[Congressional Record Volume 146, Number 75 (Thursday, June 15, 2000)]
[Senate]
[Pages S5264-S5267]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Ms. LANDRIEU:
  S. 2740. A bill to provide for the establishment of Individual 
Development Accounts (IDAs) that will allow individuals and families 
with limited means an opportunity to accumulate assets, to access 
education, to own their own homes and businesses, and ultimately to 
achieve economic self-sufficiency, and to increase the limit on 
deductible IRA contributions, and for other purposes; to the Committee 
on Finance.


       the savings accounts are valuable for everyone act of 2000

  Ms. LANDRIEU. Mr. President, I want to speak for a few moments this 
morning and introduce a bill that I am calling the Savings Are Valuable 
for Everyone Act, the SAVE Act of 2000.
  Mr. President, as of February 1, 2000, the United States officially 
entered into the longest period of economic expansion in our history. 
This means we have had nine years of continuous growth--a hard-earned 
achievement. During this time, we have had the first back-to-back 
federal budget surpluses in 43 years, the smallest welfare rolls in 30 
years, and 20 million new jobs for people across America.
  Clearly we are doing something right. However, that does not mean our 
work is done. In order for this economic prosperity to reach its full 
potential, we must continue to provide more opportunities (not 
guarantees) to widen the ``winners' circle'' and allow all Americans to 
participate in our economic expansion.
  According to the U.S. Department of Labor, the latest unemployment 
figures show that most Americans do have jobs. The unemployment average 
is 4.1 percent and many states have even lower rates, such as Iowa with 
2.5 percent, New Hampshire with 2.7 percent, and Virginia with 2.8 
percent. In some places across the country, there are some even higher 
spots, such as Howard County, Maryland, where the unemployment rate is 
a remarkable 1.4 percent. However, because of the high cost of living, 
many working families

[[Page S5265]]

