The baby bond bill: $1,000 for every baby is just the start

Imagine you turn 18 and gain access to an account with tens of thousands of dollars. The catch? You can use it only for wealth-building purposes like college tuition or starting a business.

Baby Bonds legislation would make this a reality — acting as a “trampoline for the middle class,” according to Sen. Cory Booker (D-N.J.) and Rep. Ayanna Pressley (D-Mass.), who reintroduced it in 2023. Here’s a closer look at how it works and where it stands.

What Is the Baby Bonds Bill?

The Baby Bonds Bill, known as the American Opportunity Accounts Act, proposes that baby trusts will be created for every American child at the time of their birth.

“It is an attempt to reduce the wealth gap in this country,” Alvin Carlos, certified financial planner and managing partner at District Capital Management, says.

Each account would be opened with $1,000 upon a child’s birth. The federal government would then deposit up to $2,000 per year into each account, using a sliding scale dependent on a household’s income to determine the amount each child would get. The less a family makes, the more a child would receive.

The U.S. Department of the Treasury would manage the accounts, placing them in low-risk investments that accrue 3% annual returns. Once the child turns 18, they gain access to the funds and can use them for asset-building expenses like purchasing a home, paying for college, starting a business or saving for retirement.

As for funding the program, the bill proposes full funding through reforms to federal estate and inheritance taxes.

[READ: States With Estate and Inheritance Taxes.]

Dusko Jankovic, chartered financial analyst, says the bill would reduce wealth inequality and could boost the economy by increasing consumer purchasing power. On the downside, however, he says it comes at a big cost when the national debt is already high — and it would require a substantial amount of administrative work.

Maturity Potential of Baby Bonds

Here’s a look at the estimated size of the federal American Opportunity Account by the time it matures, broken down by a household’s income level.

Federal Baby Bonds Bill Status

Sen. Cory A. Booker introduced the bill to the Senate on Feb. 4, 2021, where it was read twice and then referred to the United States Senate Committee on Finance. An identical bill was also referred to the United States House Committee on Ways and Means.

On Feb. 15, 2023, Sen. Booker and Rep. Ayanna Pressley reintroduced the legislation. Again, the Senate read it twice and referred it to the Committee on Finance. No further action has been taken.

[READ: The Cycle of Poverty: Traps That Keep You Poor.]

States Have Already Passed Baby Bonds Bills

While the federal Baby Bonds Bill is at a standstill, some states have moved ahead with their own versions.

In 2021, Connecticut became the first state to pass a Baby Bonds Bill. Starting July 1, 2023, the program will deposit up to $3,200 into the CT Baby Bond Trust when a baby’s birth is covered by the HUSKY Health program (also known as Medicaid).

The Office of the Treasurer then invests the money. Eligible beneficiaries between the ages of 18 and 30 years old can submit a claim for an allowable expense once they’ve completed an approved financial literacy course.

Recipients can use the funds to buy a home in the state, pay for higher education, save for retirement or invest in a state business.

Washington, D.C., also implemented a Baby Bonds program.

After Oct. 1, 2021, the government started depositing $500 into trust funds for each new child born to a lower-income family. In the years following, it has put an additional $1,000 into the account each year that the child’s parents have income below a certain limit. Once the child turns 18, they can access the funds for wealth-building purposes.

“There seems to be more bipartisan support at the state level for Baby Bond Bills, which encourage young people to stay in their home states to work, buy homes, start families and businesses, etc,” Jankovic says.

Is a Federal Baby Bonds Bill in Our Future?

The federal government hasn’t been quick to take action on the Baby Bonds Bill. Support from the states, however, may eventually change that.

But a lack of bipartisan support is another obstacle.

“The Baby Bond bill is unlikely to pass given Republican control of the House of Representatives. This bill will raise estate taxes, and Republicans are against tax increases,” Carlos says.

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