Baby Bonds combined with progressive taxation is key

Bodine Smith turns 38 this year, and she has a lot to be proud of. She is working toward a doctorate in human resource management and a master’s in psychology, adding to the three related degrees she’s already earned. “I’ve taken up studies in these fields because there are lessons here that Black families can use to empower themselves and understand that their circumstances are not who they are,” she told me.

Striving for better understanding, however, hasn’t afforded Smith protection from the struggle that hinders her the most: At almost 40, the single mother has no savings or assets for either herself or her two young children. She is over $130,000 in debt. Her current degree costs $34,000, which she makes payments on every other week. She sees her predicament as a “generational struggle” that was handed down to her. Smith’s mother raised her and her five siblings alone and worked as a commercial driver for a bus company, earning less than $40,000 for much of her career and never accruing any savings.

Wanting better opportunities and circumstances for her family, Smith’s mother moved them around New Jersey, and in each neighborhood, Smith would compare what her family had in relation to others, particularly white families with greater means. “I saw [my mom] struggle a lot,” she said. “Although she wanted to be with us all the time, she knew that it was a choice between being home or working to make sure we had a roof over our heads.”

For Smith, there was no passing down of assets or wealth; her mother had nothing of the sort to give. “What she passed down to us was that we need to work to survive,” she said. Smith, too, says she “hasn’t seen any wealth” despite the number of hours she works as a personal care provider. The one hope Smith holds on to is her degrees. She believes that education and better financial literacy on her part will help her eventually set up savings for her two children.

“I hope I can break the generational curse,” she told me.

Though Smith is banking on education, it might not pay off like she hopes. A 2015 study found that, regardless of education level, white Americans have more wealth than Black Americans. The report also noted that Black households headed by a college graduate have less wealth than white ones headed by a high-school dropout, perhaps an even more egregious disparity.

In fact, the Black-white wealth gap hasn’t budged since researchers started collecting related data more than 50 years ago: The typical white family remains nearly 10 times wealthier than the average Black one. In 2016, the average middle-class Black family had $13,024 in wealth — including not only wages but also material possessions (a home) or intangible resources (a monetary inheritance) — compared with $149,703 for the average white one. In New Jersey, where Smith lives, the numbers are even worse: In 2016, the median net worth for white residents was $106,210, versus $179 for Black residents.

This may seem surprising given the sweeping legislation over the decades, including the Fair Housing Act of 1968, that has sought to shape a more tolerant and inclusive America. But the gap’s endurance has been abetted by structural racism that stems back to slavery and the nation’s founding.

Many policies and their vestigial effects, like segregation and redlining, continue to benefit white Americans, allowing them to accumulate wealth on the backs of the enslaved and through the inheritances they amassed early on. Meanwhile, Black people, through the country’s failure to center them as the citizens who are owed, have been knocked back.

The racial wealth gap numbers show “that not only is the problem systemic and structural, but also that the ways we’ve tried to solve the problem in the past, which is better access and more opportunity to the current system — like building wealth through housing or through education — just aren’t working,” Felicia Wong, president of the progressive think tank the Roosevelt Institute, told Vox.

Combating America’s extreme wealth concentration will take a robust approach, including progressive taxation, such as an inheritance tax, and stronger enforcement of laws that fight against discrimination in housing, employment, and education. But these policies must also be paired with actual capital. One idea is baby bonds — giving money to children at birth.

Under the American Opportunity Accounts Act reintroduced this month by Sen. Cory Booker and Rep. Ayanna Pressley, a baby bonds program would give every child in America a savings account seeded with $1,000 when they are born. Children would receive up to $2,000 more each year, depending on their family’s income, and wouldn’t be able to access the funds until they turn 18. A child from a low-income household has the chance to receive around $46,000 by then, to be used for buying a home, paying for school, or starting a business.

“To truly ‘build back better’ our economy, we cannot ignore the extreme and persistent wealth inequality that deprives kids of economic opportunity right out of the gate,” Booker told Vox. “We know this growing gap has been driven in part by federal policies and a federal tax code that subsidizes asset building for some Americans but fails to extend and expand that opportunity for all Americans. Baby bonds will start to level the playing field.”

While there are still details to be ironed out about the specifics of baby bonds — including how 18-year-olds would access the investment and how the government would regulate the funds — numerous economists and lawmakers point to it as a step toward racial wealth parity. And it’s a policy Congress can take action on today.