As officials in Washington gear up for partisan warfare over President Biden’s recent budget proposal, a remarkable bipartisan agreement has persisted. Both sides are pledging to protect two of the nation’s most critical anti-poverty programs, Social Security and Medicare, acknowledging that these programs, despite some racially discriminatory origins, have been essential to protecting the well-being of millions of Americans.
That’s good news, and it mirrors the way Congress has found bipartisan agreement in another area: infrastructure spending. Now, as the budget negotiations begin in earnest, Congress should come together over an opportunity to include plans for reducing long-term poverty with an infrastructure-type approach.
The idea is this: Lawmakers of both parties already support spending on investments in our physical infrastructure, like roads and bridges, because this spending yields big benefits for everyone down the line. So, therefore, Congress can also support investments in our social infrastructure — the Americans who will make up our nation’s future taxpayers and workers. That’s the core of the “Baby Bonds” proposal included recently reintroduced by Sen. Cory Booker (D-N.J.) and Rep. Ayanna Pressley (D-Mass.). They’re a critical tool for reducing intergenerational poverty, and they deserve bipartisan support.
Baby Bonds tackle one of the biggest drivers of poverty, which is barriers to intergenerational wealth. Poverty is stubborn, especially for communities of color. A 2021 joint study by the Brookings Institution and AEI think tanks compared incomes of adults in their 30s with their parents and grandparents and found that “one in five Black Americans are experiencing poverty for the third generation in a row, compared to just one in a hundred white Americans.” A major factor, the study said, was that poor Black families are unable to build the wealth needed to allow their children to escape poverty.
While income is important for enabling households to pay their day-to-day expenses, wealth is essential for financial stability and economic mobility. But our nation’s long history of economic exploitation and discrimination has left the average Black and Latinx household with only 15 percent and 20 percent, respectively, of the wealth of the average white household.
Children born into middle class or wealthy families, which is more common for white children, often get help building their wealth as adults. They may get gifted support for college tuition or the down payment on their first home. They are also less likely to be called on to financially support their parents as they age.
Baby Bonds help level the playing field by providing young adults with the start-up capital they need to start building wealth, with children from the poorest households receiving the largest amounts. Those funds are then invested by the government on children’s behalf, so that they grow in value over time to reach a substantial size when the recipient reaches adulthood. Recipients are allowed to access the funds only for wealth-building opportunities, such as purchasing a home, attending college, starting a small business or investing for their retirement.
By targeting this program toward supporting wealth building, Baby Bonds operate similarly to one of the largest government benefits currently available to upper-income families: the tax break on mortgage payments. That one tax break was estimated to cost the federal government over $30 billion in 2020, but Congress has supported it year after year because the deduction has encouraged millions of Americans to buy a home. The cost to the government is considered an investment in our nation’s overall economic stability.
Most critically, a Baby Bonds program would chip away at the racial wealth gap. A 2019 study found that a national Baby Bonds program could have slashed the wealth gap over the past 20 years, from participating white families having an average of 15.9 times the wealth of Black families to having only 1.4 times the wealth.
Programs to reduce intergenerational poverty are an investment in Americans’ long-term financial security and in an economic future that works for everyone. Building intergenerational wealth through a program like Baby Bonds is a key piece of that, and it deserves support from lawmakers of both parties.
Gary Cunningham is president and chief executive officer of Prosperity Now, which is focused on reducing the racial wealth divide.