Abstract and Keywords
Since 1991, a new policy discussion has arisen in the United States and other countries, focusing on building assets as a complement to traditional social policy based on income. In fact, asset-based policy already exists in the United States, with large public subsidies. But the policy is regressive, benefiting the rich far more than the poor. The goal should be a universal and progressive asset-based policy. One promising pathway may be Child Development Accounts beginning at birth, with greater public deposits for the poorest children.
Assets are the stock of what people own or have, while income is the flow of resources over a period of time. Asset inequality is much greater than income inequality. For example, this is especially evident by race. On average, Whites have an average income about 50% greater than those of African Americans and Latinos, which is a large inequality. But Whites have an average net worth at least 10 times (1,000%) greater than those of African Americans and Latinos (Kochhar, 2004; Oliver & Shapiro, 1995).
Income (as a proxy for consumption) has been the standard definition of poverty in the social policy. But today there is increasing questioning of income as sole definition of poverty and well-being. Sen (1993) and others are looking toward capabilities. Asset-based policy can be seen as part of this larger discussion, one measure of long-term capabilities. As public policy, asset building may be a form of “social investment” (Midgley, 1999; Sherraden, 1991). From this perspective, asset-based policy could be an explicit complement to income-based policy.
Current examples of U.S. asset-based policy include home ownership tax benefits; investment tax benefits; defined contribution retirement accounts with tax benefits at the workplace, such as 401(k)s, 403(b)s, and away from the workplace, such as Individual Retirement Accounts (IRAs), and Roth IRAs. Other asset accounts with tax benefits include State College Savings Plans and Medical Savings Accounts. These defined contribution policies, i.e., individual accounts wherein benefits depend upon the amount of assets accumulated, have all appeared since 1970 and are growing rapidly.
Unfortunately, the poor receive almost none of the benefits. Public subsidies operate through tax deferments and exemptions and are tied to income in a regressive way. The larger the income, the greater the tax subsidy. The United States spends over $300 billion annually in tax expenditures for asset building in homes, investments, and retirement accounts, and over 90% of this expenditure goes to households with incomes over $50,000 per year (Corporation for Enterprise Development, 2004; Howard, 1997).
As a response to regressive policy, in 1991 Individual Development Accounts (IDAs) were proposed as a universal and progressive asset-building policy (Sherraden, 1991). As originally proposed, IDAs would include everyone, provide greater support for the poor, begin as early as birth, and be used for key development and social protection goals across the lifespan, such as education, home ownership, business capitalization, and retirement security in later life. IDAs have instead been implemented in the form of short-term “demonstration” programs targeted toward the poor. We have learned a great deal during this demonstration process (Mills, Gale, Patterson, & Apostolov, 2006; Schreiner & Sherraden, 2007; Sherraden & McBride, in press). But this is far from a comprehensive asset-based policy.
Perhaps the most important contribution to date is that saving and asset accumulation by the poor, which was seldom discussed 15 years ago, is today a mainstream idea in the United States, and political support is bipartisan. Both Republicans and Democrats use the language of “asset building,” “asset-based policy,” “stakeholding,” and “ownership society.” As always, diversity of political support presents both opportunities and risks. In this case, one political risk is that asset-building policies might be viewed as a substitute for—rather than a complement to—income support policies.
Asset-building policy may make the most sense across a lifetime, beginning with children (Goldberg, 2005; Lindsey, 1994; Sherraden, 1991). In a major policy development in 2001, Prime Minister Tony Blair of the United Kingdom proposed a Child Trust Fund for all children, with progressive funding (Blair, 2001). In April 2003, Blair announced that he would go forward with the Child Trust Fund (H.M. Treasury, 2003). Since 2005, each newborn child in the United Kingdom is given an account at birth, and children in low-income families receive more. Thus, the UK Child Trust Fund is both universal and progressive.
In U.S. policy initiatives, the bipartisan ASPIRE Act, which would create a savings account for every newborn in the United States, has been introduced in the Congress since 2004, and at this writing four other bills for children's accounts are in the Congress. In applied research, the Ford Foundation and several other foundations are supporting a large demonstration of Child Development Accounts (CDAs) in the form of the Saving for Education, Entrepreneurship, and Downpayment (SEED) initiative. The goal of SEED is to model, test, and inform a universal and progressive CDA policy for the United States (SEED pages on Web site of the Center for Social Development at Washington University in St. Louis, http://gwbweb.wustl.edu/csd/SEED/SEED.htm).
It is not possible to predict where this will lead. Some of the policy advantages of asset building are that it is simple and clear, is flexible and adaptable, appears to have multiple positive outcomes, and has widespread political appeal and acceptance. A considerable disadvantage is that current asset-based policy is very regressive. The goal should be a universal and progressive asset-based policy. If every person and household has assets to provide for social protections and invest in future development, this would contribute to improved life chances and reduced inequality, both of which are core values in social work.
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