By Lorie Konish —
CNBC
Democratic congressmen relaunched a proposal to give families in the United States 1,000 dollars at the birth of their babies.
That help, called American Opportunity Accounts, would be topped up with up to $2,000 a year, depending on income.
The accounts would be federally insured and managed by the Treasury Department.
Its holders could access the funds once they turned 18 to pay expenses such as higher education or the purchase of a home.
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The bill was introduced last week by Senator Cory Booker and Representative Ayana Pressley.
Democrats have a majority in the Senate, but the House of Representatives is controlled by Republicans.
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For a family of four with less than $25,100 in income, bills could reach $46,215 by the time a child turns 18, according to 2019 estimates. Those amounts would drop for families with higher incomes, as payments supplementary annual fees would be gradually lowered.
For a family of four with income of $125,751, a child turning 18 would have a balance of $1,681 with zero annual payments
Help young people with inheritance taxes
The bill contemplates that the changes are covered in their entirety by increasing inheritance and inheritance taxes.
A 2019 analysis by the Committee for a Responsible Federal Budget concluded that revenue increases from the project would more than offset its costs.
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″
Baby bonds
would mend our broken tax code by giving every child a start-up capital for a lifetime, and helping to reduce the wealth inequality that prevents families in America from realizing their full potential,” Booker said.
Its goal is to reduce the wealth gap, which has grown dramatically in the last 50 years, according to lawmakers.
It could also help reduce the persistent racial wealth gap.
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In 2016, black households had a median wealth of $17,100 and Hispanics $20,600, while whites had a median of $171,000, according to the Pew Research Center.
The idea of baby bonds is gaining traction in some states.
Baby bond laws have been passed in California, Connecticut and Washington DC.
Eight other states have introduced laws, according to the Urban Institute, including Iowa, New Jersey, New York, Wisconsin, Washington, Delaware, Nevada and Massachusetts.
Conditions on the amount of funds, as well as the uses of the money, vary.
Endowments per adult start at $3,000.
The federal proposal, which would provide up to $50,000 to the lowest-income families, is the most generous.
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Support varies at the federal and state level
The reintroduction of the federal proposal provides the opportunity for a more universal program, rather than a state-by-state baby bond approach, said Madeline Brown, a policy researcher at the Urban Institute's Research to Action Lab.
A national policy could reduce the wealth disparity between young black and white Americans to a ratio of one to four, according to the research.
According to estimates, white youth have 16 times the wealth of black American youth, based on median income.
“Wealth is not just for the rich; it really is a component of financial health
,” Brown said.
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“If the goal is really to address wealth inequality, programs like baby bonds, which start early and think about how to really grow dollars over the long term, are really interesting because they can be a financial security tool,” he said.
To date, the federal bill has the support of the left, including Senators Chuck Schumer (New York), Elizabeth Warren (Massachusetts), and Bernie Sanders (Vermont).
However, there is more bipartisan support at the state level, Brown said.
In part, this is due to residency requirements, she explained, which can encourage young people to stay and join the workforce, buy homes, and start families and businesses in the states.
According to the Urban Institute, for baby bonds to successfully address wealth gaps, policies must have six components: universal eligibility for all children;
progressive deposits, or based on household wealth;
conditions that allow a flexible use of funds for wealth creation activities such as education, housing or the creation of a company;
funding provided by the Government;
substantial endowments that protect capital while earning a return on money;
and make young people the ultimate beneficiaries of the money.