On Taxpayer-Funded Savings Accounts

Even though California is being modeled as the birthplace of post partisanship, ideological divisions still run deep in the political process. Two state senators who just crossed the aisle to forward a creative solution to a pressing state problem are getting more grief than glory.

Sens. Darrell Steinberg, D-Sacramento, and Robert Dutton, R-Rancho Cucamonga, held a press conference two weeks ago to introduce their bill to create a California KIDS Account for every newborn. The goal is to encourage parents to start saving early for their children’s future and, in the process, build the whole family’s financial literacy. This bill would help to equip the next generation with the expertise and tools they will need to gain a middle-class foothold in a society where employers and government play a smaller caretaking role. But the vision and purpose of this bill was twisted almost exactly backward by the political bombardment that followed the press conference.

Here’s how the accounts would work: The state would deposit the initial $500. The money couldn’t be touched until the child turns 18. Then it could only be used to pay for college, technical training, to buy a home or be invested in a retirement account. Parents, relatives and the child could make regular contributions to grow the nest egg. Churches and community groups could, too. If $50 a month goes into the account -- something experience in the United States and around the world shows is possible -- the kid’s got $17,000 by the time he turns 18 or $30,000 by the time he’s 30.

However, the bloggers and talk-radio junkies went ballistic. Before the bill could get a fair hearing, they wrongly called it 1) socialist 2) big government and 3) an illegal-immigrant magnet. It is this last one that Dutton’s office got more than 1,000 calls about. His office was so overwhelmed, he dropped off the bill.

Let’s address these assertions. Socialist? Would you call Rick Santorum -- the former conservative U.S. senator from Pennsylvania -- a socialist? In Washington, he was the lead author of the federal bipartisan KIDS Account proposal. Listen to what he said: "Does it not make sense to give young Americans the opportunity to have a head start in life, enabling them to have security in the long run? By making every young person an investor, KIDS Accounts will expand opportunities, encourage self reliance, promote savings and give every family a personal stake in America’s economy." Other Republican leaders, including U.S. Sens. Jim Demint (R-SC), and Jeff Sessions (R-AL)., also have accounts proposals (called Portable Lifelong Universal Savings or PLUS Accounts).

Or how about that bastion of socialism, the Heritage Foundation? It says: "Modest programs . . . such as KIDS Accounts can make the American Dream realizable to millions who are currently excluded because they lack the means to save."

Thre’s also a long list of Democrats -- including U.S. Sens. Hillary Clinton and Chuck Schumer of New York -- with their own KIDS Account proposals. But the KIDS Account isn’t a Democratic or Republican idea. It’s an American one.

Our country has a robust history of making investments that allow people to build wealth. For instance, 25 percent of Americans can trace part of their family wealth back to the Homestead Act, which provided 160 acres of land to anyone who was willing to live and work on the land for more than five years. KIDS Accounts would aim to democratize access to financial assets. They would be the Homestead Act of the 21st century.

And Big Government? KIDS Accounts grow out of the reality that the era of big government is over. Most people already realize that the state and your employer aren’t going to automatically take care of your health care and retirement. You will.

KIDS Accounts recognize the growing responsibility families have to manage their own health, education and retirement needs. Because so many kids -- a quarter of white kids and more than half of blacks and Latinos, according to studies conducted by Brandeis University professor Thomas M. Shapiro -- are born with no assets to their names, KIDS Accounts give them a head start. From the day they’re born, we’ll start to grow more savers, investors and owners, and eventually have fewer people who are dependent on the state.

The most egregious beef with the proposal is that KIDS Accounts would encourage illegal immigration. First, every child born in the United States is a U.S. citizen. And second, the money in this account couldn’t be accessed until the child turns 18. For someone deciding if they should enter the United States illegally, it’s hard to believe their decision would be swayed by an investment account that their future child couldn’t access for almost 20 years.

Finally, what can California expect if this bill becomes law? We can look to Britain. Britain launched a version of KIDS Accounts, called the Child Trust Fund (CTF), for each of the 700, 000 children born in the United Kingdom each year, beginning in September 2002. As a result, the percentage of those who electronically deposit monthly savings in bank accounts for children has doubled. The average amount being saved each month by an individual has risen 60 percent since 2002, according to CTF officials. Preliminary analyses show the greatest savings increases among low-income families, and families at all income levels are participating. Projections show most children will reach 18 with a financial springboard of more than $18,000.

This idea is also being piloted right here in San Francisco by the nonprofit EARN. More than 1,400 San Franciscans -- with average yearly incomes of $21,000 -- are saving about 5 percent of their income each month toward long-term goals.

KIDS Accounts aren’t cheap. They would cost the state at least $270 million a year. But let’s put that number in perspective -- it’s less than 0.5 percent of our state’s budget.

This is a bill that asks us to look at our world in a new way, so it naturally demands a legitimate and vigorous debate. Unfortunately, political attacks can stifle a policy debate. But they can’t stop the future from coming.