Baby bonds, explained.
America has a massive, growing racial wealth gap. The median white family today holds nearly 10 times the wealth of the median black family.
Sen. Cory Booker (D-NJ) is introducing a bill aimed at closing that gap. His idea is to give lower-income kids a sizable nest egg (nearly $50,000 in some cases) that they could use for wealth-building purchases, like a down payment on a house or college tuition.
These “opportunity accounts” would, theoretically, make sure all children have significant assets when they enter adulthood, rather than just those who grow up in wealthier homes.
“It would be a dramatic change in our country to have low-income people break out of generational poverty,” Booker said in an interview with Vox. “We could rapidly bring security into those families’ lives, and that is really exciting to me.”
Similar ideas have swirled around think tanks since the early 2000s, but Booker appears to be the first high-profile senator to introduce legislation to create such a program. As possible 2020 presidential nominees like Booker begin to unveil ambitious policy ideas — like Sen. Bernie Sanders’s (I-VT) Medicare-for-all plan or Kamala Harris’s (D-CA) new cash assistance plan — Booker appears ready to focus on racial inequality in America, and how to solve it.
Opportunity accounts, explained
America’s wealth gap grew rapidly through the late 20th century. In 1963, families at the top of America’s wealth distribution had six times the wealth of those in the middle. By 2012, the wealthiest had 12 times the assets of middle-income families.
Specific government policies have driven the racial gap by making it specifically harder for minorities to accrue wealth. The decades-long practice of the Federal Housing Authority refuse to underwrite housing loans to many black families, for example, made it difficult for those families to pass on the earnings of real estate to their children the way a white family might.
Booker notes that his own parents, who are African American, essentially had to pose as a white couple to purchase a house in a predominantly white neighborhood in 1969. They had a white couple put in the offer on the house, but Booker’s parents then showed up to the closing. (Booker recounts this story in greater detail in an episode of Vox’s show on Netflix, Explained).
“I know the difference it meant for my family to be able to buy that house and accrue that wealth,” he says. “I know the Herculean things they had to do to get into that neighborhood.”
Booker’s proposal is meant to target young children who haven’t benefited from the type of situation he did.
His American Opportunity Accounts Act would give each child born in the United States a savings account with $1,000. Each year, until the child turns 18, the government would deposit as much as $2,000 into that account. The size of the annual payments would depend on the child’s family income, with lower-income families receiving larger checks.
These accounts would be off limits until the child turns at 18, at which point the child could use them for specific “asset-building” purchases, like a down payment on a house, for example, or college tuition. (Booker hasn’t come up with a full list of eligible purchases yet.)
Booker’s office estimates that a child who remains in the lowest income bracket of the program (meaning she gets the largest, $2,000 payments each year) would accrue $46,215 by her 18th birthday. A child in the highest income bracket of the program (above 500 percent of the poverty line, or $147,100 for a family of four) would end up with $1,681 — just the original $1,000 payment plus earnings accrued from the government investing it in low-risk funds.
They also project that the benefits of the program would go largely to minority children. Their figures suggest that the average black child will accrue $29,038 in her account and the average Latino child would get to $27,337. The average white child would end up with about half that ($15,790).
Booker’s proposal looks largely similar to ideas that have been floated by Darrick Hamilton of the New School and William Darity of the University of North Carolina. They presented a version of their “baby bond” program at the most recent meeting of the American Economics Association.
Between UBI, Medicare-for-all, and Opportunity Accounts, Democrats are ready to test some new ideas
One of the things that struck me about Booker’s proposal is that it’s a much more aggressive and sweeping version of what Hillary Clinton proposed in her 2008 presidential run: a lump sum of $5,000 given to every child born in the United States that could be used to pay for college or a down payment in the future.
Booker’s version is a much bigger program, and one with different goals: not just making college and housing affordable, but making college and housing affordable to a specific population that has long struggled with higher education costs.
This seems in keeping with the rest of the field of 2020 Democratic hopefuls, who are starting to roll out policies that would greatly expand the public safety net and constitute a significant wealth distribution from the wealthy to the poor.
These range from Sanders proposing a government-run health care system to cover all Americans to Harris’s new plan to give low-income families as much as $500 in monthly cash assistance.
Booker would pay for his opportunity account program by increasing capital gains and estate taxes — two changes that would target directly America’s wealthier families.
“A lot of aspects of our tax code, the benefits are usually used by the wealthy,” Booker says. “It’s time we start to give less-wealthy families the same opportunity.”
Author: Sarah Kliff