Sen. Cory Booker (D-NJ) is preparing to introduce a baby bonds bill — a radical and ambitious plan designed to narrow the persistent Black-white wealth gap in the U.S.
His proposal involves granting every newborn American child $1,000 at birth that would grow with the child, based on the family’s income, and could be used at age 18 to launch young adults on the road to economic success.
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If the baby bonds concept catches on, it could help Booker achieve two personal goals for the price of one — reducing wealth inequality between Blacks and whites and fuel his potential run for the White House, Think Progress reported.
Baby bonds are not a new idea, and they’re not Booker’s. They’re the brainchild of William “Sandy” Darity of Duke University in Durham, North Carolina and Darrick Hamilton of The New School in New York City. Darity and Hamilton published a 2010 paper in The Review of Black Political Economy, where they proposed “a bold progressive child development account type program that could go a long way toward eliminating the racial wealth gap.”
In their paper, they said that the way people think about racial inequality in the U.S. is fundamentally flawed. It requires buying into a view that Black people are somehow dysfunctional. The evidence does not support that narrative, Darity said in a 2016 video interview with economist Glenn Loury on “The Glenn Show” on Bloggingheads.tv at Brown University. You can read the main takeaways here.
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More accurate is the narrative about the structure of U.S. society and the systemic ways it has restricted, constrained, and, in some cases destroyed the lives of Black people.
Most Americans who have wealth received an inheritance of some kind, Darity said. That type of wealth transfer has historically excluded Black people. The median net worth for white Americans is nearly 10 times more than Black Americans. Almost 20 percent of Black households have zero or negative net worth — twice the rate of white.
Yet Blacks and whites have similar saving rates at every income level, Darity said. Rates of return on investment portfolios are also roughly equivalent between Blacks and whites.
Booker’s baby bonds plan aims to help Black Americans and other minority group members who have been excluded from federally-backed wealth-building programs such as home mortgages and inheritance tax policies.
Baby bonds are not really bonds. They’re more like a trust fund or endowment made to every newborn infant, according to Darity and Hamilton. The endowment would be graduated on the basis of the wealth of the child’s family:
“If we were to give an endowment to a newborn child of Oprah Winfrey or Bill Gates we would give the child $50. But for kids born in the lower end of the wealth distribution, we’d give them an endowment of $50,000-to-$60,000 and we’d guarantee them a 1 percent real rate of interest on the account. The kids could access it when they turn 18.”
When Booker announced his intention to introduce the legislation, he argued the idea behind baby bonds is to give “every American child a fair shot at economic mobility.” But he made clear that his legislation would heavily assist poorer and minority households more than white and wealthy families.
“This proposal is about helping families break through barriers that keep so many Americans from wealth-creating opportunities like higher education and homeownership,” Booker said in a statement. “Combined with other tax policy changes, like an expansion of the earned income tax credit, this bill will help level the playing field in our country to ensure that every child has a chance to live their version of the American dream.”
Booker plans to introduce the proposed legislation before the end of 2018, according to his staff. The plan is for every American newborn to receive at birth a federal-backed account worth $1,000. Each year, the account will collect up to $2,000 more in deposits. The amount of the annual interest will vary based on family income, weighted to favor poor and low-income families.
The bonds would be held in trust and managed by the Treasury Department, generating 3 percent interest. On their 18th birthday, account holders could only spend the assets on permissible purposes such as homeownership, college education, and other socially responsible things.
Darity told ThinkProgress that he discussed baby bonds — he described the concept as “a national child trust account” — with Booker and his staff. He said he’d like to see “the senator be even more ambitious and generous”:
“Booker’s proposal is bold, although not identical with what Darrick Hamilton and I have proposed,” Darity said. “Our proposal sets the amount of the trust account for each young person on the basis of their family’s wealth, while the Booker proposal is anchored on family income.”
The baby bonds idea could separate Booker from the growing list of potential Democratic rivals who want the presidential nomination, ThinkProgress reported. Sen. Kamala Harris (D-CA) has been advocating for her plan to give low-income families up to $500 in monthly cash assistance.For example, potential 2020 Democratic candidate Sen. Bernie Sanders (I-VT) is already on record supporting a federally-supported health care system.
The idea that every American at birth is entitled to some wealth is a revolutionary proposal, Loury said. “Everybody’s gonna have some. I want to know how we’re gonna pay for this. I imagine we’re gonna tax somebody. I’m OK with that.”
Here’s how Darity proposed paying for Baby Bonds: “If we estimate that there’s about 4 million new infants born in a given year and each child gets $20,000, that’s $80 billion per year. Since there’s a gestation period of 20 years before you have to make the first payouts, you could set up a trust fund to fund the trust. The annual expense is $80B – not much of an expense in terms of the U.S. budget.”