Federal Financial Security Credit Act

This blog post was written by Karen K. Harris, who was formerly Director of Asset Opportunity at the Shriver Center and is now a guest contributor to The Shriver Brief.

When the federal government shut down recently, the 16-day period showcased more than just congressional dysfunction—it also exposed the serious saving problems many Americans are facing. During the shutdown, over 8,200 furloughed federal workers were forced to make hardship withdrawals from their retirement accounts. They are not alone—increasingly, families that have exhausted all other options are now dipping into their retirement savings in order to make ends meet. What used to be a last resort has now become a common way to survive. Unfortunately, millions of low-income Americans will find themselves in this situation, where they will not be able to live off of savings during retirement, because they are spending those savings now.

Although the federal government spends $158 billion annually on tax expenditures to encourage retirement savings, only about $1 billion rewards savings by low-income families through the Saver’s Credit. Since the credit is not refundable, meaning that you cannot claim it if you don’t owe taxes, millions of low-income Americans do not benefit from it. Moreover, putting away savings in retirement accounts that have penalties for early withdrawal is problematic for low-income families. 

The Financial Security Credit Act of 2013 would offer a way for low-income families to save for a variety of needs and still receive advantageous tax benefits. Specifically, the bill provides for a 50-percent match on up to $1,000 of savings for single people who earn less than $41,625 and couples who earn less than $55,500. These savings could be held in the form of a retirement account, an education savings account, U.S. savings bonds, CDs, or even some savings accounts. To keep the match of up to $500, families would need to hold onto the savings for at least eight months.

Given that nearly half (43.9%) of households are liquid asset poor, meaning that they lack the savings to cover basic expenses for three months if unemployment, a medical emergency, or other crisis leads to a loss of stable income (approximately $5,763 for a family of four in 2012), the proposed bill would provide a mechanism for increasing many households’ financial stability. Assets such as cash, bank and other interest-earning accounts and assets, and equity in stocks, mutual funds and retirement accounts (IRAs, 401(k)s and KEOGH accounts) will enable families to weather an economic setback, as well as become economically mobile.

Increasing personal savings must be a policy priority if we want a strong economy and country.  The government shutdown is a prime example of how vulnerable many Americans are without robust personal savings. Families should be encouraged to build up savings that can be tapped strategically, in order to maximize economic opportunity, security, and resiliency. By supporting H.R. 2917, we can ensure that the tax code helps us achieve this important public policy objective and reversing the current skewed federal spending on savings support for the wealthy. 


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