1. Federal Policies to Encourage Savings and Accounts at Tax Time New America Foundation Melissa Koide

2. Why are Federal Policies Needed? Lack of reasonably priced financial products that meet lower-income households transaction needs, while also enabling them to build savings Lack of reasonably priced financial products that meet lower-income households transaction needs, while also enabling them to build savings By depositoriesBy depositories By nonbank firmsBy nonbank firms Limited savings and asset building policies targeted at lower-income Limited savings and asset building policies targeted at lower-income

3. Key Components to Account Simple and easy to use Simple and easy to use Reasonably priced and transparent Reasonably priced and transparent Consumer Protections Consumer Protections DisclosuresDisclosures FDICFDIC Opt-out vrs Opt-in Opt-out vrs Opt-in Support short-term savings Support short-term savings Convenience and accessibility Convenience and accessibility Able to function as a pipeline for the delivery of federal assets/savings funding Able to function as a pipeline for the delivery of federal assets/savings funding Ubiquitous: Education and Awareness Ubiquitous: Education and Awareness

4. Why Focus on Tax Time? This is a annual time when billions of dollars flow to low and middle-income tax filers. This is a annual time when billions of dollars flow to low and middle-income tax filers. $80 billion annually in tax refunds to tax filers with AGIs of $30K or less. $80 billion annually in tax refunds to tax filers with AGIs of $30K or less. This is annual occurrence when middle and lower- income households receive a significant lump sum payment. This is annual occurrence when middle and lower- income households receive a significant lump sum payment. Research shows that tax filers use the tax filing time and the refund to do financial planning for the rest of the year. Research shows that tax filers use the tax filing time and the refund to do financial planning for the rest of the year.

5. Assets and Transaction Account Policy Proposal Proposal to provide a transaction and savings product on the tax form Proposal to provide a transaction and savings product on the tax form Tax filers, who do not direct their refund into another account or opt-out to receive a paper check, would be automatically defaulted into the ATA Tax filers, who do not direct their refund into another account or opt-out to receive a paper check, would be automatically defaulted into the ATA 3-5% of refund defaulted into savings 3-5% of refund defaulted into savings ATA would be eligible for deposits throughout the year, with wages and salary at a minimum ATA would be eligible for deposits throughout the year, with wages and salary at a minimum Provide security, convenience, and the capability to manage and track spending Provide security, convenience, and the capability to manage and track spending

6. Assets and Transaction Account Policy Proposal Consist of a prefunded, electronic account,; includes a network-branded (MC/VISA) card for transactions Consist of a prefunded, electronic account,; includes a network-branded (MC/VISA) card for transactions Cash Withdrawal (ATM and Point of Sale Terminals) Cash Withdrawal (ATM and Point of Sale Terminals) Point of Sale Purchases (PIN or Signature) Point of Sale Purchases (PIN or Signature) Phone and web based bill pay Phone and web based bill pay Web based purchase capabilities Web based purchase capabilities Direct Deposit Direct Deposit Savings Savings No ChexSystems or credit checks No ChexSystems or credit checks Offered by FDIC/equivalent depository institutions on behalf of the IRS Offered by FDIC/equivalent depository institutions on behalf of the IRS All consumer federal protections All consumer federal protections

7. Tax Return Forms Option for direct deposit or ATA (or opt out) Provides ATA description and functions and any fees Specifies 2-5% default to savings and means for accessing savings Timing: when ATA card will arrive and when funds will be available Identifies the financial institution that will hold the account IRS Verifies tax filers data Verifies tax refund amount Relays tax filer data to FI (KYC) Electronically transmits refund amount to financial firm, specifying how much to transaction and how much to savings Treasury TAX REFUND to be deposited into the ATA Financial Firm Generates ATA Card Mails ATA Card to individual tax filer Includes: - Account number - specifications regarding card activation - details regarding cards functions and fees - customer service information/number - Specifics how much is in each ATA component POS ATM Online Purchase Online Bill Pay ATA-1 WAGES DEPOSITS Federal Savings Match Money Orders/ Remits

