Government Shouldn't Block Our Chance to Own, and Grow Rich
President George W. Bush liked to talk about both a responsibility society and an ownership society and in both cases he meant a country where people had more control over their own lives and futures, where they felt like they had a stake in the future of the country. A signature policy proposal under this umbrella was privatizing Social Security, but that went nowhere in Congress. However, one area where progress was made was in raising or eliminating asset tests for government benefit programs. Now we should finish the job.
Asset limits were created to reduce welfare fraud. The worry was that people who had the means to support themselves from assets (mainly bank savings) would collect government benefits instead when their incomes were low enough to qualify. It is unclear if this ever was a large scale problem, but it sends exactly the wrong message to people on the edge between poverty and self-sufficiency. Asset limits have been on a trend that has seen them raised or eliminated over the past fifteen years, but we are not yet where we should be in terms of this policy.
Most personal finance experts recommend that people keep six months worth of living expenses in savings as a cushion against sudden job loss or an unexpected major expense. Few Americans meet this standard, but the advice is sound nonetheless. Unfortunately, the government too often tells people in need to spend almost everything they have before you can qualify for assistance. Worse, once on assistance, these families are precluded from saving assets or they will lose their benefits.
To qualify for Temporary Assistance for Needy Familes (welfare payments), people are subject to asset limits ranging from as low as $1,000 in nine states. The most common limits range from $2,000-$5,000 with 34 states falling in that range. Six states have no asset limit. For SNAP benefits (food stamps), nine states have a $2,000 asset limit, three states have a $5,000 limit, 1 state is at $5,500, and the remaining states have eliminated their asset limits. For LIHEAP (heating bill assistance) most states impose a $2,000 asset limit. Michigan stands out here with a $500,000 asset limit; have assets over that and Michigan will not help you pay your winter heating bill. For a map showing the limits by state, see here.
A major step in the right direction happened a few months ago when Medicaid eliminated asset limits in all states except for people applying for long term care.
Even the earned income tax credit (EITC) has a de facto asset limit because you are limited to investment income of $3,300. With interest rates at the current low levels, that would require an enormous savings account, but this investment income includes all dividends, interest, capital gains, and rents. A family who sold some stock to help support themselves and made a capital gain of $3,500 on what might be a long term investment could suddenly be disqualified from the EITC even though they had no assets remaining after the stock sale and the total income ceiling is over $50,000 for a family of five or more.
Why should a family that has one or more members working to earn a living be penalized for saving some of their earnings? If this family gets food stamps, saving as little as $2,000 for a rainy day or for a home down payment could cause them to lose their food stamps benefits. They would also lose their LIHEAP winter heating assistance in most states. Yet six months of expenses would range from $6,000-$25,000 for people qualifying for these benefit programs.
Conservatives claim to believe in an ownership society and like to encourage self-sufficiency and good financial management. This seems like a perfect issue for conservatives to cooperate with liberals to raise the asset limits to truly appropriate levels. It is a rare chance for bipartisanship.
I can see a reason to keep asset limits at some level; perhaps in the neighborhood of $25,000 for most benefits. That would be above six months of living expenses for pretty much every family currently qualifying for these benefit programs. The EITC should raise its investment income limit and not count capital gains or rents (remember any such income would still count as part of their adjusted gross income, so if they earned too much in these manners they would lose their EITC anyway).
The government has a valid reason to protect the budgets and integrity of its benefit programs from rich people who simply do not have much current income. However, the government has no justification to block people in need from following sound financial planning advice. Forcing families with low and likely unstable incomes to begin with to live with virtually no savings to provide a cushion against financial setbacks is simply cruel.
We have come a long way from fifteen years ago when many asset limits were $1,000, but we still have some distance to go in order to reach the finish line. Let's see some rare bipartisanship from Congress. Pass a bill requiring states to raise their asset limits to a more appropriate level. Financial stability may not be in reach for everyone, but there is no reason for the government to actively block people from trying to achieve it.