federal government would match the savings on a sliding scale. The poorest fifth of Americans would receive a $3 match for every dollar saved, enabling an accumulation of $4,000 per year. The wealthiest fifth would receive a 33 percent match; the middle fifth would be matched dollar for dollar. Americans could then use the money in these accounts to start a business, buy a home, pursue post-secondary education, cover emergency expenses, or supplement retirement savings. Not everyone will save, or start a business, or buy a home, or go to college, but everyone will be provided the opportunity, and research demonstrates that even very poor people will save for a promise of stability and hope.
In every century of our history, the United States has made extensive investments in the common genius. In turn, these working Americans built our economy. These policies, such as universal public education, Homestead Acts, 30-year mortgage, and the GI Bill, provided some of the most significant, enduring, and widely shared increases in economic well-being in our history.
Today we can build wealth and close the racial wealth divide with Prosperity Accounts. These savings accounts with progressive matched funds for everybody, funded with just half of what the US currently spends on wealth promotion, could open a new era of prosperity for everyone.
Robert Friedman is the Founder and Chair Emeritus of the Board for Prosperity Now and author of the new book “A Few Thousand Dollars: Sparking Prosperity for Everyone.”