One way to narrow the wealth gap? Baby bonds.
September 23, 2019 by Benjamin Kamelhar
by Margo Jasukaitis
Young white people are nearly sixteen times wealthier than their black counterparts, according to a recent study from the Center on Poverty and Social Policy at Columbia. This summer, Senator Cory Booker and Representative Ayanna Pressley introduced a bill aimed at eliminating this disparity. The American Opportunity Accounts Act creates savings accounts for all newborns in the United States and contributes varying amounts to those accounts over the next eighteen years depending on parental income.
Under the proposed legislation, every baby born in the United States would receive $1,000 in an account they could not touch until age eighteen. The treasury would invest the money, earning a small return each year (the policy assumes a three percent rate of return in the proposal). While no additional money would be deposited in the wealthiest children’s accounts, children whose families earn less than 500 percent of the Federal Poverty Line would receive additional annual deposits on a sliding scale. For example, a child whose parents earn between 175 and 225 percent of the federal poverty line would get $1,000 annually, while a child whose family lives below the poverty line would receive supplemental annual payments of $2,000.
While the policy is race-neutral on its face, the average black child’s account would end up with eighty-four percent more money than the average white child’s account on the beneficiary’s eighteenth birthday. Due to the significant income disparity between white and non-white Americans, families living near or below the federal poverty line are disproportionately nonwhite. As such, black and Latinx children are more likely to receive larger annual deposits as described above. A recent study concluded this type of program “would considerably narrow wealth inequalities by race while simultaneously improving the net asset position of young adults.”
The bill builds on an idea Hillary Clinton floated during her 2008 run for office. While Clinton proposed giving every child born in the U.S. a lump sum of $5,000, Booker and Pressley’s plan goes further to create nest eggs for young Americans and does more to minimize the racial wealth gap. Children would only be allowed to use the money for specific “wealth-building” purposes – things like paying college tuition or putting a down payment on a house. As a result, Booker believes the plan could “[help] low-income people break out of generational poverty [and] rapidly bring security into those families’ lives.”
 Naomi Zewde, Universal Baby Bonds Reduce Black-White Wealth Inequality, Progressively Raise Net Worth of All Young Adults (Ctr. on Poverty & Social Policy, Working Paper, 2018).
 S. 3766, 115th Cong. §102 (2018).
 Dylan Matthews, Study: Cory Booker’s Baby Bonds Nearly Close the Racial Wealth Gap for Young Adults, Vox (Feb. 1, 2019) https://www.vox.com/future-perfect/2019/1/21/18185536/cory-booker-news-today-2020-presidential-election-baby-bonds.
 See S. 3766 §102.
 See Matthews, supra note 3.
 Zewde, supra note 1 at 1.
 Heather Long, There’s a Serious Proposal to Give Babies Born in the United States $20,000 (or more), Washington Post (Jan. 8, 2018), https://www.washingtonpost.com/news/wonk/wp/2018/01/08/theres-a-serious-proposal-to-give-every-baby-born-in-america-20000-or-more/?utm_term=.25a102d5b474.
 Jordan Weissmann, Cory Booker’s Big New Policy Idea isn’t Reparations, but it’s the Closest a Presidential Candidate is Going to Get, Slate (Oct. 25, 2018) https://slate.com/business/2018/10/cory-booker-economic-plan-baby-bonds-reparations.html.
 Sarah Kliff, An Exclusive Look at Cory Booker’s Plan to Fight Wealth Inequality: Give Poor Kids Money, Vox (Oct. 22, 2018), https://www.vox.com/policy-and-politics/2018/10/22/17999558/cory-booker-baby-bonds.