Editor’s note: This commentary is by Mary R. Niebling, who is director of community economic development at Capstone Community Action located in Barre and serving families in Washington, Orange and Lamoille counties.
[T]here’s been a lot of talk during this presidential campaign about the growing problem of income inequality. But in Vermont, as in the rest of the nation, the problem of wealth inequality also deserves close attention. Although the income poverty rate in our state is below the national average, more than a quarter (26.7 percent) of all Vermonters are deemed “liquid asset poor,” according to a new report by the Corporation for Enterprise Development. This means these households lack the net worth to subsist at the poverty level for just three months in the absence of income.
In addition to providing a safety net, wealth is important because it equals opportunity. Wealth is the down payment on your first home. It’s having enough saved to send your kids to college without tapping out your retirement fund, if you even have one. Whether we have a lot or a little, wealth is about opportunity — and it is increasingly unfairly distributed.
The wealthiest 0.1 percent of Americans today own about as much wealth as the bottom 90 percent of Americans combined. Viewed through a racial lens, the situation is even worse. Median wealth holdings for white households is almost $112,000 compared to a little more than $8,000 for African-American households.
Our “upside-down” federal tax system perpetuates the problem. A typical millionaire in the top 0.1 percent gets tens of thousands of dollars every year from tax deductions, credits, deferrals and other lopsided tax programs. A typical working family gets little or nothing at all. These tax programs could be expanding financial security, boosting retirement security, or increasing homeownership and college savings for working class families. Instead, they are helping the richest households get even richer.
Since 2000, the state Legislature has appropriated funds every year to match the savings of lower income Vermonters who are saving to purchase a home, pursue post-secondary education, and capitalize their small business through Individual Development Accounts or IDAs.
This may seem like an issue that’s all but impossible to manage. I don’t agree. Vermont has some homegrown ideas that have worked here and could be replicated nationwide. This is especially true in the area of matched savings.
Here’s some of what Vermont has done. Vermont was one of the early adopters of matched savings accounts in the country. Since 2000, the state Legislature has appropriated funds every year to match the savings of lower income Vermonters who are saving to purchase a home, pursue post-secondary education, and capitalize their small business through Individual Development Accounts or IDAs. These accounts coupled with financial education and counseling are a proven strategy to help lower income families gain a foothold in the American economy. Unfortunately, the appropriation only funds a small number of accounts annually. Vermont could do much more by increasing fees on mutual funds as Gov. Peter Shumlin has proposed.
In addition, last year our state Legislature passed a bill to establish a higher education savings account for every child born or adopted in Vermont. With these accounts, each child would receive $250 at birth and low-income children would receive an additional $250. And every family would be encouraged to add their own savings. These accounts grow with accruing interest and deposits right up until the child is college ready. With this legislation already on the books, all we need to do now is appropriate the necessary funds. Adding support for children’s savings accounts to our existing support for IDAs is one way to start reversing wealth inequality in Vermont.
Building opportunity via small-dollar savings isn’t just pie in the sky thinking. Research shows that low- and moderate-income students with just $500 or less in an account are three times more likely to enroll in college and four times more likely to graduate. Another recent study found that a large scale, nationwide children’s savings program could reduce the racial wealth gap by as much as 50 percent! This would be an historic increase in opportunity. And if we accomplish this by turning those upside-down tax programs right-side up, it would also mean an historic decrease in inequality.
Vermonters can’t do this on our own. The nationwide problems of growing inequality and stagnating opportunity demand nationwide solutions. But Vermont can point the way with our own homegrown successes. As presidential candidates get ready to seek our support on Town Meeting Day, I hope they will take a careful look at what we’ve accomplished here. I hope they tell us how they intend to supercharge our matched savings innovations and take them nationwide. And I hope they’ll take a stand by turning America’s pro-inequality, anti-opportunity federal tax programs right-side up.
