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Cory Booker Wants Baby Bonds in the Budget Reconciliation Bill

The proposal would help close the racial wealth gap by giving every child in America up to $2,000 annually in a savings account.

Senator Cory Booker gestures as he speaks at a hearing on Capitol Hill.
Drew Angerer/Getty Images

The budget reconciliation bill, which Democrats intend to use to cover the elements of President Joe Biden’s agenda that are not included in the bipartisan infrastructure legislation, is quickly becoming an aromatic bouillabaisse of Democratic social policy priorities. The bill is expected to cover such issues as education, health care, childcare, and climate change, and may even have provisions related to immigration and voting rights.

Senator Cory Booker is hoping the budget reconciliation bill will also include one of his key priorities: his proposal on “baby bonds,” which would create a federally funded savings account for every child at birth. The New Jersey senator believes the plan can address the problem of widening income inequality, as well as close the racial wealth gap.

“In a country as wealthy as ours, every person should have access to economic opportunity and the chance to build assets. That is why I am urging Leader Schumer to include Baby Bonds in the reconciliation bill so we can start to level the playing field,” Booker said in a statement to The New Republic.

Booker, joined by seven other Democratic senators, is sending a letter to Majority Leader Chuck Schumer requesting that his baby bonds proposal, outlined in Booker’s American Opportunity Accounts Act, be included in the budget reconciliation bill.

The letter, dated August 5 and first obtained by The New Republic, argues that the wealth gap between white and Black families has only been exacerbated by the coronavirus pandemic, making policies aimed at leveling this disparity more crucial than ever.

“The COVID-19 pandemic, ensuing economic crisis, and ongoing recovery have only further exposed vast economic inequities along racial lines,” the letter says. “These disparities left Black families particularly vulnerable during this crisis as they dealt with the challenges of high costs of healthcare, unemployment, and remote learning without the buffer of savings and resources.”

The letter argues that the “setbacks facing Black families as a result of the pandemic cannot be understated.” It continues: The outsized impact on the health and employment of Black families further shrunk wealth as families dipped into their limited resources to stay afloat, and data shows that critical asset building investments in education, homeownership, and retirement suffered as Black households depleted their savings.”

Black communities have been disproportionately affected by the coronavirus, and Black Americans continue to face higher unemployment rates. A September survey by NPR, the Harvard T.H. Chan School of Public Health, and the Robert Wood Johnson Foundation found that about four in 10 Black households had reported using all or most of their savings during the outbreak.

The senators argue that “these disruptions have the potential not only to create obstacles for the workers and students in the years to come, but also for the future generations.”

Booker’s baby bonds plan is, on its surface, race-neutral. Every American child would receive $1,000 at birth, in an “American Opportunity account” managed by the Treasury Department, and receive an additional annual deposit of up to $2,000 until they turn 18, depending on their family income.

As Black families are disproportionately poorer than white families, they would benefit more from the baby bonds program. According to data from the Federal Reserve, white Americans owned about 84 percent of the nation’s wealth in 2020, compared to 4 percent by Black Americans, who comprise more than 13 percent of the population. Although poverty rates have decreased in recent years, they are still highest among Black Americans, reaching nearly 19 percent in 2019, according to the Census Bureau. (The policy would also likely benefit Hispanic Americans of all races, who also have higher poverty rates and a lower share of the nation’s wealth, and have been disproportionately affected by the coronavirus.)

The senators’ letter notes that “disparities are the result of intentional policymaking.” Black Americans are still feeling the economic effects from practices such as housing discrimination and segregation. They were also largely excluded from the social policies of the first half of the twentieth century that helped lift the economic prospects of white Americans, such as the New Deal and the GI Bill. This discrimination came after 250 years of enslavement, which necessarily prevented accrual of wealth across generations.

“For decades, federal, state, and local policy has stripped wealth and opportunity from Black and Brown people, and our tax code is overwhelmingly skewed to reward the already-affluent. We have an opportunity to build a just economic recovery that addresses the economic injustices of the past and present and moves us towards an economic future that leaves no family behind,” the letter says.

The annual amount provided to children in their American Opportunity accounts would decrease on a sliding scale: A child in a family with an income up to 100 percent of the federal poverty line would receive all $2,000, while a child in a family with an income up to 175 percent of the federal poverty line would receive $1,000. With a family income at 500 percent of the federal poverty line, the child would receive no annual benefit—but since the account would accrue 3 percent interest, they would still have more in the bank by the time they turned 18. The dollar amount received by a family would also be adjusted for inflation as needed.

Once the account holder turns 18, they can access the funds and use them for allowed purposes, such as expenses for higher or continuing education, buying a home, or entrepreneurship, investments that the letter from the senators says “can change life trajectories and break generational cycles of poverty.”

There is research that supports the claims of baby bond proponents. A 2019 study by Naomi Zewde of Columbia University’s Center on Poverty and Social Policy found that a baby bonds proposal would “reduce generational wealth disadvantages and improve the net asset position of young African American households.” A 2020 study by the financial services firm Morningstar found that Booker’s proposal “could help narrow the persistent racial wealth gap,” although it argued that the proposal could be even more targeted on lower-income individuals.

Booker has long been an advocate for baby bonds, and made the policy a key plank in his unsuccessful presidential campaign platform. Along with Senators Sherrod Brown and Michael Bennet, he has also been one of the main champions in the Senate of extending the child tax credit, which was newly expanded in the American Rescue Plan. Brown is one of the signatories of Booker’s letter to Schumer.

There’s a chance that Booker’s proposal on baby bonds could be included in the budget reconciliation bill, as it has some passionate supporters. One of the signatories of the letter is Senator Dick Durbin, the majority whip. Schumer is a co-sponsor of the American Opportunity Accounts Act, as is Senator Bernie Sanders, the chair of the Budget Committee. In a statement supporting the baby bonds bill when it was reintroduced in February, Schumer said that it would “help address inequality, establish the foundation of a solid financial future for our kids and serve as a down payment on the milestones that too many families find are out of basic reach.”

However, Democrats are already trying to cram several policies into the bill, and a few moderates have balked at the price tag. Democratic Senator Kyrsten Sinema, one of the lead negotiators of the bipartisan bill, has said that she is unwilling to support the $3.5 trillion price tag floated by Democratic leaders. Democrats may also want to add raising the debt ceiling to the reconciliation bill, which would hike up the costs further.

Democrats have to pass this second bill—which is focused on so-called “human” infrastructure priorities—through reconciliation, a complicated and arduous process that will allow the measure to be approved without any Republican votes. The final version of the legislation will also be affected by the rulings of the Senate parliamentarian, who can make decisions about what can and cannot be included in reconciliation bills.

The Senate will likely vote on a budget resolution outlining the instructions for crafting a reconciliation bill next week. Whether or not the baby bonds proposal is included in the bill, the letter to Schumer raises important questions about how to close the racial wealth gap, and shows that the issue is gaining momentum among Democrats.

“​​Alongside the investments in families and workers put forward in President Biden’s American Families Plan, we can make meaningful progress towards eliminating these disparities,” the letter says. “As we emerge from this dark period of our nation’s history, Baby Bonds is exactly the type of universal, race conscious program necessary to build our economy back better.”