FOR IMMEDIATE RELEASE
Kay Hixson / 202.207.0132
Sue Lin Chong / 410.223.2836
Rewarding the Rich, Missing the Middle and Penalizing the Poor
New Study Shows More than Half of the $400 Billion Spent by the U.S. in Fiscal 2009 on Wealth-Building Strategies Benefited Nation’s Wealthiest 5 Percent
Congress, President’s Fiscal Commission Could Trim $1 Trillion From Deficit in Next Decade by Capping “Upside-Down” Subsidies
Washington, D.C.—The United States spent nearly $400 billion in fiscal year 2009 to help people save money and build wealth, but the vast majority of that money went to the nation’s richest taxpayers, according to an analysis of tax and budget programs released Wednesday.
This inequity is all but invisible because the wealth-building strategies are mostly tucked into the federal tax code—as deductions, credits and preferential rates—rather than in the annual discretionary budget where they would receive continued scrutiny, according to “Upside Down: America’s $400 Billion Federal Asset-Building Budget” produced by the Corporation for Enterprise Development (CFED) and The Annie E. Casey Foundation.
“If we are serious about cutting the deficit, Congress could start by trimming these upside-down subsidies and creating a more equitable approach,” said Andrea Levere, president of CFED, a national nonprofit that advocates for expanding economic opportunity. “As Congress debates whether to extend the Bush-era tax cuts for the wealthy and the president’s fiscal commission develops recommendations to balance the federal budget, they should remember that we could shave $1 trillion off the deficit in the next decade simply by capping some of these benefits,” said Levere, who released the report in a speech to CFED’s biennial conference on asset-building policies that help low-income Americans.
The federal government has supported programs that help families move up the economic ladder as far back as the Homestead Act in 1862 and continues with today’s home mortgage deduction, tax-preferred retirement accounts and Pell grants. In fiscal 2009, the federal government spent $384 billion on policies that help individuals buy homes, save money, start businesses, pay for college and retire comfortably. The costs largely reflect tax expenditures but also include some direct budget outlays.
The study and other research demonstrate that these asset-building policies are doing little to help working families who most need the financial cushion. They found: • More than half the benefits went to the wealthiest 5 percent of taxpayers in fiscal year 2009. The top 1 percent received an average $95,000 in assistance, while the poorest received less than $5. Even upper middle-income families making $100,000 annually received only $1,600 in benefits.
- Eight out of 10 of the wealthiest families saved approximately one-third of their household income in 2009, while a full one-third of low-income households earned too little to make ends meet, much less save for the future.
- About 80 percent of the value for mortgage and property tax deductions accrued to the top 20 percent of taxpayers. In fact, many homeowners don’t take the mortgage deduction because they do not earn enough income or incur enough of a tax liability to warrant itemizing their deductions.
- Employer-based plans make pre-tax saving for retirement relatively painless, but roughly 78 million workers have no access to a retirement plan at work, and these are workers concentrated in the lower end of the income distribution chain.
“At a time when the economic downturn has left so many low- and middle-income families struggling to get by, we simply can’t afford a wealth-building strategy that primarily helps those who are already wealthy,” said Robert Giloth, a vice president at the Casey Foundation, which works to build a better future for the country’s disadvantaged children.
By embedding so much of the asset-building policy into the tax code as deductions and exclusions, the federal government naturally favors those who pay the most taxes – though it’s worth noting that the wealthiest 1 percent of taxpayers received 45 percent of the federal asset budget while paying in 27 percent of the tax revenue. Policies that depend on direct outlays in the annual budget, including the Assets for Independence program that provides matched-savings accounts for low-income families, have proven successful in encouraging savings, homeownership and business starts. Yet, because they are so visible, such programs often become political fodder.
Capping the biggest tax deductions and investing a small part of the cost savings in direct outlays could help poor families gain a foothold in the economy and fortify middle-class households, who are struggling in today’s tighter credit markets, paying higher college tuitions and having to tap into retirement nest eggs, said CFED Board Chair Robert Friedman.
“If we are going to invest in unlocking the productive capacity of our people – as we should do – then we should open opportunity for everyone, including the broad middle class and low-income working families,” Friedman said. “After all – we will all benefit from the growth in the economy that results from millions of added businesses, educated workers and homeowners, and billions in savings and investment.”
****CFED expands economic opportunity by helping Americans start and grow businesses, go to college, own a home and save for their children’s and own economic futures. We identify promising ideas, test and refine them in communities to find out what works, craft policies and products to help good ideas reach scale, and develop partnerships to promote lasting change. We bring together community practice, public policy and private markets in new and effective ways to achieve greater economic impact. Established in 1979 as the Corporation for Enterprise Development, CFED works nationally and internationally through its offices in Washington, D.C.; Durham, N.C.; and San Francisco
. The Annie E. Casey Foundation is a private charitable organization dedicated to helping build better futures for disadvantaged children in the United States. It was established in 1948 by Jim Casey, one of the founders of UPS, and his siblings in honor of their mother. The primary mission of the Foundation is to foster public policies, human-service reforms and community supports that more effectively meet the needs of today’s vulnerable children and families. For more information, visit theFoundation’s website at www.aecf.org