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Hillary Clinton’s Proposal for $5,000 “Baby Bond” Is Essentially Already Here

2 min readBy: Gerald Prante

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 creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. , 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 taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. 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 incomeTaxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross 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?