The EITC is “the best anti-poverty, the best pro-family, the best job-creation measure to come out of Congress.”

—  President Ronald Reagan

REQUEST: Help Low-income Working Americans Build Financial Security

Please speak directly to House Ways and Means Committee Chairman Dave Camp and Ranking Member Sander Levin/Senate Finance Committee Chairman Max Baucus and Ranking Member Orrin Hatch, urging them to support low-income working families by making expiring improvements to the Earned Income Tax Credit and Child Tax Credit permanent and protect the EITC and CTC from cuts in any deficit reduction deal.

In addition, please cosponsor Family Financial Security Credit when it is re-introduced, and send a letter to these tax committee leaders urging them to include the innovative low-income savings policies like the Family Financial Security Credit in any major tax reform legislation Congress takes up. (See reverse side for sample letter)

The EITC and CTC Support Working Families and Strengthen Local Economies

The Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) are a financial lifeline for people working in low-wage jobs. These credits provide a much-needed financial boost to families in jobs that pay too little to make ends meet. Here are just a few of the benefits:

·  The EITC and CTC encourage work, especially for single mothers. Expansions of the EITC in the 1990s moved half a million families from welfare to work.

·  The EITC and CTC improve the lives of children. Studies show that children whose family incomes were boosted by tax credits were more likely to attend college and earn more income as adults.

·  The EITC and CTC are good for local economies. The money generated from the EITC and CTC tends to get spent quickly and locally. It is estimated that the EITC generates at least $1.50 in local economic activity for every $1 spent.

·  The EITC and CTC reduce poverty. In 2010, the EITC and CTC lifted 9.2 million people out of poverty in 2010; 4.9 million of these people were children.

In February 2009 as part of the American Recovery and Reinvestment Act (ARRA), Congress expanded the CTC to include families who make under $13,000 per year. Congress also expanded the EITC benefit for married couples and larger families. The Center on Budget and Policy Priorities estimates that these changes alone kept 1.6 million people out of poverty in 2010. Unfortunately, the ARRA improvements to the EITC and CTC will expire at the end of 2012. If Congress does not act to extend them, 26 million children in 13 million working families will be put at risk of falling back or deeper into poverty.

Asset Development Builds Family Financial Security

Building savings and assets is an integral part of ending poverty, yet few financial instruments are designed for low-income families. Without savings, these families are always at the risk of falling into or deeper into poverty when financial crises arise. With savings, low-income children are more likely to go to college and move into the middle class as adults.

The Family Financial Security Credit (FFSC – formerly known as the Saver’s Bonus) uses the convenience of tax time to encourage low-income tax filers to start saving. The FFSC is a matched deposit to low-income tax filers who agree to direct deposit all or part of their tax refund into an eligible savings product. A recent pilot program ($aveUSA) has proven that when low-income families are given the opportunity and incentive to save, they will.

Sample Letter in Support of Asset-Building Policies for Low-Income Working Families

The Honorable Max Baucus, Chairman

The Honorable Orrin Hatch, Ranking Member

Senate Finance Committee

219 Dirksen Senate Office Building

Washington, DC 20510

The Honorable Dave Camp, Chairman

The Honorable Sander Levin, Ranking Member

House Ways and Means Committee

1102 Longworth House Office Building

Washington, D.C. 20515

Dear ______:

I am writing in support of policies that help low-income working families build financial security. As you know, savings and assets are a critical part of any American family’s financial security. Savings help improve household stability, as people are better able to weather financial emergencies, thus reducing the chances of disorder in the household. Children in low-income families who save are also more likely to escape poverty; 71 percent of children born to high-saving, low-income parents move up from the bottom income quartile over a generation (Pew’s Economic Mobility Project). Finally, savings enhance the well-being of children; children with a savings account in their name are as many as seven times more likely to attend college than those without an account (Center for Social Development, Washington University in St. Louis).

The U.S. government has long seen asset building as an important part of federal tax policy. Millions of American households benefit and build wealth through various provisions in the tax code. Unfortunately, these policies provide little or no benefit to low-income families. The Corporation for Enterprise Development (CFED) reports that in 2009, 45 percent of the largest asset building strategies in the tax code (mortgage interest deduction, property tax deduction, preferential tax rate on capital gains/dividends) went to the wealthiest one percent of households, while only 3 percent of the benefits went to the bottom sixty percent. It is time federal asset-development policy did more to support lower-income families.

Fortunately, an innovative idea is available to help low-income households get on the path to saving quickly and easily. The Family Financial Security Credit (FFSC, formerly the Saver’s Bonus) uses the convenience and timing of tax season to promote savings. Tax time is an ideal time because many low-income taxpayers receive substantial tax refunds from credits they have earned, such as the Earned Income or the Child Tax Credits (EITC & CTC). Here are the key elements of the FFSC:

·  At tax time, the taxpayer checks a box on the tax return agreeing to deposit all or part of tax refund into an eligible savings product (e.g. IRAs, 401(k)s, 529 College Savings Plans, Coverdell Education Accounts, U.S. Savings Bonds, and certificates of deposit). The IRS would then directly deposit that amount into the account. If the taxpayer does not have an account, he/she could sign up for one on their tax return.

·  Participants would receive a dollar-for-dollar match for their deposits, up to $500 per year. This would provide hard-working taxpayers the same incentive to save that wealthier Americans already enjoy.

·  The FFSC is targeted to low-income households. Only persons earning at or below 120 percent of EITC eligibility could claim the FFSC, taxpayers who aren’t likely to receive other support for savings.

We also have proof that this idea works. In 2008, New York City started the $aveNYC program very similar to the FFSC. Participants in the $aveNYC program agreed to deposit all or part of their tax refund into a designated savings account. After one year, if they maintained no less than their initial deposit amount, they received a matching deposit from the program. Among the 2,200 people who opened an account under $aveNYC, 80 percent maintained their deposits for a year and received the match, and 70 percent of participants who received the match maintained it or reenrolled the next year. Because of the success of $aveNYC, it was expanded to three other cities (Newark, Tulsa, San Antonio) and renamed $aveUSA in 2011.

Having just experience one of the worst financial crises in American history, the need to expand federal asset-development policy could not be more important. In addition, as the $aveUSA program has proven, if people are given the ease, opportunity, and incentive to save, they will — even if they are low-income.

As you work on broader tax reform going forward, I urge you include low-income asset development as part of a new and improved tax code. Specifically, I urge you to include the Family Financial Security Credit in any tax reform bill you draft.

Sincerely,