8. Tax filers: Who are They? Data from 2005 Tax Year 134.3 million total returns filed 134.3 million total returns filed 50% - tax filers with AGIs of $30K or less 50% - tax filers with AGIs of $30K or less 25% - tax filers with AGIs between $30-60K 25% - tax filers with AGIs between $30-60K 26% - tax filers with AGIs of $60K and over 26% - tax filers with AGIs of $60K and over 104.7 million returns with refunds (78% of all returns) 104.7 million returns with refunds (78% of all returns) 52% - tax filers with AGIs of $30K or less 52% - tax filers with AGIs of $30K or less 25% - tax filers with AGIs between $30-60K 25% - tax filers with AGIs between $30-60K 22% - tax filers with AGIs of $60K and over 22% - tax filers with AGIs of $60K and over 59.9 million returns with refunds were not direct deposited (48% of returns with refunds) 59.9 million returns with refunds were not direct deposited (48% of returns with refunds) 56% -- 27.8 million -- were tax filers with AGIs of $30K or less 56% -- 27.8 million -- were tax filers with AGIs of $30K or less 23% -- 11.2 million -- were tax filers with AGIs between $30-60K 23% -- 11.2 million -- were tax filers with AGIs between $30-60K 22% -- 10.6 million -- were tax filers with AGIs of $60K and over 22% -- 10.6 million -- were tax filers with AGIs of $60K and over

9. What Does this Mean for the ATA? Based on Data from 2005 Tax Year Dollars Dollars $Almost $70 billion in refunds that were not direct deposited by tax filers of $60K or less $Almost $70 billion in refunds that were not direct deposited by tax filers of $60K or less Volume Volume 39 million tax filers who could be prime for an ATA 39 million tax filers who could be prime for an ATA Cost Savings Cost Savings $31 million each year to the federal Treasury $31 million each year to the federal Treasury

10. ATA: Appeal to Financial Service Providers Scale, to generate volume Scale, to generate volume $70 billion in potential deposits, annually $70 billion in potential deposits, annually 39 million tax filers 39 million tax filers Ongoing revenue: Interchange Ongoing revenue: Interchange Volume to generate systems change Volume to generate systems change Product uniformity, efficiencies, staff competencies, portability Product uniformity, efficiencies, staff competencies, portability Safe and scaleable approach to underbanked market Safe and scaleable approach to underbanked market

11. ATA: Appeal to Federal Government Millions saved by the federal government Millions saved by the federal government $30 million saved each year $30 million saved each year Facilitates more people on the grid Facilitates more people on the grid Provides operational efficiencies for the IRS Provides operational efficiencies for the IRS Positive PR for the IRS Positive PR for the IRS

12. Precedents for Government to Provide Accounts with Benefits and Payments Federal Government Federal Government Social Security Entitlement Payments, Direct Express Social Security Entitlement Payments, Direct Express States States More than 30 states use prepaid debit cards to disburse child-support and welfare benefits More than 30 states use prepaid debit cards to disburse child-support and welfare benefits Food Stamps, Heating Assistance, Child support payments, etc.Food Stamps, Heating Assistance, Child support payments, etc. City City Opportunity NYC Savings Accounts Opportunity NYC Savings Accounts 8 financial institutions providing savings accounts or prepaid cards for families participating in the Opportunity NYC Family Rewards program 8 financial institutions providing savings accounts or prepaid cards for families participating in the Opportunity NYC Family Rewards program

13. Legislation ATA: Treasury interested; Congressional interest ATA: Treasury interested; Congressional interest Savers Bonus Act Savers Bonus Act New Savers Act New Savers Act

14. The Savers Bonus Act Senator Menendez Up to $500 match for tax filers who save in a designated savings account Up to $500 match for tax filers who save in a designated savings account Eligible savings products: IRAs, 401(k)s, 529s, U.S. Savings Bonds, Savings vehicles designated by the Treasury Department Eligible savings products: IRAs, 401(k)s, 529s, U.S. Savings Bonds, Savings vehicles designated by the Treasury Department Eligibility: Incomes with incomes equivalent to up to 120 percent of the EITC eligibility thresholds Eligibility: Incomes with incomes equivalent to up to 120 percent of the EITC eligibility thresholds Enables tax filers to open an account on the tax form - could be ATA Enables tax filers to open an account on the tax form - could be ATA Enables tax filers to purchase a U.S. Savings Bond on the tax form Enables tax filers to purchase a U.S. Savings Bond on the tax form

15. The New Savers Act Senators Smith and Clinton Opening of Accounts on Tax Returns to Facilitate Savings Opening of Accounts on Tax Returns to Facilitate Savings Purchase of United States Savings Bonds on Tax Returns Purchase of United States Savings Bonds on Tax Returns $25 Million for VITAs $25 Million for VITAs $25 Million for Low-Income Taxpayers Clinics $25 Million for Low-Income Taxpayers Clinics

16. New America Foundation Melissa Koide 202.986.2700koide@newamerica.net