Baby bonds: States plan their own 'trampoline into the middle class'

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For years, Democrats have championed the notion of so-called baby bonds, money the government puts aside for children at birth to give them a boost after they graduate from high school.

In recent months, advocates have turned their focus to enacting baby bonds on the state level rather than waiting for Congress to make this a federal policy. Now, both Connecticut and Washington, DC have enacted laws creating baby bonds — and California, New York, and four other states are currently debating related proposals.

The change at the state level “is something that we feel is really going to be helpful in building momentum towards eventual passage in Congress,” says Shira Markoff, a policy fellow at Prosperity Now, a nonprofit that advocates for racial and ethnic economic equality.

That group has a new report advocating for cities and states to invest in children with baby bonds. Markoff, who spoke to Yahoo Finance Live this week, notes that a range of states already have concrete proposals — California, Iowa, New Jersey, New York, Washington, and Wisconsin — while others have less formal conversations underway.

A ‘trampoline into the middle class’

Sen. Cory Booker (D-NJ) and Rep. Ayanna Pressley (D-MA) have led the Washington, DC baby bond effort, repeatedly introducing the American Opportunity Accounts Act to create a savings account with $1,000 for every new American at birth. Deposits of up to $2,000 per year would follow. Fifteen other senators, including Majority Leader Chuck Schumer, have now co-sponsored the legislation.

The idea, as Booker outlined to Yahoo Finance back in 2018, could lead some Americans to have a nest egg of around $50,000 for children born into families with lower incomes. He called it a “trampoline into the middle class” for people of all races.

U.S. Senator Cory Booker (D-NJ) questions U.S. Secretary of State Antony Blinken during a Senate Foreign Relations Committee hearing to examine the United States withdrawal from Afghanistan, on Capitol Hill in Washington, District of Columbia, U.S., September 14, 2021 . Drew Angerer/Pool via REUTERS
Senator Cory Booker (D-NJ) on Capitol Hill September 2021. (Drew Angerer/Pool via REUTERS)

At the state level, baby bonds offer a smaller trampoline. The Connecticut law enacted last year gives a one-time payment of $3,200 to babies if they're covered through the state’s Medicaid program.

The law in Washington, DC also has income limitations. Households with incomes three times the poverty level or less receive a $500 deposit at birth with additional annual deposits of up to $1,000.

For his part, Booker has supported these state-level programs and worked with the states to help craft and promote the legislation, according to the senator's spokesperson. At a press conference for enactment of the Connecticut law, Booker said Connecticut was “leading the nation.”

Hope for ‘growing momentum’

Details on other proposals vary. Iowa is debating a plan that would offer money to everyone born in the state on an opt-in basis. Elsewhere, babies with qualifying family income would automatically get payments. In California, lawmakers are debating a bill to create accounts for children in low-income families who have lost someone to COVID-19, a possible step towards a broader baby bond program.

Under every proposal, the money would go into an account and gain returns for 18 years before the young adult could access it for a qualifying major purchase like college or a home down payment.

In Congress, baby bonds may be a long shot; they were not included President Biden’s Build Back Better agenda. For states, though, Markoff said these bonds could be a tool to "level the playing field so that children from lower wealth households, who are disproportionately Black, Latinx, and Indigenous, have the opportunity to build wealth that some of their wealthier counterparts might have."

Ben Werschkul is a writer and producer for Yahoo Finance in Washington, DC.

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