Senator Corey Booker Wants to Close the Wealth Gap By Giving Every Newborn a Trust Account. Could It Work?

Monday, November 26, 2018

Senator Cory Booker has a plan to decrease the wealth gap, and it’s a rather radical one. It’s called the “American Opportunity Accounts (AOA) Bill,” and what it proposes essentially operates as publicly-funded 401K accounts, opened for every single newborn in the United States. When a child is born, the federal government would open an AOA for them, pop about $1,000 into it, and then every year, depending on the family’s income level, put anywhere from zero to $2,000 per year in the low-risk account. These newborns wouldn’t be able to access their growing wealth until they are at least 18 years old, and the funds are available for education funding, home ownership, or asset-building such as retirement savings.

The goal of these proposed accounts is to ameliorate the increasingly stark wealth inequality that has plagued the United States. According to the Urban Institute, the wealthiest Americans have 12 times the assets of middle-income families. This is not so much an accident as it is a matter of public policyand a decades-long practice of paying African Americans less than white Americans, and providing them loans that have higher-interest. It’s also in no small part because of an effort of the Federal Housing Authority and private banks working hand in hand to refuse to underwrite housing loans to black American families, making, among other things, the accumulation of generational wealth increasingly difficult for families of color.

That’s not to say that Senator Booker’s proposed bill will only help African-American kids and families. The wealth inequality problem is massive, regardless of race. The bill, which aims to provide kids with more resources, could change that problem. At least that’s how Booker is positioning it. To shed some light on the AOA, we spoke with Dr. Sandy Darity, a professor at the Duke Sanford School of Public Policy and an acclaimed economist. He worked on a similar policy proposal from which Booker’s AOA bill will heavily borrow and thinks that while Booker’s bill is important legislation, it could go further to help American kids.

What, exactly, is the American Opportunity Accounts Bill, which will be introduced by Senator Cory Booker?

Derrick Hamilton at the New School and I have developed this idea that’s been labeled the “Baby Bonds” proposal. It’s not really a bond. It’s the provision of a trust fund to every newborn infant, that would be publicly funded. It would be accessible to the young person at a young adult’s age. There’s been some consideration that 18, 21, 23, or 25 could all be good ages. Wealthier families provide their children with trust accounts. Every child should have a trust account. That’s particularly important in a climate where we have such drastic and increasing wealth inequality. So this is seen as an alternative to other ways of trying to mitigate wealth inequality — and it’s seen as an alternative that directly attacks wealth inequality. The Booker bill, I think, is inspired by that idea.

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