New Jersey U.S. Senator Cory Booker has relaunched a proposal for federal “baby bonds,” as a way of bridging the country’s wealth gap.

The Democrat first pushed the idea during his brief presidential campaign in 2019.

Since then, several states have considered the idea, including NJ — which has not yet implemented a baby bond plan.

Below are the most frequent questions and some answers on the largely partisan issue.

Baby Bonds U.S. Senator Booker proposal (Townsquare Media)
Baby Bonds proposal (U..S. Senator Booker)

What is a 'baby bond'?

In this case, the American Opportunity Account is more of a trust fund, in which the government would deposit $1,000 upon the birth of every American child.

The funds would stay in an interest-bearing account that would receive additional deposits each year, depending on family income.

For a family of four earning $25,100 a year (Below the federal poverty level), up to an additional $2,000 would be deposited each year.

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A family of four earning $125,751 (500% above the federal poverty level), would see no additional deposits made, while the initial money would generate interest.

Baby Bonds Proposal 2023 (U.S. Sen. Cory Booker)
Baby Bonds Proposal 2023 (U.S. Sen. Cory Booker)

When could the money be used — and what could it be spent on?

At age 18, account holders could access the funds in the account for allowable uses, like buying a home or paying for educational expenses.

Baby Bonds Proposal 2023 (U.S. Sen. Cory Booker)
Baby Bonds Proposal 2023 (U.S. Sen. Cory Booker)

Who would pay for the baby bond plan?

The legislation proposed by Booker would be fully paid for by making “common sense reforms to federal estate and inheritance taxes, including restoring the estate tax to 2009 levels.”

For 2023, the estate tax exemption has been set at $12.92 million per individual.

In 2009, the maximum estate tax exemption was $3.5 million.

“Major tax legislation enacted in 2001 and in 2017 cut estate tax revenue, primarily by limiting the number of estates subject to the tax,” as recapped by a budget model by Penn Wharton at University of Pennsylvania.

Racial wealth gap via Federal Reserve
(Source: Federal Reserve, Townsquare Media)

What is the main reason for offering such “seed money” in accounts?

The main intention is to reduce the wealth gap.

Researchers at the Federal Reserve Bank of St. Louis found that the median white family had $184,000 in wealth in 2019 compared to just $38,000 and $23,000 for the median Hispanic and Black families, respectively, using data from the Survey of Consumer Finances.

The same analysis found that the median wealth gap between white and Black families had hardly changed over a 20 year span.

Before Connecticut passed its own program, the state treasurer worked to show lawmakers that there were families in every town that would qualify for baby bonds.

“Part of the messaging around this is it’s not race-based,” Connecticut Treasurer Shawn T. Wooden said in an interview with Bloomberg Businessweek last year, adding “This is a program that is anti poverty regardless of your race or ZIP code.”

“While all or most babies would get a bond, the poorest kids would get the largest stakes,” as explained in the same Bloomberg article citing economist Darrick Hamilton, who has been a leading U.S. creator of baby bond proposals.

Baby Bonds criticism (via Cato Institute)
(Ryan Bourne via Cato Institute)

What are the biggest concerns shared by critics of the baby bond proposal?

Critics largely say that it is not the government's role to “handout” such money, and others question how the money would be spent — and how it will be funded.

An economist with the Cato Institute, a Libertarian think tank based in Washington D.C., said the Booker touted plan “wouldn’t support a savings culture — it’s just more government subsidies.”

The response piece, co-authored by Ryan Bourne, said that successful models of government accounts opened for newborns offer more control to the families, including the ability to add their own savings and access to use funds in emergencies before a child is 18.

Bourne and his colleague, Chris Edwards, said in 2017 that Universal Savings Accounts have encouraged savings “for those on low incomes in Britain and Canada,” continuing “These accounts allow people to deposit after‐​tax income, which then grows tax‐​free, much like supercharged Roth IRAs.”

Such accounts were pitched that year by two Congressional Republicans, Sen. Jeff Flake (R-AZ) and Rep. Dave Brat (R-VA).

Bourne also said that a main obstacle to poorer families not saving in tax‐​advantaged accounts was “the fear they will not be able to access funds for unforeseen contingencies.”

Who supports the plan?

The plan was also introduced in the House by U.S. Rep. Ayanna Pressley (D-MA).

Other Senators co-sponsoring the bill are fellow Democrats from New York (Chuck Schumer and Kirsten Gillibrand), Connecticut (Richard Blumenthal) Massachusetts (Elizabeth Warren and Ed Markey), Vermont (Bernie Sanders), Rhode Island (Sheldon Whitehouse), Illinois (Dick Durbin), Ohio (Sherrod Brown), Maryland (Chris Van Hollen), Wisconsin (Tammy Baldwin), Minnesota (Amy Klobuchar), Hawaii (Brian Schatz), Oregon (Jeff Merkley) and New Mexico (Martin Heinrich).

Among three pages of nonprofits and organizations backing the plan as shared by Booker — New Jersey Institute for Social Justice, United Way of Central Jersey, United Way of Northern NJ, City of Philadelphia Office of Community Empowerment and Opportunity, American Civil Liberties Union and Covenant House International.

What about baby bonds at the state level, here in the U.S.?

As of 2022, eight states and Washington, D.C. had at least considered legislation to introduce baby bonds programs and supportive strategies that improve economic security.

In 2021, Connecticut was the first state in the nation to pass an initiative that invests directly in children born into poverty, known as “CT Baby Bonds.”

Washington, DC also enacted its own program that same year, creating a trust fund for each new child born to a lower-income family after Oct. 1, 2021.

Baby bonds legislation has also been at least introduced in California, Delaware, Iowa, New Jersey, New York, Washington, and Wisconsin.

The state-level plan promoted by Gov. Phil Murphy in 2020 was strongly criticized by state Republicans, who said funding such deposits for low incomes families out of tax increases was not sustainable.

It was taken out of the state budget that ultimately passed.

Have such baby bonds been offered in other countries?

Britain and Canada have each offered its own version of government-insured saving accounts for newborns.

A Canada Learning Bond has been offered to eligible children from low-income families born in 2004 or later in Canada. It provides an initial payment of $500 for the first year the child is eligible, plus $100 for each year of eligibility up to 15, for a maximum of $2,000.

In the United Kingdom, a Child Trust Fund is a long-term tax-free savings account for children born between September 2002 and January 2011.

Since then, the U.K. has offered Junior Individual Savings Accounts — long-term, tax-free savings accounts for children.

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