DC’s Pioneering ‘Baby Bonds’ Plan Aims to Close the Wealth Gap

DC’s Pioneering ‘Baby Bonds’ Plan Aims to Close the Wealth Gap

DC’s Pioneering ‘Baby Bonds’ Plan Aims to Close the Wealth Gap

Baby Bonds (Copyright 2022 The Associated Press. All rights reserved.)

Baby Bonds (Copyright 2022 The Associated Press. All rights reserved.)

Aaliyah Manning’s dreams of becoming a psychologist came to an abrupt end during her freshman year at Potomac State in West Virginia, as the cost of continuing her education became overwhelming.

“The money just wasn’t there,” she said. “I knew it wasn’t going to end, so I just had fun.”

After a year, Manning, 25, was back in the nation’s capital working fast food jobs. Now she lives largely on public assistance in a two-bedroom apartment with her boyfriend, his mother and their 9-year-old daughter from another relationship. She still has student debt and there’s a baby boy on the way.

She sees a brighter future for this baby, thanks to a referral social program being launched in Washington. Called “Baby Bonds,” the program will provide children from the city’s poorest families with up to $25,000 when they reach adulthood. The money must be used for a handful of purposes, including education.

“It would be such a different opportunity for him, very different from what I had,” Manning said of his soon-to-be baby.

In just over a decade, the Baby Bonds idea has gone from a leftist fringe concept to real politics, with the District of Columbia as the first laboratory. Lawmakers coast-to-coast are monitoring the experiment, which proponents say could reshape America’s widening wealth gap in a single generation if instituted at the federal level.

A week after giving birth to her second child, a daughter named Kali, Aaliyah Wright told the Associated Press that she didn’t expect to have much savings to help her children reach adulthood, especially with around $80,000 in student loan debt. .

She and her husband, Kainan, are on Medicaid despite steady jobs (she is a social worker at a non-governmental organization and he is a barber) and an estimated annual income of around $70,000.

Even at that income level, her new daughter would still qualify for the city’s Baby Bonds program, albeit at a lower level.

“In this stage of maturity and adulthood, that money can be a door opener to some very big things,” said Kainan Wright.

Despite the name, the bonds are more accurately trust funds, designed to provide a capital boost at a critical time in the lives of the country’s poorest children. At age 18, each child enrolled would receive a large one-time payment that could be used to pay for higher education, invest in a business, or make a down payment on a home.

“Think about all the things people with money do to support themselves or what parents do for children,” said Kenyan McDuffie, a member of the District of Columbia Council who promoted Washington’s Baby Bonds program last summer. The clock started ticking in October, and as of mid-August, the city has so far identified 833 babies born since then who will receive up to $25,000 when they turn 18.

“Think of all those young people who will be here in a city stuck in poverty, graduating from high school and turning 18,” McDuffie said. “And then having an account with money for them.”

It is an expensive and long-term investment that, by definition, will take a generation of sustained political willpower to really bear fruit. The district’s program will cost $32 million for the first four years alone.

The idea was originally proposed in 2010 by academics William Darity and Darrick Hamilton as a way to break the cycle of poverty, giving children of poor families the chance to build long-term wealth – whether that be real estate, ownership interest in a business, or the potential of earnings. coming from higher education.

He came to media attention when Senator Cory Booker, DN.J., made him a centerpiece of his 2020 presidential campaign.

“I think it’s an idea that’s growing,” Booker told the AP. “And it’s a great idea. It is at the level of Social Security. It’s at Medicare level. One generation would create dramatic change.”

But for politicians, the price can be daunting. Booker’s national plan called for annual costs of $60 billion, something he proposes to finance by raising taxes on the rich.

For now, the Washington experiment will be closely watched by other state and local governments, with Baby Bond proposals recently popping up in Wisconsin and Washington State and Massachusetts studying the issue. California has just created a more targeted version, with Baby Bonds funds specifically for children who have lost their parents to COVID-19.

Manning and her boyfriend, Darren Gibson, say the expectation that their son will be part of the district’s first generation Baby Bonds is a much-needed injection of hope. Gibson, 26, dropped out of high school three credits before graduation. Now he is the sole earner in his growing family, earning less than $10,000 a year as a cameraman shooting music videos for local artists.

“It takes a burden off my shoulders,” he said. Gibson said he will raise his son to make good use of that money when he matures. “It’s up to me to work on him and make sure he follows through on his ambitions.”

The concept’s journey, from academic thought experiment to local politics, received a big boost from the national conversation about the poverty brought on by the pandemic. The economic inequities exposed by COVID-19 have fueled calls for a new approach to the cycle of generational poverty. And the Baby Bonds concept, already familiar from the Booker campaign, gained new momentum with several proposals that received serious consideration at the state level.

