Paul L. Caron

Wednesday, September 28, 2022

Nurturing The Baby Bond Proposal: How Tax Principles Can Close The Racial Wealth Gap In The United States

James T. Smith (J.D. 2022, Temple), Comment, Nurturing the Baby Bond Proposal: How Tax Principles Can Close the Racial Wealth Gap in the United States, 94 Temp. L. Rev. 147 (2021):

“Every day I’m trying to play catch-up,” said Kourtney McGowan—a Black mother from California who became unemployed after her company refused to accommodate her work schedule during the COVID-19 pandemic. McGowan noted that she could not “have [her] son in [her] office for eight hours every day,” and she had no reliable plan for childcare. She turned her eight-year-old son to therapy to address his anxieties stemming from the pandemic. “Raising Black boys is hard in itself . . . . I’m just trusting God,” said McGowan.

The United States of America is the wealthiest country in the world, but, paradoxically, it has the largest wealth gap in the world. The wealth gap in the United States is starkest between races—Black wealth per family has declined by approximately 50% since 1983, while White wealth per family has increased by 33%. Families, like the McGowans, are finding themselves in difficult positions where they are “going to have quite a bit less to leave to their children.” Black children are more likely to live in poverty than their White peers, which impacts not only their physical and mental health but also their ability to achieve economic mobility.

Congress has relied primarily on fiscal policy mechanisms to provide substantial economic stimulus to the public and private sectors of the U.S. economy through the Tax Cuts and Jobs Act (TCJA) and—in the face of a raging pandemic—through the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). However, these policies have fallen short of erasing racial economic disparities; in some cases, the policies have increased these disparities.

In order to address the racial economic gap, scholars and researchers across the United States have promulgated the idea of a “baby bond.” Upon the birth of an American child, that child would be provided a trust fund, which would become accessible when the child becomes a young adult. Each child would receive varying amounts of funds that would correlate inversely with the net worth of the child’s household at the time of birth. U.S. Senator Cory Booker (D-NJ) and others have adopted this idea but rely on gross familial income to calculate the amount of each disbursement, as opposed to actual wealth. The baby bond solution is gaining traction within academia and policy spheres.

The baby bond solution must ground itself in values that should underlie all American tax policies—tax neutrality, tax simplicity, tax transparency, and tax stability. Recipients of the baby bond must (1) graduate from high school and (2) enter either a specified trade or business or attend an accredited two- or four-year institution. Further, the baby bond solution must be implemented through transparent processes from Congress and the Department of Treasury, and ensure that low-income communities fully understand the baby bond framework. Lastly, due to the length of the baby bond program, the proposal’s longevity must be preserved through consecutive congressional terms and executive administrations.

This Comment proceeds in three Sections. Section II begins with an overview detailing wealth inequality in the United States and the relationships between race, wealth, and fiscal policy. Part II.B discusses the baby bond solution—an idea developed by scholars to provide a savings account to every American child at birth, along with yearly additions depending on the gross household income as compared to the federal poverty line. Part II.C closes by detailing several tax policy principles that serve as guardrails for the U.S. tax system.

Part III.A describes how the baby bond solution should adopt tax neutrality principles by requiring baby bond recipients to (1) graduate high school and (2) start a qualified trade or enter an accredited institution. Part III.B explains how the baby bond solution should be designed in such a way to enable simple administration while also offsetting burden costs suffered by Black people. Part III.C explains why a transparent implementation process is necessary for the baby bond solution to succeed and provides recommendations on how to incorporate suggestions from external stakeholders. Part III.D closes by detailing how a baby bond proposal that is permanent, and thus procures reliance from minority communities, best ensures the program’s utility.

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