"How One Congressman’s Plan To Give Everyone Free Money Could Actually Pass"
A Democratic Congressman is about to propose an ambitious plan to fight economic inequality by giving money to every American child — and there’s a chance Republicans will actually support it.
On Tuesday afternoon, Rep. Joe Crowley (D-NY) will release an outline of legislation that would create a retirement savings account, called a USAccount, for every American child at birth. The government would provide $500 in seed capital — roughly $2 billion per year in total government expenses, making it a relatively cheap program. Crowley’s legislation would match the next $500 a family chooses to deposit through a Child Tax Credit (CTC) expansion. Families could put up to $2,000 per year in the child’s account on top of the government’s contribution; money from USAccounts can only be withdrawn by parents to pay for higher education. The child can withdraw cash after his/her 18th birthday to fund a college, a home purchase, a new small business, or a traditional retirement account.
Poor families would get even stronger support. As it stands right now, the CTC allows each parent to claim up to $1,000 per child. Families who don’t pay enough in taxes to claim the full amount per child can get a check from the government for up to $3,000; Crowley’s plan would expand that number by $500 per year in government donations to the child’s savings account.
“Many Americans are having a tough time making ends meet and paying for family expenses, let alone setting aside meaningful funds for their future financial security,” Rep. Crowley, the vice chair of the Democratic caucus, wrote in a letter to other Congresspeople provided to ThinkProgress. “As a result, we are seeing a new generation of Americans growing up with no assets and little ability to either climb the economic ladder or simply weather a difficult time.”
There’s real evidence backing Crowley’s claim. In 2009, four scholars at Pew’s Economic Mobility Project reviewed data on inequality and savings. It turns turns out, savings mattered quite a bit: “seventy-one percent of children born to high-saving, low-income parents move up from the bottom income quartile over a generation, compared to only 50 percent of children of low-saving, low-income parents,” the report found. High-saving adults in the bottom fifth were over 50 percent more likely to advance relative to low-saving peers.
Savings also help keep people out of poverty. Having $2,000 in liquid assets makes a family significantly less likely to face food insecurity or be forced to skip going to the doctor. This makes intuitive sense: If you’ve got money tucked away, you’re better prepared when disaster strikes. Yet, according to the Center for American Progress’s Joe Valenti and Christian Weller, “about two in five American families report that they would ‘probably not’ or ‘certainly not’ be able to come up with $2,000 in 30 days to deal with an emergency.” The figure is higher for young and minority Americans.
Federal proposals like USAccounts have been around for a long time. The first version, called KidSave, was proposed in the 1990s. But unlike many other good ideas kicking around, this one has always had bipartisan support. In 2005, then-Sen. Rick Santorum (R-PA) was one of the main boosters of the ASPIRE Act (the most recent version of universal savings accounts before Crowley’s legislation). Santorum and other Republicans liked the ASPIRE Act because it made “every young person an investor;” all money that went into the accounts would be invested in bonds or the stock market using the same system that manage federal employees’ savings accounts. Crowley’s plan is similarly market-friendly, allowing parents to invest with the same federal system or a Treasury-approved broker.
No one is quite sure why previous iterations of USAccounts didn’t become law. “KidSave drew support from liberals and conservatives, from unions and business interests, from the Heritage Foundation and AARP,” the American Enterprise Institute’s Norman Ornstein writes. “But for reasons I can’t explain, it went nowhere.”
Because Crowley’s law uses the CTC to fund savings accounts, it may stand a better chance. The centerpiece of Sen. Mike Lee (R-UT)’s tax reform plan is a huge expansion of the credit. Lee is widely seen as one of the Tea Party’s Congressional leaders, so the idea of using the CTC to fight inequality may not be as anathema to Congressional Republicans as you’d think.
The CTC is also popular among leading Republican and conservative thinkers. Influential writers like Ramesh Ponnuru, Ross Douthat, and Reihan Salam all support significant CTC expansions. If they joined conservatives like David Brooks and Michael Gerson in supporting child savings accounts, the idea could quickly catch on in conservative intellectual circles.
There are pitfalls in this approach to inequality. Crowley wants USAccounts to help people “afford college, invest in a home, cover unexpected emergencies or take the risk of starting a new business,” but some similar proposals would only allow money to be withdrawn to pay for college and/or retirement. These limited accounts obviously don’t help poor Americans pay for basic necessities or survive through emergencies, and the research on their effect on mobility and access to education is murky.
But given how deadlocked major federal legislation tacking inequality has been, Crowley’s plan isn’t a bad place to start.