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Serrano Introduces Bill to Encourage Savings
Washington, DC – August 1, 2013 – Congressman José E. Serrano today introduced the “Financial Security Credit Act of 2013,” a bill to encourage a higher household savings rate nationwide by incentivizing savings by low- and moderate-income earners at tax time.
“We know that many American households are unprepared to meet short-term and long-term financial needs, and many more feel as though they cannot save for their long term goals,” said Congressman Serrano. “This legislation will address these problems by offering an incentive for taxpayers from low- and moderate- income brackets to save their tax refunds by making deposits into any of a number of savings options. If the taxpayer contributes to an eligible savings product and maintains the savings for eight months, they will become eligible for a refundable tax credit of up to $500 directly deposited into their account. It has been proven to work in New York City, and I know that it can work nationally.”
"The Financial Security Credit Act offers a proven approach to supporting the economic stability of Americans by providing meaningful and accessible onramps to building savings and I commend Congressman Serrano for introducing this important legislation," said New York City Department of Consumer Affairs Commissioner Jonathan Mintz. "New York City's SaveUSA tax time savings program demonstrated that New Yorkers with very low incomes can and will save when given the right opportunities. The Financial Security Credit will encourage savings that will help millions of Americans make meaningful progress towards improving their financial stability in the short term, and therefore starting on the path toward building longer-term savings, which are critical to stability."
“The tax code should promote savings, opportunity and mobility,” said Reid Cramer, director of the Asset Building Program at the New America Foundation. “Currently the federal government spends almost $150 billion each year supporting the savings of upper-income Americans and almost nothing on the savings of low- and moderate-income families. We need policies that close the opportunity gap, not make it wider. The Financial Security Credit would help to level the playing field and give all American workers a chance to save and build financial security. The bill expands upon a proven approach that works for ordinary, hard-working families. Representative Serrano deserves credit for promoting legislation that supports savings, responsible financial behavior and greater economic opportunity.”
Bob Friedman, Founder and Chairman of the Board of the Corporation for Enterprise Development (CFED), spoke out in the favor of the legislation as well. “Economic mobility is the abiding ethic of this country, but income alone is not enough to progress in the American economy,” Friedman said. “Income helps working families get by; saving helps them get ahead. While the tax code has long supported saving for the highest-income workers, Representative Serrano’s legislation will bring support to both middleclass families and those struggling to secure a foothold in the middleclass.”
More than 43% of American households lack the savings to cover basic living expenses for three months if a layoff or other emergency causes a loss of their income. Without such a safety net, during financial emergencies many families are forced to rely on bad options such as expensive credit cards and exploitative payday loans.
Under the legislation, if an individual is unbanked or does not have an eligible savings option, then they are provided with the opportunity to establish an account on their tax form. Individuals can contribute to any of a number of savings options, including: basic savings accounts, 529 College Savings Accounts, Coverdell Education Savings Accounts, qualified retirement plans like 401(k) and IRAs, certificates of deposit, and savings bonds.
This legislation builds on the successful SaveUSA program model, which was initiated in New York City, and has expanded to San Antonio, Tulsa, and Newark, NJ through the Social Innovation Fund. These programs show that tax-filers, despite low incomes, can and will save if they have the right incentive at the right moment. Despite having average incomes of less than $18,000, program participants in New York City were able to save an average of about $550. In New York City, about 76 percent of savers held their balance for the full year, and nearly 47 percent returned to save the following year.
“Establishing and maintaining savings is essential to economic mobility and financial stability,” concluded Congressman Serrano. “This legislation comes as a result of the many years of work that New York City, the New America Foundation and the Corporation for Enterprise Development have put towards this cause. They have shown that this policy helps low- and moderate- income families to safeguard themselves in case of emergency, and helps them to start building longer term savings for the future. The financial future can be a lot brighter if we help families build a safety net for themselves.”