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Booker Plan Would Give Every American Baby Something to Bank On

Every infant in United States would start out in life with a $1,000 savings account, with the poorest collecting annual increases until they’re 18 — according to U.S. Sen Cory Booker

Booker
Credit: Wikimedia Commons
U.S. Sen. Cory Booker (D-NJ)

Citing income inequality as a core economic challenge that federal policymakers should address, U.S. Sen. Cory Booker has proposed legislation that would provide all children with a government-managed savings account at birth.

All newborns would be given an initial deposit of $1,000 under Booker’s proposal, and contributions would continue annually through age 18, with those at the lowest income levels receiving the largest amounts, capped at $2,000.

The savings accounts would generate modest annual interest and could only be tapped for specific expenses, such as college tuition or purchasing a home. Booker (D-NJ) would fully fund the accounts with revenue generated by several proposed tax-policy changes, including an increased capital-gains tax and a less generous estate-tax exemption.

“Everyone in America should have a real shot to succeed, but federal policy over decades and an upside-down tax code that heaps benefits on the very rich and big corporations have grown the gap between those who have much and those who have little,” Booker said. “Today, nearly one in three American families have zero to negative wealth, and it’s hard to get ahead if you begin life behind the starting line.”

A presidential plank?

The legislation has yet to be formally introduced since the Senate is in recess before next month’s mid-term elections, and Booker is not among the members of the upper house that are on the ballot. But he is considered to be in the top tier of his party’s potential 2020 presidential candidates, and the savings-account proposal could provide a glimpse into the type of campaign message that Booker would use if he does seek the Democratic nomination.

Income inequality — the gap between the very rich and the poor — has been on the rise in the United States in recent decades, according to the latest U.S. Census data. Research released earlier this month by Moody’s Investors Service, one of the top Wall Street credit-rating firms, suggested it could also be threatening the nation’s economic strength.

Moody’s estimates that since 1995 median net worth of the nation’s top 10 percent of income earners has increased by 200 percent, while the bottom 40 percent have seen their median incomes decline. The trend was exacerbated by the Great Recession, according to Moody’s officials, with many in the lowest income brackets left with negative home equity and even negative net wealth.

Income inequality is also an issue in New Jersey, which belongs to the half of U.S. states with higher rates of income inequality, as measured by the Gini index. The United Way’s latest ALICE report, which was released earlier this week, found that roughly four in 10 New Jersey households are unable to afford basic necessities, even as the state has been enjoying a period of economic growth in the wake of the Great Recession.

Booker, the former mayor of Newark, also highlighted a “pernicious” wealth gap for African-American families across the country; income data from 2016 indicates the average white family had roughly 10 times the wealth of the average black family.

Better-off babies

Under his savings-account proposal, every child born in the U.S. after the measure becomes law would be provided with an “American Opportunity Account” and an initial deposit of $1,000. Depending on the family income of the child, deposits topping out at $2,000 would be added every year until the child reaches the age of 18, at which point they could be used to pay for qualified expenses. The funds would be strictly administered as savings accounts by the federal Treasury, generating roughly 3 percent in annual interest.

If the program were to be launched by next year, Booker estimates a child born to the neediest families in America could build up more than $46,000 in savings by the time they reach age 18. Meanwhile, those born into the nation’s wealthiest families would see only the interest gains from the initial investment, with their accounts holding an estimated $1,681 by the time they turn 18.

“This proposal is about helping families break through barriers that keep so many Americans from wealth-creating opportunities like higher education and home ownership,” Booker said.

Estimated cost of $60B

To help pay for the savings accounts, Booker is seeking to raise the top-end federal capital-gains tax rate by 4.2 percent, modeling that part of his proposal on something former President Barack Obama suggested in a budget plan for the 2017 fiscal year.

Booker would also undo recent changes that were made to federal estate-tax policy by President Donald Trump, including a doubling of the amount that is exempted from the tax to $11.2 million. Instead, Booker would reinstate policies that were in place in 2009, including a $3.5 million individual estate-tax exemption and a 45 percent tax rate.

He would also establish a surcharge on the largest estates that would total 10 percent on individual estates worth between $10 million and $50 million and 20 percent on individual estates worth more than $50 million. The monetary amounts would be doubled for the estates of married couples.

In all, his office estimates the program could cost upward of $60 billion, with the proposed tax-policy changes fully funding the savings-account deposits under his plan.

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