Statements on Introduced Bills and Joint Resolutions

STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS

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By Mr. SANTORUM (for himself and Mr. LIEBERMAN):

S. 922. A bill to establish and provide for the treatment of Individual Development Accounts, and for other purposes; to the Committee on Finance.

Mr. SANTORUM. Mr. President, I along with Senator LIEBERMAN am introducing the Savings and Working Families Act of 2005.

The need for this legislation comes at a time when Americans face an ongoing savings and assets crisis. One third of all Americans have no assets available for investment, and another fifth have only negligible assets. The United States household savings rate lags far behind that of other industrial nations, constraining national economic growth and keeping many Americans from entering the economic mainstream by buying a house, obtaining an adequate education, or starting a business.

Low-income Americans face a huge hurdle when trying to save. Individual Development Accounts, IDAs, provide them with a way to work toward building assets while instilling the practice of savings into their everyday lives. IDAs are one of the most promising tools that enable low-income and low-wealth American families to save, build assets, and enter the financial mainstream. Based on the idea that all Americans should have access, through the tax code or through direct expenditures, to the structures that subsidize homeownership and retirement savings of wealthier families, IDAs encourage savings efforts among the poor by offering them a one-to-one match for their own deposits. IDAs reward the monthly savings of working-poor families who are trying to buy their first home, pay for post-secondary education, or start a small business. These matched savings accounts are similar to 401(k) plans and other matched savings accounts, but can serve a broad range of purposes.

The Savings and Working Families Act of 2005 builds on existing IDA programs by creating tax credit incentives for an additional 900,000 accounts. Individuals between 18 and 60 who are not dependents or students and meet the income requirements would be eligible to establish and contribute to an IDA. For single filers, the income limit would be $20,000 in modified aggregate gross income, AGI. The corresponding thresholds for head-of-household and joint filers would be $30,000 and $40,000, respectively.

Participants could generally withdraw their contributions and matching funds for qualified purposes, which include certain higher education expenses, first-time home purchase expenditures, and small business capitalization.

Additionally, this bill would create a tax credit to defray the cost of establishing and running IDA programs, contributing matching funds to the appropriate accounts, and providing financial education to account holders. Program sponsors could be qualified institutions, qualified nonprofits, or qualified Indian tribes, and would have to be an institution eligible under current law to serve as the custodian of IRAs. Sponsors could claim a tax credit that would have two components. The first would be a $50 credit per account to offset the ongoing costs of maintaining and administering each account and providing financial education to participants. Except for the first year that an account is open, the credit would be available only for accounts with a balance, at year's end, of more than $100. In addition, there would be a credit for the dollar-to-dollar matching amounts.

IDAs work to spur savings by low-income individuals. The American Dream Demonstration, ADD, a 14-site IDA program, has proven that low-income families, with proper incentives and support, can and do save for longer-term goals. In ADD, average monthly net deposits per participant were $19.07, with the average participant saving 50 percent of the monthly savings target and making deposits in 6 of 12 months. Participants accumulated an average of $700 per year including matching contributions. Importantly, deposits increased as the monthly target increased, indicating that low-income families' saving behavior, like that of wealthier individuals; is influenced by the incentives they receive.

Additionally, key to the success of IDAs is the economic education that participants receive. Information about repairing credit, reducing expenditures, applying for the Earned Income Tax Credit, avoiding predatory lenders, and accessing financial services helps IDA participants to reach savings goals and to integrate themselves into the mainstream economic system. The encouragement and connection to supportive services helps low-income individuals to keep early withdrawals to a minimum and overcome obstacles to saving. Banks and credit unions benefit from these new customer relations, and States benefit from decreased presence of check-cashing, pawnshop, and other predatory outlets.

But more than income enhancement, asset accumulation affects individuals' confidence about the future, willingness to defer gratification, avoidance of risky behavior, and investment in community. In families where assets are owned, children do better in school, voting participation increases, and family stability improves. Reliance on public assistance decreases as families use their assets to access higher education and better jobs, reduce their housing costs through ownership, and create their own job opportunities through entrepreneurship.

We must re-instill the value that Americans once put into saving and promote an ownership society. Saving must once again become a national virtue. At stake are not just the financial security and prosperity of Americans as individuals but America as a nation. This bill takes a step in reaching out to low-income Americans to meet this goal.

I urge my colleagues to support the Savings and Working Families Act of 2005.

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