During Hillary Clinton’s run for president, inequality will surely be at the top of her list of problems to fix. But in recent stumps Clinton has left out one of her own bolder ideas: issue every U.S. newborn a $5000 “baby bond.”
"I like the idea of giving every baby born in America a $5,000 account that will grow over time so that when that young person turns 18, if they have finished high school, they will be able to access it to go to college or maybe they will be able to make that down payment on their first home," Clinton said in September 2007 at a Congressional Black Caucus forum.
The idea is a simple one: The government would place the bond in a federal account to grow with interest, and when that kid turns 18, or 21, or whatever age makes sense, he or she would be allowed to invest the bond in something like a home or college tuition that will help them build more wealth. This would level the floor so that all young adults have something to kick start their adult lives, or to fall back on when they lose a job, get sick, need to fix a broken car.
While income inequality has taken a leading role in American politics, inequality in wealth is worse. The top 3% income earners took home about 30 percent of all income in 2013. The top 3% held 54% of wealth.
Wealth, which includes stocks, savings, retirement accounts, homes and other assets minus debts, is what keeps economic hard times from becoming private catastrophe. It functions as both financial fuel and landing pad.
Imagine two kids with similar parents, neighborhoods and ambitions. They’re the same, except Kid A has an inheritance and Kid B does not.
Kid A goes to college not worried about money, so she can accept an unpaid internship in her dream field. That internship lands her a real job after graduating. She uses her inheritance for the down payment on a home, which builds equity that she eventually passes on to her own kids.
Then there’s Kid B. He works 25 hours a week through 3 years of college and then drops out. He grabs the first job he can find, which he hates, and rents for the next 30 years. When his mother gets sick, he uses his own meager savings to pay for home care.
Kid A’s inheritance builds more wealth. Without it, Kid B digs a hole. The idea of the baby bond is to shrink the difference.
The wealth gap is about more than economic inequality; it's also at the core of racial inequality. Black and Latino families hold pennies of assets and savings for every dollar of white family wealth. For Clinton, who’s seemed wary of addressing race, the baby bond accounts are a direct proposal for closing racial gaps.
Clinton’s suggestion eight years ago seemed off-the-cuff. But others have shared similar ideas. Economists Darrick Hamilton of the New School and William A. Darity Jr. of Duke University have proposed a more nuanced program to give larger accounts to newborns with the least wealth.
Advocates of a program like the one Clinton floated would fund baby bonds by taxing wealthier Americans on their own wealth. Currently, federal tax write-offs meant to help families build wealth do very little for poor people. The bottom 20 percent of earners held on to just one percent of tax subsidies for things like homes and retirement accounts. The richest 20 percent, meanwhile, nabbed two thirds of tax expenditures, according to an Urban Institute report.
“The federal government should not be in the business of subsidizing $2 million dollar homes,” Darrick Hamilton says, about the home mortgage interest deduction, which lets homeowners subtract mortgage interest from their taxable income. “Simply by taxing that property, we could create enough revenue to fund the baby bond program.”
Will Clinton float the idea of baby bonds again? If inequality gets the attention its due in this election season, it’s a part of that conversation.