Publications on Income & Wealth Distribution

In 1979, federal taxes claimed 8 percent of the income of households in the lowest quintile of the income distribution.1 Over the following three decades, the average effective tax rate (ETR) — taxes as a percentage of income — fell by nearly half to 4.3 percent in 2005. Most of the decline resulted from a sharp drop in the individual income tax, primarily due to expansion of the earned income tax credit and the child tax credit (CTC). Because the EITC is refundable and the CTC is partially refundable, they can reduce a household’s tax liability below zero and generate a net payment.

Designed to promote retirement saving, the Pension Protection Act of 2006 clarified auto-enrollment, auto-contribution, and auto-investment rules in employer 401(k) plans. Early evidence suggests that the legislation boosted these plan features and increased employee participation in 401(k) plans. It is too soon to gauge the act's ultimate success, however, because it hinges on the number of new participants that will eventually amass substantial account balances. Adding to the uncertainty, the recent LaRue Supreme Court decision, which highlights the legal liability that employers face as plan fiduciaries, could undermine future retirement security by making some employers reluctant to sponsor plans.

Low-wage jobs can be unstable, leaving families struggling to cope with employment gaps and financial emergencies that can strike without warning. About four in five low-income families are "asset poor," lacking enough liquid savings to live for three months at the federal poverty level without earnings. In this essay, McKernan and Ratcliffe suggest a cluster of policies that would improve financial markets and savings opportunities for low-income families across the life cycle.

This paper is a response to New Safety Net Paper 7, "Enabling Families to Weather Emergencies and Develop: The Role of Assets," by Signe-Mary McKernan and Caroline Ratcliffe.

Low-wage jobs can be unstable, leaving families struggling to cope with employment gaps and financial emergencies that can strike without warning. About four in five low-income families are "asset-poor," lacking enough liquid savings to live for three months at the federal poverty level without earnings. In this summary, McKernan and Ratcliffe suggest a cluster of policies that would improve financial markets and savings opportunities for low-income families across the life cycle.