U.S. Sen. Cory Booker wants to give every U.S. citizen a taxpayer funded savings account at birth by reversing the federal tax cuts supported by President Donald Trump. He plans to introduce legislation creating the savings accounts after the mid-term elections.
Booker's proposal mimics those previously proposed by legislators at the state and federal level. All require increasing taxes to fund the program and slightly differ over how funds would be managed.
Estimated to cost a minimum of $60 billion, Booker’s proposal would specifically increase the inheritance and estate taxes. He proposes a 4.2-point increase on the capital gains tax rate, reverting the estate tax back to its 2009 level. His plan also increases the tax on inheritances worth millions of dollars.
“There needs to be a new birthright in our country – universal 'opportunity accounts' that give every single American kid a fair shot at the American Dream," the Democrat from New Jersey said. "Everyone deserves economic opportunity – not just the 1 percent.”
Washington, D.C.-based think tank Americans for Tax Reform (ATR) points out that the plan’s stated goal is to grow a savings account over time, but taxing capital gains and the death tax suppresses savings and investment, and achieves the opposite outcome.
“The plan gives on the one hand,” Alex Hendrie, Director of Tax Policy at ATR, told Watchdog.org, “but takes away from the other.”
Hendrie said Booker's plan would stifle economic growth.
“Here, Sen. Booker is proposing a brand new entitlement program and higher taxes on saving and investment in the form of a capital gains tax and estate tax increase," he said. "The result of these policies will be the same as other Democrat policies: economic growth and investment will be suppressed and spending will continue to climb to out-of control levels.”
Called the “American Opportunity Account Act,” the bill would create a “trust fund” for every U.S. citizen managed by the Treasury Department. At birth, each child would receive a $1,000 deposit into his or her account, which would accrue at roughly three percent interest. After age 18, the trust fund could only be accessed to fund certain “human and financial capital investments,” including buying a house or paying for higher education.
The bill stipulates that additional deposits can be made depending on personal income, designed to offset income inequality. The greater the family income, the less money is deposited into the account. The lesser the family income, the more money is deposited.
The base payment of $1,000 accruing three percent interest over 18 years without monthly deposits equals roughly $1,560. Booker estimates that lower-income children could see more than $45,000 in their savings account by age 18 because of the increased yearly deposits they would receive.
“Everyone in America should have a real shot to succeed, but federal policy over decades and an upside down tax code that heaps benefits on the very rich and big corporations have grown the gap between those who have much and those who have little,” Booker said in a statement.
Hendrie counters that such an entitlement program would grow out of control, as other federal programs have, and with little oversight or accountability.
Booker’s office did not respond to repeated requests for comment about the bill or how it would work, whether it would apply to already living U.S. citizens or how the rules would apply to citizens who have already paid capital gains taxes, college tuition or purchased a home.
Booker’s proposal deviates from previously proposed plans by Democratic senators. In 2014, Sen. Ron Wyden proposed creating a similar savings plan with an initial deposit of $500 per child.
Sen. Chuck Schumer later introduced The American Saving for Personal Investment, Retirement, and Education Act (ASPIRE) of 2009 to create a taxpayer-funded savings account. His proposed ASPIRE Fund would also be part of the U.S. Treasury Department and overseen by a Board of Directors.
On the state level, in 2007, State Sen. Darrell Steinberg, D-Sacramento, introduced a bill to create a savings account with an initial $500 deposit for every California newborn. Called California Kids Investment and Development Savings (KIDS) Accounts, Steinberg argued KIDS would increase Californians' "financial literacy." The bill was expected to cost $270 million per year at a time when the legislature could not balance the budget.
On the city level, in 2016 a Los Angeles City Council committee proposed creating a children’s savings account for approximately 72,000 kindergartners enrolled in the Los Angeles Unified School District with an initial $500 deposit.
Debra J. Saunders, a columnist at the San Francisco Chronicle, wrote: “It's a lot more fun to propose new programs that may or may not happen than to roll up your sleeves and make difficult budget decisions. And you get to be more popular, too.”