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Tax Reform an Opportunity to Cut Child Poverty, Papers Show
Ed Walz (Former Staff)Poverty & Family Economics Tax Policy
Washington – The bipartisan children’s advocacy group First Focus released two new papers today, underscoring the importance of federal tax reform for children. One, a rare, bipartisan tax plan by U.S. Representative Steve Stivers (R-Ohio) and U.S. Representative Ruben Hinojosa (D-Texas), proposes making tax-preferred “Roth IRA” investment accounts available to young children. The other goes farther, proposing the automatic establishment of tax-preferred “child savings accounts” for every child at birth, seeded with a modest starting balance. The papers are included in First Focus’s new publication, Big Ideas – Pioneering Change: Innovative Ideas for Children and Families, a compendium of more than a dozen papers addressing issues ranging from asthma management to intergenerational poverty.
“With child poverty rate double the poverty rate for seniors, Congress must act now,” said First Focus president Bruce Lesley. “If the question is what to do, here are two great answers.”
Roth IRAs for Kids: Little Savers, Big Results, by Congressman Hinojosa and Congressman Stivers proposes Roth Accounts for Youth Savings (RAYS) accounts that work like Roth IRAs, but without the earned income requirement. RAYS accounts could be capitalized by a child’s parents, other relatives, or nonprofits. Beneficiaries could use RAYS account assets for education, homeownership, medical expenses, and retirement.
Ensure Every Child Has a Lifelong Savings Account, by Reid Cramer and Elliot Schreur at the non-partisan policy institute New America, proposes the automatic establishment of tax-preferred “child savings accounts” for every child at birth. The federal government would seed CSAs with a modest starting balance based on the child’s family income at birth, then parents would be able to contribute a modest additional amount every year, with assets growing tax-free over a child’s lifetime. Beneficiaries could use RAYS account assets for education, homeownership, and retirement.
Both papers cite indicators that parents in low-income families want to save for their children’s futures, but lack both knowledge and – most importantly – the financial resources required to capitalize savings accounts while meeting the family’s timely needs. Both papers point to initiatives with a track record of success in reducing those barriers and promoting savings. The Saving for Education, Entrepreneurship and Downpayment initiative is a national example, and the authors cite local models in California, Maine, Ohio, and Oklahoma.
“This idea is big, but it’s not new,” said Lesley. “Parents want to build better lives for their kids – they just need the ways and means to do it.”
Congressional tax-writing committees have begun formulating comprehensive federal tax reform proposals. Tax policy accounts for 40 percent of federal investments in America’s children, so the outcome of tax reform debates will have a sweeping impact on children. Yet most high-profile tax reform proposals have not centered on children.
“Congressman Hinojosa and Congressman Stivers get it – children have a huge stake in the debate over federal tax policy,” said Lesley.
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First Focus is a bipartisan advocacy organization dedicated to making children and families the priority in federal policy and budget decisions. For more information, visit www.firstfocus.org.