User:Jkolli/Baby bonds

Baby bonds are a proposed policy by which newborn children would receive a government trust fund that would accrue interest over the first 18 years of a child's life. William Darity and Darrick Hamilton proposed the policy in 2010 as a mechanism to reduce the racial wealth gap in the United States. A 2019 analysis of the proposal by Naomi Zewde projects that baby bonds would reduce the racial wealth gap at the median between white and black young Americans from a factor of 16 to a factor of 1.4.

Background
A one-time $5,000 baby bond plan was introduced by Hillary Clinton during the 2008 Democratic Presidential Primaries, but the plan was later removed from her platform. Darity and Hamilton then published their article "Can ‘Baby Bonds’ Eliminate the Racial Wealth Gap in Putative Post-Racial America?" in the Review of Black Political Economy in 2010, which reinvigorated the consideration of baby bonds.

Racial Wealth Gap
Main article: Racial inequality in the United States

The racial wealth gap in the United States is well-documented -- a 2020 study by Ashman and Neumuller found, based on Survey of Consumer Finances data from 1989-2016, that the median net worth of white families is seven times greater than the median net worth of black families. Wealth begets wealth: wealthier families are more likely to finance education for their children, build ownership and stock portfolios, and bequeath wealth, which continues the cycle. A 2017 Urban Institute report quantified these impacts: among people whose parents did not attend college, those from high-wealth families are 26% more likely to attend at least two years of college than those from low-wealth families.

Explanations of the Racial Wealth Gap
The root cause of the racial wealth gap is debated within the academic literature, with income inequality, differences in savings and homeownership rates, and others all being offered as potential causes. Even among quantitative studies, the percentage of the racial wealth gap attributed to any one of these causes varies widely. A 2016 analysis by Herring and Henderson which used data from the Survey of Consumer Finances, draws a dichotomy between cultural factors, like savings rate, and structural factors, like housing discrimination. Herring and Henderson found that structural factors explain more of the racial wealth gap than cultural factors, but that even if all factors between White and Black Americans were equal, the mean racial wealth gap would remain at around $155,000.

Maury Gittleman and Edward Wolff, in a 2004 study that analyzed wealth accumulation for a decade, found that once income is controlled, there is not a significant racial difference in savings. Instead, Gittleman and Wolff found that the racial wealth would decrease if Black Americans inherited and earned at similar levels to White Americans. Multiple studies, including articles authored by Darity and Hamilton, have cited intergenerational money transfers and inheritances as the largest contributor to the racial wealth gap. In contrast, recent studies by Ashman & Neumuller and Aliprantis & Carroll took independent approaches but concluded that income disparities between racial groups, over time, form the largest cause of the racial wealth gap. Both studies suggest focusing on policies that would reduce income disparities, but recognize the importance of multiple interventions.

Darity and Hamilton's Proposal
Darity and Hamilton's initial 2010 proposal is framed as a scaled-up version of the now-defunct United Kingdom's child trust fund program, which provides each newborn a trust ranging from ₤250 to ₤500, based on family resources.

Darity and Hamilton proposed that the trust amounts be adjusted on a sliding scale with a starting value of $50,000-60,000 for newborns whose families are in the lowest quartile of net family wealth. Under this proposal, the trust would garner a return of 1.5-2% through federally managed investments and would only be accessible once the newborn turned 18. Darity and Hamilton projected that if three-quarters of newborns are eligible and the average trust amount was $20,000, the program would cost $60 billion annually.

American Opportunity Accounts Act
U.S. Senator Cory Booker introduced Senate Bill 3766, which called for the creation of American Opportunity accounts (AO accounts), in the 115th Congress. AO accounts would be provided to each newborn child upon their birth, as well as to children who had not yet turned 18 as of the bill's introduction.

Each American Opportunity account would be seeded with an initial $1,000 from the proposed American Opportunity Fund operated by the US Treasury Department, with a variable amount added each year depending on the child's household income level, as seen in table 1. In the proposal, the account could not be withdrawn from until the holder of the AO account turns 18, and use of the funds in AO account would be restricted to higher education, home ownership, or "other investment... that provides long-term gains to wages and health." Notably, the bill explicitly states that amounts in AO accounts could not be considered when determining eligibility for any federal benefit or service, including financial aid for education.

The estimated annual cost of the program is $60 billion, which would provide AO accounts to the approximately four million newborns in the US annually. Booker has proposed funding the program by raising estate taxes and closing a capital gains loophole.

New Jersey Plan
Governor Phil Murphy of New Jersey in August 2020 introduced a baby bonds proposal to the amended state budget, which was billed as a "scaled-down version" of Booker's proposal. The plan would provide a onetime transfer of $1,000 to newborn children whose families make 500% or less of the federal poverty level, without the annual additions present in Booker's proposal. These bonds would be worth around $1,270 after 18 years, and the program would cost $80 million annually.

Critiques
Opponents of the policy argue that baby bonds would decrease the incentive to save or pursue higher education. An alternative offered by some opponents like Ryan Bourne of the Cato Institute is Universal Savings Accounts, where contributions could be withdrawn or added by the family at any time, rather than annually by the government.

Reparations
Main article: Reparations

Darity and Hamilton's 2010 article discusses at length the notion of a post-racial America, explaining that race-specific policies, including reparations, were not politically viable at the time. Baby bonds were designed to be race-neutral and remain so in all of the proposals above, and thus are not reparations. Cassidy et al. clarify the distinction and reiterate the need for race-specific policies to address the racial wealth gap, in order to close the shortcomings of a race-neutral program, as noted above. In 2020, Craemer et al., using a wage-based model, calculated the net per capita reparations without interest owed to American descendants of slavery, which amounted to $397,459 and with 6% interest, increases to $132.67 million per descendant of the enslaved. Darity and Kirsten Mullen, in their 2020 book From Here to Equality, cite the calculations of Craemer et al. when proposing reparations policies, including a government trust fund similar in structure to baby bonds, but with seed amounts of $250,000 for all eligible recipients, rather than just newborns.

Effect on the Racial Wealth Gap
Zewde's 2019 analysis, using data from the 2015 Panel Study of Income Dynamics, projects that baby bonds which are means-tested on the basis of family wealth would reduce the racial wealth gap at the median from a factor of 16 to a factor of 1.4. Cassidy et al., in a 2019 article co-written with Darity, discuss the results and limitations of Zewde's analysis. Cassidy et al. cite critiques which take issue with Zewde's study design: the analysis used the median family wealth rather than the mean family wealth. Cassidy et al. argue that using the median skews the data by excluding 97% of the wealth held by the top 50% of white families, while Zewde argues that her analysis is representative of the average person. Furthermore, Cassidy et al. find that baby bonds would only increase the wealth held by black families from 9% of total white wealth to 23% of total white wealth. Cassidy et al. conclude that while additional programs (e.g. reparations) are necessary to close the racial wealth gap, baby bonds will have substantial positive impacts on education levels and home ownership for young Americans.