still struggle to make ends meet and are being forced to live from 
paycheck to paycheck, without any hope of saving for the future or 
building the tangible assets which are so important to upward mobility.
  I recently finished reading the book, ``The Millionaire Next Door,'' 
and discovered that when the authors of this book began interviewing 
millionaires as part of their research, they were surprised to find 
most of the wealthy people they spoke with didn't drive fancy sports 
cars, or have $5,000 gold watches or even live in fabulous mansions. 
They were first-generation business people who, through aggressive 
saving, sensible investing and frugal spending, had managed to 
accumulate a significant amount of assets.
  While not everyone's goal in life is to become a millionaire, this 
book does carefully outline the road to fiscal security and clearly 
documents the importance of saving.
  I know that you will be as shocked as I was to learn that, while the 
net worth of the typical American family has increased dramatically 
recently, the net worth of families under $25,000 has actually been 
decreasing. The Federal Reserve Board recently released a study which 
showed that families earning under $10,000 a year had a medium net 
worth of $1,900 in 1989. This figure rose to $4,800 in 1995 but slipped 
to $3,600 by 1998. The net worth of families who earn less than $25,000 
annually was $31,000 in 1995 but then dropped to $24,800 in 1998.
  During this same time period, while the number of families who owned 
a home or business rose overall, this figure among lower income 
families has actually decreased. In 1995, 36.1 percent of families who 
earned less than $10,000 a year owned a home, however by 1998 this 
number had decreased to 34.5 percent. In 1995, 54.9 percent of families 
who earn less than $25,000 annually owned their home but in 1998 this 
percentage was reduced to 51.7 percent.
  Mr. President, I rise today to address this problem by introducing 
the Savings Are Valuable for Everyone Act of 2000, or SAVE, which will 
help all families save for the future. The goal of SAVE is simple: help 
the working poor build assets for themselves and to expand the IRA 
limit to ensure retirement savings. The goal is not income 
redistribution, but instead it is to find ways that allow opportunities 
for everyone, regardless of income, to build the productive assets that 
lead to economic security.
  In order to help the working poor break the discouraging cycle of 
living from paycheck to paycheck and to help the lower-middle class 
move up the income ladder and save for the future, this measure 
provides incentives for the accumulation of assets through the use of 
Individual Development Accounts, or IDAs, while, at the same time, 
making it easier for the rest of America to save for retirement.
  IDAs are matched savings accounts which are restricted to three uses: 
(1) post-secondary education/training; (2) small business start-up 
costs; and (3) purchasing a first home. Private as well as state and 
local public sector funds can also be contributed to the account with a 
special tax credit of up to $500 a year attached to the private 
contribution. Usually it takes two to four years for the account holder 
to accumulate enough funds to purchase the asset they were saving for 
and, before the money is released, they must complete an approved 
financial education course which is provided by the qualified financial 
institution or non-profit which holds the account.
  All IDAs must be held at a ``qualified financial institutions,'' 
meaning, any financial institution qualified to hold an IRA. IDAs are 
available to all citizens or legal residents of the United States who 
are at least 18 years old and whose household income does not exceed 80 
percent of the area median income, or AMI. At least 33 percent of the 
IDAs will be targeted to households which are at 50 percent or below 
the AMI. Contributions made by a participant into an IDA are limited to 
$2,000 per year. While the individuals who open these accounts are 
encouraged to use the money for their own benefit, they may withdraw it 
to help a spouse or dependent open a business, buy a house, or further 
their education.
  For example, one such program was started in March of 1999, by 
Hibernia Bank Louisiana. They began pilot IDA programs in New Orleans, 
with another one operating in Shreveport, to help low-income families 
save for a house. So far, 11 families are participating in the New 
Orleans program, with seven already placed in homes of their own and 
four shopping for one.
  The program administrator said these 11 families ``absolutely would 
not be in a position to buy a home at this time'' without this program. 
Hibernia matches the account holders funds two-to-one up to a set 
amount. The funds then can be used for home-buying costs, such as a 
down payment or closing costs--lump sums that often can be prohibitive 
to working families on a tight budget.
  In order to encourage the establishment of IDAs, two tax credits are 
offered. The first is available to participating financial 
institutions. For every dollar saved in an IDA, the qualified financial 
institution will provide a one to one match, limited to $500 per person 
per year. The financial institution would then be eligible for a 90 
percent federal tax credit for matching funds provided.
  The second tax credit is known as the IDA Investment Tax Credit. In 
order to leverage private sector investments and encourage broader 
community involvement in this program, a 50 percent tax credit will be 
available for investments in qualified non-profits, 501(c)(3)s or 
credit unions, which can administer qualified IDA programs. However, in 
order qualify for this tax credit, at least 70 percent of the funds 
received must be used for financial education, program monitoring, and/
or program administration. Any taxpayer can participate can participate 
as a donor.
  It is important to remember that each IDA consists of two parallel 
accounts--one that the participants make his deposits into and one that 
the donor makes their deposits of matching funds into. The interest 
on the money in the participant's account would be taxed while all 
funds in the matching account (including interest) would be tax free. 
One could say that the participant's account is treated in a similar 
fashion to the way that the IRS treats IRAs and 401(k)s.

