Estate Tax Hike May Help Fund Cory Booker, Ayanna Presley Plan to Give $1,000 to Each Newborn

A Democratic proposal to give $1,000 "baby bonds" to every U.S. newborn may be partially funded by increasing the federal estate tax rate.

The American Opportunity Accounts Act was reintroduced by Sen. Cory Booker (D-N.J.) and Rep. Ayanna Pressley (D-Mass.) on Thursday. It would establish savings accounts for each baby born, with an initial federal deposit of $1,000. Booker first proposed the program in 2018. During the following year, he wrote that "by the age of 18, low-income account-holders would have access to nearly $50,000 in seed capital to do the kind of things that create wealth and change life trajectories, including putting a down payment on a home."

Although the reintroduced proposal does not detail how the program would be funded, Booker initially said that it would be at least partly paid for by raising estate tax rates and lowering the threshold to apply to estates over $3.5 million. A 2019 analysis of the proposal from the bipartisan nonprofit organization Committee for a Responsible Federal Budget (CRFB) provided details on funding the program by raising investment income taxes and federal estate tax rates.

The estate tax, which is sometimes colloquially known as a "death tax," imposes new taxes on money and property that a deceased person leaves behind before it is transferred to anyone who inherits the money. The tax has generally only affected the estates of those who were very wealthy when they died, applying to "estates with combined gross assets and prior taxable gifts" of at least $11.7 million as of 2021, according to the IRS.

The current federal estate tax rate progressively increases from 18 percent to 40 percent. The first $10,000 over the $11.7 million threshold is taxed at 18 percent, while the rate rises to 40 percent for any assets that exceed $1 million over the threshold. Assets under the threshold are not subject to the tax. Some states also have their own estate taxes, with rates that vary depending on the state and the value of the estate.

The baby bonds proposal would lower the estate tax threshold to $3.5 million, while significantly raising rates depending on the value of the estate. The new tax rates would be 45 percent for amounts over $3.5 million, rising to 55 percent for amounts over $10 million and 65 percent for anything in excess of $50 million. CRFB estimates that while the program would cost $650 billion over 10 years, the new taxes would raise $700 billion over the same period.

Baby Bonds Bill Estate Tax
Sen. Cory Booker (D-N.J.) gestures during a Senate Foreign Relations Committee hearing in Washington, D.C. on January 27, 2021. Greg Nash-Pool/Getty

The price tag of the program is partly due to some accounts continuing to receive additional deposits until the child turns 18, beyond the initial deposit of $1,000 to every child. Deposits would range from an annual $2,000 per child for families living under the federal poverty line, to no additional deposits for families with incomes that are at least 500 percent over the poverty line.

Funds would gather interest in accounts maintained by the Treasury Department and could not be accessed by anyone other than the account holder upon reaching the age of 18. Recipients could then use the funds on a limited range of expenses, including paying for college, starting a small business or putting a down payment on a home.

In addition to Booker and Pressley, the reintroduced proposal is cosponsored by a host of other prominent Democrats, including Senate Majority Leader Chuck Schumer (N.Y.). The bill is intended to address generational income inequality, with a particular focus on efforts to close the racial wealth gap.

"These disparities are the direct result of generations of policy violence exacted against Black and brown communities, so we must be every bit as intentional in advancing policies that center racial and economic justice – policies like Baby Bonds," Pressley said in a statement. "Baby Bonds are one of the most effective tools at our disposal to help close the racial wealth gap and break generational cycles of poverty. By establishing Baby Bonds, our bill will provide every child an opportunity to pursue higher education, purchase a home, and build wealth for generations to come."

Newsweek reached out to the offices of Booker and Pressley for comment.