Tax Policy

As the presidential campaign kicks off, both Mitt Romney and Barack Obama are looking for popular ways to reduce a still-ballooning deficit. However sensible, proposing deep cuts in Medicare or defense spending has little political appeal. Raising the income tax rate—at least on anyone earning less than a million a year—appears equally unpalatable. There is, however, at least one revenue-generating tool that’s simple, fair, and very efficient, at least in theory: a tax on happiness.

The Asset Building News Week is a weekly Friday feature on The Ladder, the Asset Building Program blog, designed to help readers keep up with news and developments in the asset building field. This week's topics include housing, women in poverty, access to public assistance, banking, student loan debt and inequality.

It's always gratifying when your assumptions are backed up by evidence. Like, when I thought adding a little coffee to my chocolate cupcakes might take them from "yummy" to "ghahhar (read: sound of Homer Simpson in presence of doughnut)." I had reason to believe this might be so: it had been a successful strategy I'd used in other baking applications. But, to borrow a phrase from my mother, sometime you just don't know until you know.

The Asset Building News Week is a weekly Friday feature on The Ladder, the Asset Building Program blog, designed to help readers keep up with news and developments in the asset building field. This week's topics include taxes, inequality, the impact of demographic shifts on retirement security, education, and housing regulation.

For over 26 million American households, tax day is a relief. Thanks to the Earned Income Tax Credit (EITC), filing taxes triggers a refund that may be the largest lump sum of cash these families receive all year. Unfortunately, for many other families, it’s just another day. One in four who qualify for the EITC don’t file, and they don’t benefit from what’s really the country’s largest anti-poverty policy effort—currently at over $55 billion. For those with low-incomes and few resources, their tax refund is a welcomed infusion of cash that can be used to manage their poor finances.

It is fitting, and perhaps ironic, that today is both Tax Day and Financial Literacy Day. Taxes and finances are intimately intertwined, and as the U.S. budget crisis underscores, that relationship is not always a positive one. Today, as our elected leaders ask households around the country to take a look at their own balance sheets, they might be wise to do the same. What they will find isn’t pretty — a ledger filled with a mountain of debt and no real long-term plan to bring spending and revenues more closely in line.

Going to college and getting an education has long been regarded as a reliable path out of poverty. And for good reason. Research by the Pew Economic Mobility Project shows that children in the bottom income quintile have a forty-five percent chance of remaining in the bottom quintile if they only have a high school education; those who get a college degree only have a sixteen percent chance. Likewise, the average college graduate makes $29,000 more per year than someone with only a high school diploma.

Yet when a college education isn’t even an option because of its excessive cost—as is increasingly the case for many U.S. families—this narrative falls apart. Today, the average American household must devote a significant portion of their annual income to tuition in order to make attending college a reality. Although in the long run the educational system needs greater structural changes, two policy reforms that would facilitate saving for college from a young age—the ASPIRE Act and improved 529 accounts—would allow a greater number of low-income students to access higher education.

My television is 100-pound behemoth from an era when Seinfeld was still must-see TV. So, when a couple of friends offered to sell my husband and me their "old" set a month ago—a svelte 32'' flat screen I could have carried home without getting winded—we jumped at the chance.

We immediately boasted about our purchase to my in-laws. My former banker father-in-law reminded me that, as a bonus, we could deduct the cost of the ancient set from our taxes after we donated it.

In many ways, the asset poverty line is a better and more complete indicator of how a particular family is faring financially than the traditional poverty measurement. Asset poverty acknowledges that income only goes so far; even earning a wage sufficient to meet basic expenses, a household without any savings is always one emergency away from disaster. Unfortunately, while some segments of the U.S. population are strongly encouraged to save, others, such as most recipients of public benefits, are effectively banned from saving due to restrictive asset tests. Additionally, lower-income households have inadequate access to products and incentives that facilitate saving. Two policy interventions that could significantly increase the abilities of lower-income families to save include the elimination of asset tests in public assistance programs, and the implementation of the Saver’s Bonus.