  Already an estimated 3,000 people nationwide are taking advantage of 
available pilot programs, which are run in partnership with more than 
100 nonprofit organizations and authorized financial institutions. This 
fact shows the strength of this plan: it serves as a catalyst for the 
rapid creation of public-private partnerships--between accountholders, 
banks, foundations, policymakers and providers of financial education--
that are the hallmark of successful IDA programs.
  As you can see, IDAs are not only good for individuals and their 
families, they also are good for the future of our country. Russell 
Long once said, ``The problem with Capitalism is that there are not 
enough Capitalists.'' IDAs provide a tool with which our country can 
address this age-old problem and help create more Capitalists. When 
capitalism is combined with the proper social safety nets and 
incentives for asset development for those at all income levels, we 
create incentives for saving at all levels while you create a 
capitalist system that works for everybody. These accounts are a sure-
fire mechanism that will build assets and create wealth among the 
families and communities who need help the most.
  Economic analyses of the impact of a national IDA investment show 
that for every dollar invested, a $5 return to the national economy 
would result in the form of new businesses, new jobs, increased 
earnings, higher tax receipts and reduced welfare expenditures. 
However, it is important to realize that the Savings Accounts Are 
Valuable for Everyone Act does not simply focus on the working poor. It 
also provides savings incentives for the middle class by expanding the 
current Individual Retirement Account limits from $2,000 a year to 
$3,500.
  Currently, our tax code allows individuals to save up to $2,000 a 
year in IRAs with income earned on the deposits either being tax 
deferred until withdrawal, which can begin at age 59\1/2\, or, through 
the use of the Roth IRA, the taxes can be paid up front on the money 
deposited into the accounts. SAVE will make these accounts an even 
better tool for retirement saving by expanding the annual contribution 
limits.
  I firmly believe that we must find ways to shift our nation's policy 
from

[[Page S5266]]

