For the self-employed, among others, a whole lot. To set the stage, consider the case of one Luis Lang, the now-famous self-employed ex-Republican who rejected the opportunity to sign up under the Affordable Care Act (ACA). (His GoFundMe page is here.) Then he got sick and saddled with the choice of crippling medical bills or going blind. His story is that it was risky to apply for subsidies when your future income is uncertain. If you underestimate income too much, you get a big tax bill the following tax filing season since the subsidy is means-tested (higher income, less subsidy). ACA subsidies are doled out monthly in the form of reduced premiums, so with higher-than-expected income you could be looking at the need to repay a loan from the Gov.
The underlying problem is that a worker’s accounting period (wherein he or she tries to balance in-go and out-go) is short. People spend as they get, except insofar as they can borrow to fill in gaps. When you borrow the piper must shortly be paid.
Of course, Medicare for all would be better. So would other permutations of public and private insurance. But the ACA is our world for the time being.
What does this have to do with banking? A postal savings bank is an institution that provides plain-vanilla financial services at low cost. For convenience its branches can be located in post offices, hence the name. Other countries have availed themselves of this simple device, including the U.S.A. in past years. Such a bank could provide low-cost insurance against an unpleasant ACA surprise, come April 15.
A related case is that of the Earned Income Tax Credit (EITC). In a book I’m reading, It’s Not Like I’m Poor: How Working Families Make Ends Meet in a Post-Welfare World, by Sarah Halpern-Meekin, Kathryn Edin, Laura Tach, and Jennifer Sykes, the use of the EITC as a convenient piggy bank for the working poor is elaborated. The credit functions as a nudge towards savings, since most people receive it for their year’s earnings the following February, after W-2s arrive and they have filed for the income tax. It’s used to pay off accumulated debt and big-ticket household purchases–appliance, auto repair, and the occasional special treat.
The bottom line is that earnings for the working poor besides being low are volatile. Volatility in and of itself is a burden that levies additional costs. In the semi-privatized world of the ACA, the interest in providing means-tested benefits is complicated by the underlying market model of linking subsidies to incomes. Short of expanding Medicaid and Medicare to drain the pool of uninsured and subsidized insured, a postal savings system would improve matters.
Not insignificantly, postal savings could also exterminate the world of usurious payday lending, check cashing, and installment loans, all of which cause burden the poor.