July 22, 2004
OPPORTUNITY SOCIETY FILES:
A Bipartisan Children's Savings Account Proposal (Centrist Policy Network)
This afternoon, Senators Rick Santorum and Jon Corzine, and Representatives Thomas Petri, Phil English, Harold Ford Jr., and Patrick Kennedy will announce the ASPIRE Act -- an innovative new bill to make every American a financial "stakeholder" with a "KIDS" personal savings account.The bill grants a $500 account to every newborn. Kids born into families with incomes under the national median would get a supplemental grant of up to $500.
Families could voluntarily add as much as $1,000 a year to their kids' accounts, and matching funds up to $500 a year would be available for families under the median income. (Like a Roth IRA, family contributions would be "after tax." But the investment returns would grow tax-free, and distributions would be untaxed as well.)
An account could be tapped when the child reached age 18. It could be used for education, retirement savings, homeownership or for other purposes.
For example, take a child born into a low-income family that voluntarily contributed $250 a year to her account. By age 18, her "stake" would be $14,000 in today's dollars, assuming a "real" (inflation-adjusted) interest rate of 3 percent. If the family contributed $500 a year, the stake would be $26,000. If, by good fortune, the account earned a 5 percent real rate of return, the child's stake at age 18 would total $32,000 in today's dollars, assuming the family kicked in $500 a year.
The real goal of the KIDS accounts is to encourage families to save on an annual basis. The grant at birth is the seed, but the tax savings and matching funds are what really makes the account grow.
A terrific start, though those numbers should all be raised drastically. It's also another reminder that while the Left (and far right) obsesses over neocons, it's the neoconomics that will transform the nation. Posted by Orrin Judd at July 22, 2004 1:35 PM
I can see the appeal of this sort of thing for retirement savings and health, but the more the principle is extended the more you will find tax-free savings accounts created for flavour-of-the- month causes and whatever the government of the day thinks is good for everyone. How about special "waste recycling" accounts? Or maybe "wilderness camping and exercise equipment" accounts? I know I'd support a cultural "see the world" account.
Maybe the focus should be on just lowering taxes and letting people decide for themselves. Why does the government care how much 18 year olds have in their accounts?
Posted by: Peter B at July 23, 2004 5:54 AMPeter:
Because he can pay for his own education and health care?
Posted by: oj at July 23, 2004 10:10 AMWell, I thought you believed far too many people were in higher education anyway. And the average health care costs of an eighteen year old must be pretty low (excluding therapy).
I'm not attacking savings or self-reliance, just successive waves of politicians and bureaucrats using the tax code to direct peoples' lives.
Health and retirement accounts make sense because government will otherwise have to pick up the tab for the aged somehow. It is politically impossible to say "too bad, poor planning" to the elderly and watch them die in a ditch. But eighteen year olds surely should be on their own. Why should a tax-sheltered plan be available for education but not for starting a business, trying to invent a better mousetrap, supporting a child or travelling the world?
Posted by: Peter B at July 23, 2004 12:42 PM