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Booker’s ambitious proposal to close the racial wealth gap

Eyeing 2020, Cory Booker is preparing to mount campaign for "baby bonds."

WASHINGTON, DC - NOVEMBER 27: Sen. Cory Booker (D-NJ) talks to reporters following the weekly Democratic Senate policy luncheon in the U.S. Capitol November 27, 2018 in Washington, DC. (Photo by Chip Somodevilla/Getty Images)
WASHINGTON, DC - NOVEMBER 27: Sen. Cory Booker (D-NJ) talks to reporters following the weekly Democratic Senate policy luncheon in the U.S. Capitol November 27, 2018 in Washington, DC. (Photo by Chip Somodevilla/Getty Images)

As he ponders mounting a campaign for the White House in 2020, Sen. Cory Booker (D-NJ) is preparing to introduce radical and ambitious legislation aimed at narrowing the persistent black-white wealth gap. His idea — commonly described with the catchy monicker, “baby bonds” — is a proposal to grant at birth every American a cash account that could be used in adulthood to climb the ladder of economic success.

If the baby bonds concept catches public support, as Booker hopes it will, the audaciously ambitious policy might well strike down two of his personal goals in a single blow — reducing wealth inequality between blacks and whites and supplying his potential run for the Oval Office with populist fuel.

Booker’s legislation aims to reverse the long and dispiriting history of U.S. policies that assist the wealthy at the expense of the poor, especially black Americans and other minority group members who have been excluded from federally-backed wealth-building programs such as home mortgage and inheritance tax policies.

The racial wealth gap, which hasn’t been a topic of discussion on the campaign trail of late, is a near-permanent, negative fixture of the nation’s economy — a yawning gap of median net worth for white Americans that is nearly 10 times that of black Americans. Worse nearly 20 percent of black households have zero or negative net worth, which is twice the rate of white households.

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This disparity has existed through good and bad times. For example, by 2013 white households had largely rebounded from the Great Recession, but black and Latino households are still climbing from beneath the economic damage of yesteryear. Net worth declined about 30 percent for all Americans, regardless of race, during the recession, but black and Latino households suffered an additional 20 percent decline even as wealth began to level off for white families.

As Valerie Wilson, director of the Economic Policy Institute’s policy on race and the economy, noted in a Washington Post interview, white Americans typically have more financial capital to begin with, and economic downturns have comparatively less of an impact on their well-being than they do black and Latino households with far fewer resources.

“White households had a head start in rebuilding wealth relative to black and Hispanic households,” Wilson said. “Black and Hispanic households see larger percentage gains simply because they were starting from a lower level.”

In announcing last month his intention to introduce the legislation, Booker argued the idea behind baby bonds is to give “every American child a fair shot at economic mobility.” But, in doing so, he made clear that his legislation would heavily assist poorer and minority households more than white and wealthy families.

“This proposal is about helping families break through barriers that keep so many Americans from wealth-creating opportunities like higher education and home ownership,” Booker said in a statement accompanying the announcement of the proposed legislation. “Combined with other tax policy changes, like an expansion of the earned income tax credit, this bill will help level the playing field in our country to ensure that every child has a chance to live their version of the American dream.”

Under the proposed legislation, which Booker staffers said will be introduced before the end of this year, every American would receive at birth a federal-backed account worth $1,000. Every year thereafter, the account would collect up to $2,000 more in deposits. The amount of the annual interest would vary based on family income, weighting accounts to favor poor and low-income families.

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The bonds would be held in trust and managed by the Treasury Department, generating roughly 3 percent interest, and account holders would be prohibited from collecting the money before their 18th birthday. Even then, account holders could only spend the account’s assets on permissible purposes such as homeownership, college education, and other socially responsible reasons.

Booker’s idea isn’t new and it’s not wholly his own. Much of the intellectual heft behind baby bonds stems from a 2010 paper published in The Review of Black Political Economy, in which left-leaning economists Darrick Hamilton of The New School in New York City and William “Sandy” Darity of Duke University in Durham, North Carolina, propose “a bold progressive child development account type program that could go a long way toward eliminating the racial wealth gap.”

Jeff Giertz, a spokesman for Booker, said Hamilton and Darity have been long-standing advocates for reforming the wealth gap. “Our bill draws significantly from their research — including by distributing funds progressively based on family income and wealth — while also introducing some new ideas, such as annual supplemental payments that respond to changes in family income and wealth.”

In an interview with Think Progress, Darity acknowledged discussing the baby bonds concept — which he termed “a national child trust account” — with Booker and his staff, but said he would like to see the senator be even more ambitious and generous.”

“Booker’s proposal is bold, although not identical with what Darrick Hamilton and I have proposed,” Darity said. “Our proposal sets the amount of the trust account for each young person on the basis of their family’s wealth, while the Booker proposal is anchored on family income.”

For a proposal like [“baby bonds”] to become a reality we will need a very different Congress from the ones we have had since the 1960s.

As Darity and Hamilton view it, family income is a “less satisfactory” index than a the more wholesome family wealth measurement. “Indeed, the poorest whites have a higher median level of net worth than blacks taken collectively,” Darity said. “Also the maximum endowment for the Booker proposal is about $50K, while ours is closer to $60K. We would countenance a higher figure for those young people coming from the most wealth-poor families.”

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Of course such granular tinkering is a far ways off, given the political realities of Booker’s plan to introduce his legislation into the GOP-controlled Senate and the almost-certain rejection of it from conservative lawmakers and the White House.

Darity noted as much, saying the time might not be perfect at the moment for such so progressive of a policy idea. “For a proposal like a national child trust account to become a reality we will need a very different Congress from the ones we have had since the 1960s,” he said.

But that’s all the more reason to push the idea now in public conversations, said Giertz.

“Moving this legislation forward is a long-term project bigger than any one Senate session or election cycle,” he said. “Clearly, a big idea like this faces an uphill climb in a Republican-controlled Senate. But we also know that this proposal builds on decades of evidence and bipartisan support for federal efforts to build assets as a means of creating opportunity.”

Of course, for the politically ambitious senator, the timing couldn’t be better to propose a strong progressive policy idea to separate him from the growing list of potential Democratic rivals angling for his party’s presidential nomination. For example, potential 2020 Democratic candidate Sen. Bernie Sanders (I-VT) is already on record supporting a federally-supported health care system and Sen. Kamala Harris (D-CA) has been advocating for her plan to give low-income families up to $500 in monthly cash assistance.

But it is perhaps premature to get too bogged down in the practical details involved in passage of the legislation or even the presidential politics undergirding it. Booker’s advocacy for baby bonds serves the important and necessary role of sparking a full-throated, national discussion about eliminating the racial wealth gap. That’s a conversation that’s long overdue and greatly needed to guarantee every American’s potential and the nation’s promise.