The Saver’s Bonus Act of 2008

Yesterday Senator Menendez of New Jersey introduced a bill around an idea I’ve been pushing to give targeted families a larger tax refund if they commit to savings. I wrote about it here in a piece that ran in the American Prospect in April on tax day.

The Senator’s bill is called the Saver’s Bonus Act of 2008 and it proposes that savings contributed to eligible savings products could be matched on a dollar-for-dollar, up to $500. Eligible savings products inlcude individual retirement accounts, educational savings plans, or interestingly U.S. Savings Bonds. Savings bonds are noteworthy because you dont have to own a bank account to have one. Familiy would qualify for the bonus if they also receive the Earned Income Tax Credit (EITC) and the bonus will be delivered through the tax filing and tax refund process.

Here is what the Senator has to say about his bill.

It is not really clear how much this bill would cost because it depends on how many people qualify for the benefit and then actually make deposits. Estimates are difficult because this has never been done before. I think will end up as a $1 to 2 billion a year proposal. Increasing the EITC by $500 would cost the Treasury about $10 billion a year. But making receipt of this $500 contigent on savings would cost much less. A 20% take-up rate with savings of $250 a year would cost about $1.25 billion and provide a real good marker that this is behavior public policy should be encouraging, Nice job, Senator.