1. The Perils and Promise of An Ownership Society 2005 Community Development Policy Summit Federal Reserve Bank of Cleveland June 22, 2005 Ray Boshara New America Foundation Washington, DC 202-986-2700 boshara@newamerica.net

2. What is the Ownership Society? An ownership society values responsibility, liberty, and property. Individuals are empowered by freeing them from dependence on government handouts and making them owners instead, in control of their own lives and destinies. In the ownership society, patients control their own health care, parents control their own children's education, and workers control their retirement savings. - CATO Institute "Ownership brings security and dignity and independence. In all these proposals, we seek to provide not just a government program, but a path a path to greater opportunity, more freedom and more control over your own life. - President Bush, August 2004 Democrats – Some reject the framework, others say we need a progressive ownership agenda

3. Ownership Society Policies Structured through individual or personal savings accounts Structured through individual or personal savings accounts Main proposals would privatize Social Security (Social Security Choice) and reduce taxes on saving for retirement, health care, upgrading skills, and education (RSAs, ERSAs, LSAs, MSAs) Main proposals would privatize Social Security (Social Security Choice) and reduce taxes on saving for retirement, health care, upgrading skills, and education (RSAs, ERSAs, LSAs, MSAs) Would also encourage more business ownership and homeownership Would also encourage more business ownership and homeownership

4. Who Owns America? Quintile IncomeWealth Bottom 40%10%1% Bottom 60%23%4.5% Top 20%56%83% Income inequality slowing, wealth inequality rising Income inequality slowing, wealth inequality rising Nearly $400 billion a year in federal expenditures to support wealth accumulation, but primarily helps upper-half of population Nearly $400 billion a year in federal expenditures to support wealth accumulation, but primarily helps upper-half of population Starting point of our ownership policies must be majority of Americans who are asset-poor. Starting point of our ownership policies must be majority of Americans who are asset-poor.

5. Pros - Ownership Society - Cons Expanding ownership is exactly the right policy idea Expanding ownership is exactly the right policy idea Structuring more policies through private, portable, flexible accounts works well for the 21 st century global economy Structuring more policies through private, portable, flexible accounts works well for the 21 st century global economy Returns to capital are greater than returns to labor Returns to capital are greater than returns to labor Choice and responsibility are the new, broadly accepted quid pro quo of the new social contract Choice and responsibility are the new, broadly accepted quid pro quo of the new social contract Politically astute – plays into aspirations Politically astute – plays into aspirations Excludes millions who lack bank accounts, tax liabilities, and savings Excludes millions who lack bank accounts, tax liabilities, and savings Poorly targeted subsidies – encourages asset shifting, not new savings Poorly targeted subsidies – encourages asset shifting, not new savings Only 5% make maximum contributions to IRAs and 401(k)s, so why raise limits? Only 5% make maximum contributions to IRAs and 401(k)s, so why raise limits? Undermines social insurance – some risks should be pooled Undermines social insurance – some risks should be pooled Fiscally irresponsible – accounts not private and thus distorts political choices Fiscally irresponsible – accounts not private and thus distorts political choices

6. Ownership Society: The Verdict? Right idea that needs the right set of policies Right idea that needs the right set of policies Ownership society proposals are good for some policy challenges, but not all must determine where account-based, savings-based, and tax-based accounts make sense, and where programs make sense Ownership society proposals are good for some policy challenges, but not all must determine where account-based, savings-based, and tax-based accounts make sense, and where programs make sense

7. Ownership Society – The Response Rare, if not historic moment, that we should seize Rare, if not historic moment, that we should seize Social Security Reform debate, leading to retirement saving and general saving/ownership debate – whats the deal, are we part of it? Social Security Reform debate, leading to retirement saving and general saving/ownership debate – whats the deal, are we part of it? Tax reform could also offer an opportunity to increase savings and ownership for low- income persons Tax reform could also offer an opportunity to increase savings and ownership for low- income persons

8. Whats on the Table? Low-cost ideas: Split refunds, getting 401(k) defaults right, savings bonds. Enormous potential of linking tax refunds to savings. Low-cost ideas: Split refunds, getting 401(k) defaults right, savings bonds. Enormous potential of linking tax refunds to savings. Modest cost: IDAs - Savings for Working Families Act ($450 million to $1.8 billion) Modest cost: IDAs - Savings for Working Families Act ($450 million to $1.8 billion) Higher cost ($38-40 billion over 10 years) Higher cost ($38-40 billion over 10 years) Savers Credit - make it permanent, refundableSavers Credit - make it permanent, refundable Aspire Act to create Kids AccountsAspire Act to create Kids Accounts Other big ideas: Reform 529s, Universal 401(k), LSAs, RSAs? Other big ideas: Reform 529s, Universal 401(k), LSAs, RSAs?

9. ASPIRE Act / Kids Accounts $500 at birth, up to $1,000 for low-income kids $500 at birth, up to $1,000 for low-income kids Voluntary contributions up to $1,000 from any source Voluntary contributions up to $1,000 from any source 1-1 matching deposits, up to $500 a year for low-income kids 1-1 matching deposits, up to $500 a year for low-income kids No withdrawals until 18, then becomes at Roth IRA No withdrawals until 18, then becomes at Roth IRA Modeled on Thrift Saving Plan – low cost, limited investment choices Modeled on Thrift Saving Plan – low cost, limited investment choices Can keep in TSP like system or roll out to a FI of your choice Can keep in TSP like system or roll out to a FI of your choice Financial education tied into to accounts through schools Financial education tied into to accounts through schools Santorum, Corzine, Schumer, DeMint Santorum, Corzine, Schumer, DeMint Similar in House Similar in House Phases in universal infrastructure, plumbing -- permanent platform for lifelong asset accumulation and retirement security Phases in universal infrastructure, plumbing -- permanent platform for lifelong asset accumulation and retirement security Increase national saving over long term, reduce reliance of foreign investment Increase national saving over long term, reduce reliance of foreign investment 8-1 spending for seniors – rethink generational equity 8-1 spending for seniors – rethink generational equity National debt rests on their shoulders National debt rests on their shoulders We expect their earnings to support our retirement We expect their earnings to support our retirement

10. New Social Contract Repeal the Social Contract, or Redefine it? Repeal the Social Contract, or Redefine it? Adults – work and save, enable you to build assets Adults – work and save, enable you to build assets Kids – get you started on a path of lifetime saving and investing, teach you how this economy works – but we expect you to make smart decisions with your future Kids – get you started on a path of lifetime saving and investing, teach you how this economy works – but we expect you to make smart decisions with your future

11. Resources New America Foundation: New America Foundation: www.NewAmerica.netwww.NewAmerica.netwww.NewAmerica.net www.AssetBuilding.orgwww.AssetBuilding.orgwww.AssetBuilding.org Cato Institute Cato Institute www.cato.orgwww.cato.orgwww.cato.org Brookings Institution Brookings Institution www.brookings.eduwww.brookings.eduwww.brookings.edu