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Cory Booker's 'Baby Bonds' Wouldn't Support a Savings Culture — It's Just More Government Subsidies

December 10, 2018 in Economics

By Ryan Bourne

Ryan Bourne

To the extent bipartisan policy reform is possible, ideas must
appeal to the instincts of both conservatives and liberal
progressives.

In that tradition, Sen. Cory Booker’s proposal for ‘baby bonds’ may be
a stroke of political genius. Founding special accounts for newborn
children with a taxpayer-funded deposit, and means-tested
government additions through childhood, has obvious appeal to
liberals. It redistributes money and reduces measured wealth
inequality.

But Booker is no doubt hoping it can pique conservative interest
too. The so-called American Opportunity Accounts, on the face of
it, introduce children to the concept of saving and support
families, while providing young people with a nest egg to become
more self-sufficient in achieving major life goals.

Booker’s idea is this: When an eligible child is born, an
account would be opened with a $1,000 deposit from the taxpayer.
Each year until the child turns 18, the government would deposit a
means-tested sum rising to a maximum $2,000 contribution. The funds
in these accounts would generate returns free of tax but could not
be withdrawn until the child turns 18. After that point, the money
could be accessed but only be used for specified investments, such
as down payments on a house, college tuition, professional
training, or retirement savings. The eventual sums could be
significant, with a maximum of nearly $50,000 for someone in
receipt of the highest annual contribution and returns of 3 percent
per year.

There’s a crucial difference though between this proposal and
child trust funds that have been previously tried in countries such
as the United Kingdom. Under Booker’s plan, families would be
prohibited from adding to government contributions with their own
private funds. In the U.K., the government merely opened the
accounts and administered two small payments at birth and at age 7.
But the bigger idea was that parents and grandparents would scurry
up to $1,000 more away each year, on top of the government
deposits, valuing the tax advantages and the self-discipline of
being unable to draw down the funds.

Booker’s proposal is entirely different. Being solely a public
scheme, it amounts to pure redistribution — transfers from
taxpayers to those on low incomes. As such, it has little to offer
conservatives. The argument it will encourage saving or show
children the power of investment is bogus. Saving is about
deferring consumption — sacrificing today to fulfill other
goals tomorrow. But this is pure taxpayer support: taxing or
borrowing to take from Peter to pay Paul, with no sacrifice on the
part of those enjoying the rewards.

It’s actually worse than that. Precisely because it
amounts to pure redistribution, Booker would naturally impose
conditions on what the …read more

Source: OP-EDS

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