one of consumption to one of savings and wealth accumulation for all 
American households. To understand why, one need only consider these 
facts which were calculated by the Corporation for Enterprise 
Development in Washington, D.C.:
  One-half of all American households have less than $1,000 in net 
financial assets;
  One-third of all American households and 60 percent of African-
American households have zero or negative net financial assets;
  Forty percent of all white children and 73 percent of all black 
children grow up in households with zero or negative financial assets;
  By some estimates, 13-20 percent of all American households do not 
even have a checking or savings account; and
  Ten percent of all American households control two-thirds of the 
wealth.
  We already have a tax code that provides over $300 billion in federal 
tax expenditures which are dedicated to asset building for middle- and 
upper-income wage earners and businesses, but tax-based incentives are 
still out of reach for most lower- and middle-income families. In this 
time of wealth and prosperity, why can't we offer tools that will 
assist in asset building for the families who need them the most--the 
working poor and moderate-income families who make up the backbone of 
our economic system.
  Benjamin Franklin once said, ``The wealth of an individual is 
measured not by what a person earns but by what he saves.''
  Take the example of Oseola McCarty of Mississippi. Oseola toiled in 
obscurity for most of her life, taking in other people's laundry for $2 
a bundle and amassing a small fortune by socking away every extra cent 
in a savings account. At the age of 87, she donated $150,000 of her 
life savings to the University of Southern Mississippi, establishing a 
scholarship fund to give African-American youths a chance for the 
education she never received.
  What Oseola accomplished is a great example of the power of savings. 
Savings, investing and assets--not necessarily income--determine 
wealth. Just think what Oseola could have accomplished, not only for 
herself but for others, with the benefit of a program like IDAs to add 
matching funds and additional interest to her hard-earned savings.
  IDAs are partnerships between the government, the community and the 
individual to build stronger families and a stronger economy. For not 
only do Americans improve their economic security through the building 
of assets, this also stimulates the development of capital for the 
entire nation. As our nation continues to build on our recent economic 
successes, we in Congress must continue to look for innovative ways to 
give working families the tools they need to plan for the future. 
Passage of the Savings Accounts are Valuable for Everyone Act is one 
way we can do this.
  Mr. President, to summarize my comments, I will share a story about 
what this act, if passed and adopted, will do. There is a family in 
Washington, the Darden family. Selena and Dwayne Darden thought they 
were doing the best they could do. They were both working, earning 
about 150 percent of the poverty rate. They had four children and were 
doing a very good job of raising their children, but basically living 
paycheck to paycheck. They never thought they could save for the future 
or, for that matter, own a home. There just wasn't anything extra.
  Then just about 2 years ago, according to this article, Selena, who 
is a beautician, heard about something called Individual Development 
Accounts, a program that was offered here in Washington with the 
Capital Area Asset Building Corporation. They inquired and were told 
basically that this was a pilot program that Congress had established a 
few years earlier that would allow her and her husband to put up some 
savings, which would be matched by the Federal Government through an 
appropriate financial institution and a community agency that would 
provide some education and support for the effort. If she was a 
consistent and good saver, she and her husband could save enough for a 
downpayment. The end of the story is that they did; they saved enough. 
They are now proud homeowners right here in Marshall Heights.
  I share that story because that is exactly what this bill does. In my 
State, in the last few years, I have come to learn about these pilot 
programs that we initiated through the work of Senator Coats, and 
Senator Santorum has been on this issue for some time, and Senator 
Lieberman has been advocating this proposal. I want to add my voice by 
introducing this bill to say how much I support this effort, and to 
take these pilot programs that have been successful and expand them 
nationwide.
  In Louisiana, I have come across many families from New Orleans to 
Shreveport, and elsewhere, who are coming into partnership with the 
Hibernia Bank and community action organizations, such as the 
Providence House in Louisiana, that help families get back on their 
feet when they go through a crisis. The idea is to help create these 
accounts. People can begin saving money.
  The bill allows for them to either use the funds for home ownership, 
because we know how important that is, or building a person's 
confidence and self-esteem--how important it is for children to live in 
a home that actually belongs to them, as opposed to renting and perhaps 
having to move, and to be able to put down roots. We know how important 
that is.
  This bill will allow people to save to start up a business. We spend 
a lot of time in Washington talking about business. Sometimes I think 
we focus on businesses that are actually quite large, which is 
wonderful; but we need to focus on the great strength of America, which 
is small business--that entrepreneur out there who takes a risk to 
start a business. He employs himself and one, two, or three other 
people. That is the backbone of the American economy and the great 
system we have enjoyed. We are really the envy of the world. This bill 
will allow for people to save a few thousand dollars to start a 
successful business and employ members of their family, or friends, or 
other workers in their area.
  I am hoping we can potentially consider, as this bill moves through 
the process, that it may allow savings for a transportation vehicle. If 
you can get a good job, sometimes the jobs are not necessarily where 
people live. Mass transit is not as dependable as it should be. Perhaps 
we should consider this matched savings plan to give people the ability 
to get a vehicle and to be able to drive to work. Some of these pilots 
allow that.
  This bill will allow for these savings accounts. It is limited to 
households of 80 percent of the median income, based on regions, and 
150 percent of the national poverty rate. While that might work for 
Louisiana, it doesn't work very well for poor families in Connecticut 
or California, where the standard of living is high.
  We have designed this bill to reach to the low-income working poor. 
But we are sensitive to the different regions in this Nation. We 
believe if we can help people accumulate assets and encourage them to 
save, that not only is it good for individual families but it is good 
for our Nation to encourage savings rates.
  Let me share a few statistics about this which are of very great 
concern to me and of which I would like my colleagues to be more aware.
  According to a recent report by the Corporation for Enterprise 
Development in Washington, DC, one-half of all American households have 
less than $1,000 in financial assets; one-third of all American 
households and 60 percent of African American households have zero, or 
negative financial assets; 40 percent of all white children and 73 
percent of all African American children grow up in households with 
zero or negative financial assets; by some estimates, 13 to 20 percent 
of all American households do not have a checking or a savings account; 
and 10 percent of all American households control currently two-thirds 
of the wealth.
  If we want to address an income gap, if we want to try to increase 
prosperity, if we want to try to eliminate poverty, I suggest that our 
efforts have to be more than just income, more than just about full 
employment or a job. It is about income, frugal spending, and 
aggressive savings. And we

