Vermont Becomes Latest State to Introduce Baby Bonds Legislation

Earlier this year, Vermont became the latest state to introduce Baby Bonds legislation with a bill that would have $3,200 set aside for children born to families who qualify for Medicaid. The bonds become accessible to beneficiaries when they turn 18 and can be withdrawn for wealth-building activities like purchasing a home, pursuing higher education, or investing in businesses. Spotlight spoke recently with one of the leading architects of the Baby Bonds movement, Dr. Darrick Hamilton, the Henry Cohen Professor of Economics and Urban Policy and the founding director of the Institute on Race, Power and Political Economy at The New School in New York City, about the Vermont legislation and the state of play for Baby Bonds at the national level. The transcript of that conversation has been lightly edited for length and clarity. 

Thanks, as always, for your time Darrick. I want to talk about this bill in Vermont, but why don’t we start with how you define Baby Bonds in general as a concept?

The birthright to capital. Baby Bonds provide the most essential ingredient to build wealth, and that is wealth itself or capital. Baby Bonds democratize access to the benefits of what capital foundation and wealth can provide. And then the other big thing is that if wealth gives you financial agency, Baby Bonds provide everybody with the capabilities to have financial agency.

And is there anything particularly unique about this Vermont proposal, Darrick? This is now the fourth at the state level, right?

Yes. So, I guess what would be unique would be the demography of Vermont as compared to some other places and it makes the key point that regardless of the ways in which the inequality may be defined, it’s a structural program. It is going to ensure that in Vermont, if the issue is rural versus urban in terms of access to resources, there’s a state mechanism by which investments are being made in people who reside in rural areas.

It had not occurred to me that this would be the first one operating in a rural setting.

Right—and then the other issue that the state Treasurer has explained to me is that Vermont faces a loss of residents. As younger people age into adulthood, they leave the state and go to other states for various reasons. And so, the program provides a mechanism to retain younger talent by providing not only an incentive for them to stay, but an economic base by which they can build.

Let’s just talk briefly about how the law works or would work.

My understanding is that the mechanism of eligibility is a Medicaid birth, with Medicaid being indicative of children that are born into less affluent circumstances. The account is seeded at birth, and the Treasurer will manage the account up until the child who was born into a low-income or an impoverished family becomes an adult. And then they can use the account for one of four purposes: as a down payment to purchase a home; to finance higher education without some of the albatross of student debt; as capital to convert an idea or to build a business;  or if the recipient at 18 is not ready to use the account at that moment, it can roll over into an IRA-type arrangement until they’re ready to use it.

I presume you have to be still in the state of Vermont to be able to use it?

Yes, that’s exactly right. Some states are varying with regards to the education use. But if you’re going to purchase a home, the home needs to be purchased in Vermont. If you’re going to start a business, the business needs to be in Vermont. Your family could move, and the account would still be reserved for you. But in order for you to use it, you would need to be in the state.

We know poverty often clusters. So, what is a typical way that we try to develop areas with our tax system or in general? In the United States, we often do economic investments by trying to incentivize firms to operate in low-income or more dilapidated areas or neighborhoods. And the way we do it is we offer them a tax incentive. But the problem with that is there’s no guarantee that the tax incentive is not a substitution of what they may have already invested anyway. Nor are there guarantees that those resources will remain within the community or won’t simply lead to gentrification, providing greater resources for those that are best able to take advantage of the tax incentive, namely the gentry. So, the intended recipients don’t benefit from it.

Baby Bonds represent a reorientation because the resources are being invested directly in the intended recipient. And not only will it benefit them, but it has the potential and the likelihood of creating a multiplicative effect, because others around them are likely to be receiving these accounts as well.

Do you have a sense of the legislative outlook for the Vermont proposal?

I know that there is a good deal of bipartisan support, including from the business community as well as advocacy organizations interested in economic development for low-income individuals. One of the taglines that Lynn Paramore, who is at INET, uses in an article about baby bonds is that it’s an idea conservatives should love. The point that I always try to make is that if one truly believes in what a market can facilitate, then you should also recognize that one needs capital to partake in wealth building within a market. It provides the key ingredient if we really want people to have the capacities and wherewithal of being self-determining, and to be able to transact without some of the vulnerabilities of exploitation or dependence on charitable priorities.

And do you feel like that this is going to break through in a purple or even a red state relatively soon?

Yes—New Mexico’s pursuing it, as is Washington state, which I guess is more blue, but it’s taking hold in a diverse set of states. There are conversations in Georgia, where we’re working with the GRO Fund—the GA Resilience and Opportunity Fund. They’ve done some guaranteed income demonstrations directed towards Black women in urban, rural, and suburban areas and we want to add a complimentary Baby Bonds proposal to that design. The point is to create momentum without having to wait 18 years to build up some political support for the idea.

We recently published a piece about the proposal here in the D.C. area, in Montgomery County, which is the first locality that’s proposed one of these. Do you think this is a useful tool for both cities and counties to look at?

All of this is political momentum and there is real value in all these proposals. But the North Star is the federal government. And how do things happen at the federal government? Well, they begin local. So, all of this is momentum and being creative to be able to do the best you can with the resources you have. And it will not only improve people’s lives, but I’m trying to emphasize that the politics of it in and of itself is extremely valuable.

What’s your assessment of the state of play at the national level at this point? I know Senator Booker still has his bill. What’s the latest with that?

Senator (Cory) Booker (D-N.J.) and Representative Ayanna Pressley (D-Mass.), are getting more and more people signing on to the bill. But I’ll give you a fear. A fear is that the idea might get co-opted in a way to water it down when there’s an Overton window moment for it to pass. I hope that we don’t start compromising on it in a way that’s self-defeating. We need to be ready for that moment if it comes.

And this is not pie in the sky—think about what we did during the pandemic. Think about some of the actions that took place at the federal government that 10 years ago, you would’ve been laughed if someone had suggested that those things were going to be done. I think it’s a great idea. I think it has proof of concept taking place at the state and local levels. And I think we have some brave politicians willing to put forth the bill, even though they don’t have the votes right now.

And what would the red lines be for you on a national proposal? In your mind, what does this policy have to have and what can it not have to be successful?

It has to be progressively seeded and it has to have an emphasis on endowment—having the state ensure that everybody has an account is critical and important. If the bill gets too focused on the behaviors of people by trying to over-incentivize low-income people to save when they are a subsistence population to begin with, when they have limited resources to meet their basic needs, that’s a co-optation of the idea.