House and Senate Democrats this week proposed a bill that would instruct the federal government to give anyone born in the U.S. after 2005 a $1,000 “seed savings account,” and then make contributions to that account until they are 18 – a plan sponsors say is aimed at closing America’s “racial wealth gap.”
If enacted into law, the bill would transfer billions of dollars in wealth from high-income families to low-income families, as it would fund the program by significantly increasing estate tax revenues.
The “baby bonds” bill, from Sen. Cory Booker, D-N.J., and Rep. Ayanna Pressley, D-Mass., would give children up to $2,000 a year in the lowest income families, an amount that would drop as families earn more. Once a family makes more than 500% of the federal poverty level, their kids would only receive the initial $1,000 payment.
They estimate children in the poorest families would have $46,000 to use for school or buying a home by the time they turn 18, and Booker said in a statement that the plan is explicitly aimed at fixing “wealth inequality.”
Pressley was more explicit and said the change would help “Black and brown folks.”
“The racial wealth gap in America is the result of generations of precise and intentional policy violence, so we must be as intentional and as precise about advancing policies that address it head on,” she said in a statement introducing the bill.
“Baby Bonds are one of the most effective tools we have for closing the racial wealth gap and breaking the cycles of poverty and trauma that have prevented Black and brown folks from thriving in this country, so it is no surprise that this idea has gained traction in states across the country.”
“Black lives and Black wealth matter, which is why Congress must pass our bill without delay,” she added.
Data released by Pressley’s office this week said Black households in her congressional district have a median net worth of $8, while White households have a median net worth of nearly $250,000.
“These disparities were created by generations of government policy, contributing to the national racial wealth gap,” her office said.
Pressley’s office estimates that less affluent Black and “Latinx” families would get larger “baby bond” contributions than White families. It said by 18, the median Black child would have $29,800, the median Latinx child would have $22,300, and the median White child would have $11,690.
Democrats say the bill is fully paid for by raising estate and inheritance taxes. Specifically, Booker and Pressley said the bill would return estate tax levels to those seen in 2009.
In that year, no taxes were paid on the value of estates up to $3.5 million and amounts above that level were taxed as much as 45%.
By comparison, in 2022, the first $12 million on an estate was free from taxation and amounts above that exemption faced a tax of 40%.
According to the Tax Foundation, the IRS collected more than $18 billion in estate taxes in 2021.