Tax breaks that encourage asset building are smart policy—except that more than 90 percent of the benefits of the two largest programs (which support home ownership and retirement saving) go to the wealthiest 55 percent of taxpayers. This enormously regressive policy thus excludes people who don’t earn enough to enjoy the benefits built into the tax code. In addition, many poorer Americans face limits on the assets they can own if they want to continue receiving necessary food, health, and other income-support assistance.
If asset-building policies are good for better-off Americans, shouldn’t such policies be good for all Americans? Actually, broad-based asset-building programs have a long and successful history in America. The Homestead Act of 1862, for example, offered 160 acres of land to every American—rich or poor—who was willing to occupy and cultivate it for five years. And the GI Bill of 1944 helped millions of Americans get a college education or buy a first home. These programs greatly equalized the distribution of wealth in America—not by punishing the rich but by expanding opportunities and the ownership of assets.
In the effort to shrink the huge wealth gap that has developed over the past decade or two, the first step is straightforward: we should extend the same opportunities that better-off Americans now have to everyone else, through refundable tax credits and matching deposits to encourage college education, home ownership, business ownership, and retirement saving.
But the next step has to be bolder: a Homestead Act for the twenty-first century. Here’s how it might work. Every one of the four million babies born in America each year would receive an endowment of $6,000 in an American Stakeholder Account. If invested in a relatively safe portfolio that yielded a seven percent annual return, this sum would grow to more than $20,000 by the time the child graduated from high school, and to $45,000 by the time he or she reached thirty (assuming that the account had not yet been used). Funds in the American Stakeholder Account would be restricted to such asset-building uses as paying for the cost of higher education or vocational training, buying a first home, starting a small business, making investments, and, eventually, creating a nest egg for retirement. Withdrawals would of course decrease the account; work and saving would build it back up. Family members and others could also add money to the account.
Although the program would be universal, giving every American child a tool to help meet his or her lifelong asset needs, it would especially benefit the 26 percent of white children, the 52 percent of black children, and the 54 percent of Hispanic children who start life in households without any resources whatsoever for investment. For these children and others, an asset stake would provide choice, a ticket to the middle class, and, most important, hope.
Prime Minister Tony Blair has proposed a variation on this idea in England, and it could be done in the United States for only about $24 billion a year—a very small amount by the standards of federal programs, and only about a sixth of what the government gives in tax breaks to corporations every year. The American Stakeholder Act, like the Homestead Act and the GI Bill before it, would be a smart investment in our nation’s future. Nearly a quarter of all American adults today have a legacy of asset ownership that can be directly linked to the Homestead Act. The GI Bill has generated returns to our country of up to $12.50 for every dollar invested. If asset-building were started at birth, even greater returns could be expected from the American Stakeholder Act. Moreover, research indicates that asset ownership increases educational attainment, civic involvement, health quality, and life satisfaction, while decreasing marital breakup. And assets, unlike public assistance, can be passed from one generation to the next.
Americans readily tolerate inequality of outcomes, accepting that it’s a necessary by-product of how we reward the hard work, initiative, and creativity that underpin our much envied economy. But we should not accept inequality of opportunity. Expanding the ownership of assets through a program of American Stakeholder Accounts would help to ensure that wealth inequality in one generation does not become magnified into gross inequality of opportunity in the next.
