[Congressional Record Volume 145, Number 98 (Tuesday, July 13, 1999)]
[Senate]
[Pages S8369-S8370]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                    INDIVIDUAL DEVELOPMENT ACCOUNTS

  Mr. ABRAHAM. Mr. President, within the next several weeks, the Senate 
will debate an issue of extreme importance to the future of our 
economy--whether and in what manner to return nearly $800 billion in 
tax relief to the American people over the next ten years.
  I strongly support this tax cut. I believe we owe it to the American 
people, who after all provided the hard work that produced our current 
surpluses. I also believe that these surpluses provide us with a unique 
opportunity to reduce and simplify our current onerous, Byzantine tax 
code. Finally, and most important for my purposes here today, we now 
have an important opportunity to target and encourage further saving 
and investment.
  To keep our economy growing and our budget balanced, we must do more 
to encourage saving and investment. Therefore, it is my view that part 
of the tax cut should be crafted following an innovative concept called 
Individual Development Accounts or IDAs. IDAs are emerging as one of 
the most promising tools to help low income working families save 
money, build wealth, and achieve economic independence. This pro-asset 
building idea is designed to reward the monthly savings of working-poor 
families who are trying to buy their first home, pay for post-secondary 
education, or start a small business. The reward or incentive can be 
provided through the use of tax credits to financial institutions that 
provide matching contributions to savings deposited by low income 
people. In this way those savings will accumulate more quickly, 
building assets and further incentives to save.
  I believe so strongly in the many benefits that IDAs can provide to 
low income families that I have cosponsored S. 895, the Savings for 
Working Families Act written by my colleagues, Senators Lieberman and 
Santorum. Similar to 401(k) plans, IDAs will make it easier for low 
income families to build the financial assets they need to achieve 
their economic goals. But availability is not enough. We also must 
empower the working poor in America to make use of this important 
economic tool. That is why a second key component of the IDA concept 
consists of financial education and counseling services to IDA account-
holders. These services will allow IDA users to further improve their 
ability to save and improve their quality of life.
  Let me briefly outline the four key reasons why I believe the IDA 
concept is so crucial to a well-crafted tax cut.
  First, asset building is crucial to the long-term health and well 
being of low income families. Assets not only provide an economic 
cushion and enable people to make investments in their futures, they 
also provide a psychological orientation--toward the future, about 
one's children, about having a stake in the community--that income 
alone cannot provide. Put simply, families that fail to save fail to 
move up the ladder of economic success and well-being. Unfortunately, 
saving strategies have been ignored in the poverty assistance programs 
established over the past 35 years. IDAs will fill this critical gap in 
our social policy.
  Second, our great Nation needs to address the wealth gap, and bring 
more people into the financial mainstream. While there has been 
considerable attention given to the income cap among our citizens, I 
wonder how many Americans realize that ten percent of the families 
control two-thirds of our Nation's wealth or that one-half of all 
American households have less that $1,000 in net financial assets, or 
that 20 percent of all American households do not have a checking or a 
savings account?
  Current Federal tax policy provides more than $300 billion per year 
in incentives for middle-class and wealthy families to purchase 
housing, prepare for retirement, and invest in businesses and job 
creation. Yet, public policies have largely penalized low income people 
who try to save and build assets and savings incentives in the tax code 
are beyond their reach. It is time for us to find ways to expand these 
tax incentives so that they can reach low income families who want to 
work and save.
  Third, IDAs are a good national investment, yielding over $5 for 
every $1 invested. According to the Corporation for Enterprise 
Development or CFED, the initial investment in IDAs would be multiplied 
more than five times in the form of new businesses, new jobs, increased 
earnings, higher tax receipts, and reduced welfare expenditures. And 
these increases will come from genuinely new asset development. Savings 
will be produced that could not have been produced by other, more 
general means, and in areas where there were no savings before.
  Finally, IDAs have a successful track record we should not ignore. 
IDAs are working now in our communities and they are having a 
tremendous effect on families who choose to save for the future. There 
are already 150 active IDA programs around the country, with at least 
another 100 in development. Approximately 3,000 people are regularly 
saving in their IDAs. The CFED has compiled encouraging evidence from 
their IDA pilot programs showing that poor people, with proper 
incentives and

[[Page S8370]]

support will save regularly and acquire productive assets. There are 
almost 1,000 families participating in CFEDs privately funded IDA 
demonstration and as of December 31, 1998 these families saved over 
$165,000, an amount which leveraged another $343,000 in matching funds.
  IDAs are already a tremendous success. But, unless additional 
resources can be found to provide the matching contributions so 
essential for IDAs to succeed, most low income families will never have 
the opportunity to save and build assets for the future. The major 
factor in delaying the creation of IDAs in the 100 communities 
mentioned above is the lack of a funding source that can provide the 
needed matching contributions. Our tax cut bill will and should provide 
nearly $800 billion in tax cuts over the next ten years. I believe 
that, within this bill, we should make a small investment of only $5-
$10 billion in IDAs. This would ensure that millions of working, low 
income families who want to work and save for their first home, provide 
a post-secondary education for a child, or start a small business could 
establish their own IDA accounts.
  I strongly encourage the Senate Finance Committee to look closely at 
IDAs as a means of helping low income families build the financial 
assets they need to achieve the American Dream.

                          ____________________