Between 2005 and 2010, American households lost a whopping one third of their accumulated assets in the form of lower savings and investment holdings, lost property values, and reduced spending power.
Low-income families (and especially those of color) are increasingly precluded from making basic investments in themselves and their families. Many have lost their homes. They are unable to pay for the additional education and training that would expand their earnings and savings potential. They cannot pay for the childcare and transportation needed to get and keep a job. And most lack access to capital that could help them start a new business.
What most Americans seek and deserve is not unreasonable. They want a renewed social contract -- a national agreement and practice that rewards honest, hard work. They want safe American jobs that offer living wages, have a built-in growth trajectory, and hold a degree of security and reward for high performance. They want to be able to save and invest so they can pass along the benefits of greater economic security and assets to their families.
We are capable of a much more active response to public aspirations that at once meets the immediate need for intervention while it also acknowledges the real political constraints of massive new public spending. I suggest an approach called the American Invest for Success Program.
The Invest for Success Program would be enacted through federal legislation establishing a new social contract with the American middle class. It would build on and extend the Earned Income Tax Credit, focusing household tax benefits much more on asset building and select debt-reduction investments, while also increasing cost-of-living support.
Specifically, for tax-paying families earning less than $75,000 annually, the program would provide a one time, five-year federal tax holiday in exchange for qualifying alternative household asset building investments. Such allowances could include savings for a down payment on a principal place of residence, tuition for a college degree program or job training certification successfully completed, or an approved new business investment.
The program could also allow tax exemptions for repayment of a student loan or a catastrophic health bill that reduces household debt to such a degree that it empowers Americans who are otherwise held back from making greater economic contributions to better harness their talent and treasure for the common good.
As payments are made to these ends, replacing more blunt and impersonal annual income tax contributions, the assets being put to work could be housed at qualifying financial institutions and used to free up and lower the costs of available capital for allied economic development purposes.
By redirecting tax payments from the federal government in this way, policy leaders would provide much greater personal choice and tailoring of social investments for lower- and middle-class taxpayers in ways that would build their household assets, reduce their most significant debts, and resuscitate their faith in the American dream.
Lost tax revenues would be more than compensated by increased demand and taxable income in key national markets, such as the housing and finance sectors, where significant new business would be generated. And in the longer term, more educated and trained, more secure and fiscally empowered Americans would emerge, at significant savings to the public, owing to their ultimate lesser dependence on government support as they age.
Republicans would resonate with the idea of wholesale reductions in the tax burden on American households generally, and the enhancement of personal choice and commercial opportunity with respect to how qualifying investments would be made and banked. Democrats would resonate with the prospect of helping working families achieve a more secure middle-class status. In effect, everyone would win.
Our current extreme circumstances call for creative, out-of-the-box thinking about how to rebuild a political economy of hope in America. Introducing an "invest for success" mentality into our federal tax system is one important way to move on this front. It is an approach that most Americans would easily understand and support, and an overdue response to America's fading social contract and protracted economic woes.
Henry A. J. Ramos is President of the Insight Center for Community Economic Development and a member of the California Community Colleges Board of Governors.
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