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Upside Down: The $400 Billion Upside Down: The $400 Billion Federal Asset BudgetFederal Asset Budget
Corporation for Enterprise DevelopmentCorporation for Enterprise DevelopmentSeptember 23, 2010September 23, 2010
Eugene SteuerleEugene SteuerleRichard B. Fisher Institute FellowRichard B. Fisher Institute Fellow
The Urban InstituteThe Urban Institute
To receive Gene’s regular column, “The Government We Deserve,” send an email to:To receive Gene’s regular column, “The Government We Deserve,” send an email to:[email protected]@urban.org
Two Long-term Goals of Mine (1) To relate asset development policies to principles such as
progressivity & efficiency
(2) To channel asset research to where the saving takes place and where the subsidies are made
Four parts to this presentation:A profile of saving over the lifespanSaving by socio-economic classPrivate versus public savingHow we subsidize saving
Profile of SavingHomes and pensions matter mostFor middle class, pension saving starts early
In fact, much saving can come from simply hanging onto pension assets until retirement
For many, asset spend-down also starts with more than two decades of life expectancy remaining
Mortgage debt pay-down a traditional (but continuing?) major source of saving
CDs and checking accounts often learning tools—not major sources of asset accumulation
Mean Assets of Middle Third of Wealth Distribution For Various Age Groups in 2001/2004
0
50000
100000
150000
200000
250000
300000
<25 25-34 35-44 45-54 55-64 65-74
2004
Dol
lars
Net WealthNet Home Equity plus 401k / IRANet Home Equity
Source: Urban Institute calculations from the 2001 and 2004 Survey of Consumer Finances
Source: Urban Institute calculations from the 1992, 1995, 2001 and 2004 Survey of Consumer Finances and DYNASIM3.
Figure 3a. Annual Wealth Accrual Per Adult between Early 1990's and Early 2000's for Typical Households by Education (2004 Dollars)
$11,800
$22,400
$1,600$3,900
$5,700$4,700
$6,900
$12,100
$31,300
25-34 in 1992/1995 to 35-44 in 2001/2004
35-44 in 1992/1995to 45-54 in 2001/2004
45-54 in 1992/1995to 55-64 in 2001/2005
Age
Less Than High School
High School
College
Annual Wealth Accrual Per Adult between Early 90s and Early 00s for Typical Households,
by Education (2004 Dollars)
Within Cohort Change in Household Wealth over Nine Year Period
0
20000
40000
60000
80000
100000
120000
140000
25-34 35-44 45-54 55-64
Age in 1992/1995
2004
dol
lars
Net Housing 401Ks and IRAs All Other WealthSource: Urban Institute calculations from the 1992, 1995, 2001, and 2004 Survey of Consumer Finances
Saving by Socio-Economic ClassLower-income classes save only a tiny fraction of what is
saved by middle classSaving by black middle class also very low relative to non-
Hispanic white middle classSome variables that stand out
Almost no stocks & bondsLower rate of mortgage pay-down Saving in assets with lower rates of return (& less
risk)
Ratio of Bottom Wealth Third to Middle Wealth Third for Household Heads
Ages 55-64
Bottom 1/3 Middle 1/3 Ratio
Net Home Equity 16875 110448 0.15
401Ks and IRAs 3853 44266 0.09
Bank Accounts 2363 20168 0.12
Net Vehicles 5848 14850 0.39
Mutual Funds, Stocks, and Bonds
602 10732 0.06
Other Assets –Debt -80 35237 …
Net Wealth 29461 235702 0.12
Source: Urban Institute calculations from the 2001 and 2004 Survey of Consumer Finances
Ratio of Black to White Wealth for Household Heads
Ages 55-64 in 2001/2004
Black White Ratio
Net Home Equity 32520 133237 0.24
401Ks and IRAs 10662 61237 0.17
Bank Accounts 3303 24290 0.14
Net Vehicles 6640 17528 0.38
Mutual Funds, Stocks, and Bonds
177 17878 0.01
Other Assets –Debt 4271 44049 0.10
Net Wealth 57573 298219 0.19
Source: Urban Institute calculations from the 2001 and 2004 Survey of Consumer Finances
$9,200
$15,800
$3,500
$7,200$5,500$4,200
$11,800
$5,600
$19,500
25-34 in 1992/1995 to 35-44 in 2001/2004
35-44 in 1992/1995to 45-54 in 2001/2004
45-54 in 1992/1995to 55-64 in 2001/2005
Age
Hispanic
Black
White
Annual Wealth Accrual Per Adult between Early 90s and Early 00s for Typical Households
by Race (2004 Dollars)
Source: Urban Institute calculations from the 1992, 1995, 2001 and 2004 Survey of Consumer Finances and DYNASIM3.
Private versus Public SavingSocial Security and Medicare “wealth” dominates all
private wealth for close to 2/3rds of population
Mean Value and Composition of Household WealthAges 51-61, by Wealth Decile (in 2004 $1,000 dollars)
Source: Urban Institute calculations from the Health and Retirement Study
$118,50036%
$87,50026%
$73,70022%
$36,20011%
$16,3005%
Social Security
Pensions and retirement accounts
Net owner-occupied housing
Real estate, businesses, and other assets
Financial assets
Figure 1. Mean Wealth Per Adult for Typical Households Ages 55-64 in 2001/2004
Source: Urban Institute calculations from the 2001 and 2004 SCF and DYNASIM3.Notes: Typical households are in the middle quintile of the wealth distribution. Financial assets include bank accounts, CDs, stocks, bonds, and mutual funds. Other assets are net of non-housing debt. Social Security and defined-benefit pension wealth are the expected present value of future benefits. Future Social Security benefits are based on lifetime earnings records that were statistically matched to adults in the SCF from DYNASIM3. Future DB pension benefits are based on what adults expect to receive or are already receiving. The analysis combines the 2001 and 2004 surveys and expresses all amounts in 2004 dollars.
Total Wealth = $332,300
Source: Urban Institute calculations from the 2001 and 2004 SCF and DYNASIM3.
Mean Wealth Per Adult for Typical Households Ages 55-64 in 2001/2004
0.31
0.47
0.56
0.23
0.42
0.77
0.14
0.32
0.68
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
Bottom Middle Top LessThanHigh
School
HighSchool
College Hispanic Black White
Figure 5. Median Ratio of Social Security Wealth to Total Wealth for Households Ages 55-64 by Income, Education, and Race in 2001/2004
Source: Urban Institute calculations from combining the 2001 and 2004 SCFand DYNASIM3.
Notes: Wealth includes the expected present value of future Social Security and pension benefits, retirement accounts, net owner-occupied housing, real estate, businesses, and financial assets.
Income Quintile
Source: Urban Institute calculations from combining the 2001 and 2004 SCF and DYNASIM3.
Median Ratio of Social Security Wealth to Total Wealth for Households Ages 55-64 by Income, Education, and Race in 2001/2004
How We Subsidize Saving
Tax subsidies accrue to higher income classes since:They face higher tax ratesThey do most of the saving
Some Tax Expenditures, 2011-15 ($billion)
HomesMortgage Interest $638 Net imputed rental income $224Capital gains exclusion $216Property tax deduction $151
PensionsEmployer plans $247401 (k) plans $361IRAs $ 79Keogh plans $ 96