Hillary Clinton's Proposal for $5,000 "Baby Bond" Is Essentially Already Here

October 03, 2007

Last week, Hillary Clinton suggested that giving a $5,000 bond to each child upon birth would be a policy that she would support. Others have suggested this in the past. Here's the NY Daily News summary of the Republican response:

Sen. Hillary Clinton's plan to give every newborn a $5,000 bond, money meant to defray college costs when the kids hit 18, continued to draw criticism yesterday from her right-wing rivals.

"It's a quick way of trying to buy votes, which is irresponsible when it comes to the economic future of the nation," said New York Conservative Party chief Mike Long, adding that the White House would have to raise taxes to finance the plan.

The bonds would cost about $20 billion a year, based on the 4million American babies born annually, according to Time magazine, which last month proposed a similar plan.

The problem is that we already have such a policy in place -- it's called the child tax credit, and it was put in place and increased significantly by conservative Republicans (along with President Clinton's signature and President Bush's signature). Every year until a child is age 17, most families can deduct $1,000 from their final tax bill for every child they have. (It's a credit, meaning it's $1,000 at the very end, not a deduction which merely reduces taxable income.) And that $1,000 per year adds up. When that child turns 18, the family will have saved over $28,000 (assuming a 5 percent interest rate). On the other hand, a $5,000 bond only turns out to be around $12,000 over that same time period.

The Bush tax cuts passed in 2001 doubled the credit from $500 to $1,000. Therefore, getting rid of the credit's $500 increase would amount to approximately the same as the proposed bond over a person's first 18 years.

But the overall question that needs to be answered is: How much should we subsidize childbirth in the first place? And is it even necessary?

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