Banking on Tax Time

Policy makers are catching on to what retailers have long understood: tax time is an opportunity to cash in. Why? Listen to the grumbling around you about the impending filing deadline. Everybody is annoyed because EVERYBODY (not a precise measurement) files taxes. This makes tax filers a big market. Next, the refund.  A lot of people get A LOT of money back in their tax refund. The result is an abundance of businesses offering suggestions about where all those people can spend all that money. Your home improvement store will add to your balance if you load some of your refund onto their store card. Other retailers offer tax day only promotions. 15 is the new dozen at bakeries on tax day.

While nobody is arguing, least of all me, that cupcakes aren't a delicious and worthwhile expenditure of your tax refund, there are some other options that would likely have more bearing on your wellbeing (and less on your waistline). Recently, the federal government has gotten into the game by promoting options to save, rather than spend, your refund by amending tax filing forms to allow tax filers to split their refund in up to three accounts as opposed to requiring receipt in a lump sum, and offering the opportunity to purchase U.S. Savings Bonds. These are options that are available to everyone, but more can be done, especially to assist the low-income families who struggle the most to save and for whom having savings is most consequential.

Over the past three years, the City of New York has been piloting a program to do just that. $aveNYC was launched to test the potential of facilitated account opening and a direct match incentive for increasing savings among low-income households at tax time. The outcomes of $aveNYC affirm that given the right structures and incentive, even families with very low incomes and with little or no experience saving can and will save. These outcomes speak both to the need for this type of policy and the potential for its success on a national scale.

The Saver's Bonus proposal, developed by New America and introduced in legislative form by Senator Robert Menendez (D-NJ), provides this model for a federal policy solution that incorporates those design elements from $aveNYC with demonstrated success and applies them to support the multiple savings needs that families encounter.

The Asset Building Program has just released a paper that discusses the policy rationale for $aveNYC, the pilot experience and its key findings to date, and a number of ways that federal policy could further leverage the tax-time moment to create a pathway for households with low incomes and few resources to attain financial stability and advance up the economic ladder. You can find a copy of this paper here.