[[Page S5267]]

should be partnering with the American people to do just that, to 
encourage wealth and assets creation and development.
  Not everyone wants to be a millionaire. Some people are better at 
that than others. But I don't know of a family that doesn't want to 
have financial security--not one. Whether they work at a relatively 
modest job from 9 to 5, or whether they work two jobs, or three, or 
whether they are quite aggressive and well educated enough to make 
large sums of money, in every case I think it is about security. It is 
about choices. But I don't know any family that doesn't want to be 
secure. We can be better partners in this Government by encouraging 
policies such as this that enable people to be part of that American 
dream, to widen the winners circle, because we have the greatest 
economic expansion underway and there is a cost-effective way to do it.
  Let me just make a couple of other points as I close.
  According to some documents that are supporting this policy, let me 
read for the Record a couple of things:
  No. 1, assets matter and have largely been ignored in poverty policy 
debates.
  No. 2, individual development accounts address the wealth gap and 
bring people into the financial mainstream.
  No. 3, public policy plays a large role in determining levels of 
household wealth.
  People say, We can't afford to do this. They ask, Why would we want 
to do this for a certain group of people, low- and moderate-income 
people? One reason is we already do it to the tune of $300 billion for 
middle-income and wealthy individuals and businesses. It is called tax 
incentives. All throughout our Tax Code and public policy, we are 
already putting up $300 billion to help create and maintain assets for 
the wealthy and for businesses. Let's do the same for the working poor 
and lower and middle class so they can be more able to join this 
extraordinary economic expansion. We do that through IRAs and 401(k)s 
and IDAs, which are good national investments and they improve the 
national savings rate.
  In conclusion, let me say that this SAVE Act will expand IDA. It also 
raises the income limits for IRAs for all families in America to 
encourage them to save. By expanding the opportunities for IRAs, which 
many of us have supported in a bipartisan way, and by implementing IDAs 
from pilots to a national model, I believe we could go a long way in 
eliminating poverty, expanding the middle class, and expanding and 
widening the winners circle in this great economic expansion.
  I share this with my colleagues. I thank again Senator Lieberman for 
his great work. Senator Santorum has also been leading this effort. 
Senator Dan Coats, who is no longer serving with us, I understand was 
one of the original sponsors of this pilot program. It is now time. We 
know it works to take it national. That is what we do with this bill.
  I yield whatever time I may have.
  Mr. President, I ask unanimous consent to insert additional material 
into the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                          IDAs: Federal Policy

       The benefits and rationale for enacting federal IDA policy 
     can be summarized in five parts:
       1. Assets matter, and have been largely ignored in poverty 
     policy. Assets provide an economic cushion and enable people 
     to make investments in their futures in a way that income 
     alone cannot provide. IDAs address a big piece of the poverty 
     puzzle--the savings and asset base of the poor--that has 
     never been addressed before.
       2. IDAs address the wealth gap and bring people into the 
     financial mainstream. Despite the growing trend of average 
     Americans investing in stocks and mutual funds, many are 
     being left behind. One-third of all American households have 
     zero or negative net financial assets, and up to 20 percent 
     of all households do not even have a checking or savings 
     account.
       3. Public policy plays a large role in determining levels 
     of household wealth.--Nearly $300 billion in federal tax 
     expenditures are dedicated to asset building for middle- and 
     upper-income people (for home ownership, retirement, and 
     investing). But public policies often penalize low-income 
     people or put tax-based asset incentives out of their reach.
       4. Individual asset accounts (like IDAs) are the future of 
     asset building. Increasingly, asset accounts such as IRA's, 
     401(k)s, medical savings accounts, individual training 
     accounts and other individual savings incentives are the 
     emerging tools for wealth-building policy in the new global, 
     flexible economy. IDAs are an inclusive extension of this 
     policy trend.
       5. IDAs are a good national investment and improve the 
     national savings rate. Economic analyses of the impact of a 
     national IDA investment show that for every dollar invested, 
     a five dollar return to the national economy would result in 
     the form of new businesses, new jobs, increased earnings, 
     higher tax receipts, and reduced welfare expenditures. At the 
     same time, IDAs will increase core deposits at a time when 
     many Americans are moving to other investment vehicles. And, 
     importantly, IDAs help address the growing problem of the 
     declining national personal savings rate.
                                 ______