Senator Charles Schumer wants to give every child born in the U.S. a $500 savings account, courtesy of the federal government.
The Democrat from New York plans to introduce legislation next week that would establish savings accounts for all newborn U.S. citizens and allow them to grow tax free, with the federal government donating $500 to start each account and, in some cases, making matching contributions up to $500 a year.
Schumer said his plan would encourage youngsters to begin lifelong saving habits and discourage the kind of debt-accumulating free-spending that some financial analysts say has worsened the nation’s current economic crisis.
If adopted, Schumer’s measure would only authorize the savings account giveaway; it would be up to Congress to find a way to pay for it each year.
With more than 4 million babies born annually in the U.S., according to the Census Bureau, the cost of the initial savings accounts in a single year could be about $2 billion.
The proposal could be a tough sell on Capitol Hill, given renewed criticism of the mounting federal deficit.
Under Schumer’s bill, the U.S. Treasury would establish and oversee the individual accounts, awarding them to newborns when their Social Security numbers are issued. The Treasury would funnel $500 into each individual account.
The accounts could be transferred to private banks.
Up to $2,000 a year could be deposited into each tax-free account, and the federal government would match annual contributions of up to $500 for families earning less than the median income.
Account holders would be barred from withdrawing any money until they are 18 years old, and even then tax-free withdrawals would be limited to retirement, home purchases, schooling and other limited spending.
Schumer said that in New York’s Capital Region, an estimated 12,500 babies would qualify each year; they would get a total of $6,250,000 in savings at birth under his plan.
(Source: Times Union)