But most of them failed to see the light of day.

Governor Phil Murphy, DN.J., made headlines in 2020 for supporting a Baby Bonds proposal. But the legislature took it out of its budget, and Murphy did not propose it again.

In June 2021, the Connecticut legislature passed the nation’s first statewide Baby Bonds program. But in May of this year, lawmakers, in coordination with the governor’s office, chose to delay the start of the program by two years.

That makes Washington, DC, the first real test case.

Connecticut treasurer Shawn Wooden, who championed the program, said he was surprised and disappointed by the delay in his own state, but remained convinced the time for politics had come.

“There’s a lot of interest in that, and always with these things we need what we call pioneers,” Wooden said. For the concept to spread, “You have to be successful in Connecticut. There has to be success in the District of Columbia.”

Wooden discussed Baby Bonds with members of President Joe Biden’s domestic policy team. McDuffie’s office responded to inquiries from several state governments.

The concept is new enough to be modified in real time, with various models and internal debates among advocates on issues such as how best to determine eligibility. The Washington program is so new that the 833 families that have qualified have not yet been informed and will not be until the city hires a fund manager.

Connecticut will automatically enroll any newborn in a family into the state’s Medicaid program. Booker’s proposal would have avoided that issue by giving each child born in the country a Baby Bond fund and $1,000 in seed capital. Then, all subsequent payments to the fund would have been heavily targeted to the poorest households.

The Washington program is open to Medicaid families earning less than 300% of the federal poverty line, which means earnings of up to $83,250 for a family of four. With these parameters, it is designed to benefit not only the poor, but also families like the Wrights, who can be considered lower-middle class.

At your income level, your daughter will get around $15,000 instead of the $25,000 cap.

There’s an unavoidable quirk in the system: any Baby Bonds program needs to set a start date that excludes anyone born before it. In the case of the Wright family, Kali would receive benefits, but her older brother Khaza would not. Aaliyah Wright was fine with that.

“OK, so I know my future is set for a kid,” Wright said. “So now I really need to focus on making things work for him.”

There are differences between plans in the size of the final payment. Booker’s proposal would have paid about $46,000 to children from the poorest families, while the district expects to pay a maximum of $25,000. The Connecticut plan would pay about $13,000 — something Wooden described as “pretty much the groundwork” for a serious attempt at a Baby Bonds program.

Naomi Zewde, an assistant professor of health economics at the City University of New York, who conducted a review of the concept in 2019, set the lowest-impact payout at $15,000.

“It has to be an amount of money that is kind of outside of what people would normally find,” she said.

Zewde’s analysis suggested that a national federal Baby Bonds program would massively reduce the racial wealth gap between white and black Americans in a single generation, while simultaneously boosting both races.

Currently, the average wealth of young white Americans is $46,000, compared to $2,900 for black Americans.

For a Baby Bonds program to be successful, it needs to be national and have strong popular support, advocates said.

Darity, a Duke professor and co-author of the original Baby Bonds proposal, points to Britain, which instituted a similar program called a children’s trust fund in 2005. But the program was discontinued and all future payments stopped in 2010 in a campaign. of government austerity.

“I think the assessment in England was that they didn’t build popular support for the policy when they started it,” he said. “So there was no strong resistance to eliminating the plan.”

In the United States, the program has already been heavily endorsed by prominent liberal organizations such as the Urban Institute and Prosperity Now.

But there are detractors.

Veronique de Rugy, a senior researcher at George Mason University’s Mercatus Center, said the one-way nature of deposits, with no mechanism for households themselves to add money, “does nothing to encourage a culture of savings.”

She added that the program could tie up millions that could be used to address the immediate social conditions that also help fuel the cycle of poverty.

“A lot of these kids are still going to be stuck in bad schools,” she said.

Michael Strain, an economist at the conservative American Enterprise Institute, says Baby Bond advocates will struggle to persuade lawmakers across the country to make such an expensive commitment. “I absolutely think it’s hard to sell,” he said. “The 18-year delay is less of a political hurdle than the price.”

Wooden has rejected the perception of Baby Bonds as of no return for 18 years, saying the benefits will be immediate and measurable. That nest egg, he said, will inspire real-time changes in planning, academic performance and overall ambition in children and families.

“There is a high value that must be placed on hope,” he said. “We know what the lack of hope is like in our communities.

Manning, the pregnant young mother in Washington, said knowing that money was waiting for her son would change the way her family talks about his future.

“It would be much more focused,” she said. “’Do you know what you want to do? What are your plans?'”

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Follow Ashraf Khalil on Twitter at http://twitter.com/ashrafkhalil

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