A Children’s Opportunity Trust
Not long ago, while researching historic documents for this book, I stumbled
across this sentence in the Northwest Ordinance of 1787: “[T]he estates,
both of resident and nonresident proprietors in the said territory, dying
intestate, shall descent to, and be distributed among their children, and
the descendants of a deceased child, in equal parts.” What, I wondered,
was this about?
The answer, I soon learned, was primogeniture — or more precisely,
ending primogeniture in America. Jefferson, Madison, and other early settlers
believed the feudal practice of passing all or most property from father
to eldest son had no place in the New World. This wasn’t about equal
rights for women; that notion didn’t arise until later. Rather, it
was about leveling the economic playing and avoiding a permanent aristocracy.
A nation in which everyone owned some property — in those days, this
meant land — was what Jefferson and his contemporaries had in mind.
In such a society, hard work and merit would be rewarded, while inherited
privilege would be curbed. This vision of America wasn’t wild romanticism;
it seemed quite achievable at the time, given the vast western frontier.
What thwarted it, later, were giveaways of land to speculators and railroads,
the rise of monopolies, and the colossal untaxed fortunes of the robber barons.
Fast-forward to the twenty-first century. Land is no longer the basis for
most wealth; stock ownership is. But Jefferson’s vision of an ownership
society is still achievable. The means for achieving it lies not, as George
W. Bush has misleadingly argued, in the privatization of Social Security
and health insurance, but in guaranteeing an inheritance to every child.
In a country as super-affluent as ours, there’s absolutely no reason
why we can’t do that. (In fact, Great Britain has already done it.
Every British child born after 2002 gets a trust fund seeded by $440 from
the government — $880 for children in the poorest 40 percent of families.
All interest earned by the trust funds is tax-free.)
Let me get personal for a minute. My parents weren’t wealthy; both
were children of penniless immigrants. They worked hard, saved, and invested — and
paid my full tuition at Harvard. Later, they helped me buy a home and start
a business. Without their financial assistance, I wouldn’t have achieved
the success that I have. I, in turn, have set up trust funds for my two sons.
As I did, they’ll have money for college educations, buying their own
homes, and if they choose, starting their own businesses — in other
words, what they need to get ahead in a capitalist system.
As I hope my sons will be, I’m extremely grateful for my economic
good fortune. At the same time, I’m painfully aware that my family’s
good fortune is far from universal. Many second-, third-, and even seventh-generation
Americans have little or no savings to pass on to their heirs. Their children
may receive their parents’ love and tutelage, but they don’t
get the cash needed nowadays for a first-rate education, a down payment on
a house, or a business venture. A few may rise because of extraordinary talent
and luck, but the majority will spend their lives on a treadmill, paying
bills and perhaps tucking a little away for old age. Their sons and daughters,
in turn, will face a similar future.
It doesn’t have to be this way. One can imagine all sorts of government
programs that can help people advance in life — free college and graduate
school, GI bills, housing subsidies, and so on. Such programs, as we know,
come and go, and I prefer more rather than less of them. But the simplest
way to help people advance is to give them what my parents gave me, and what
I’m giving my sons: a cash inheritance. And the surest way to do that
is to build such inheritances into our economic operating system, much the
way Social Security is.
When Jefferson substituted pursuit of happiness for Locke’s property,
he wasn’t denigrating the importance of property. Without presuming
to read his mind, I assume he altered Locke’s wording to make the point
that property isn’t an end in itself, but merely a means to the higher
end of happiness. In fact, the importance he and other Founders placed on
property can be seen throughout the Constitution and its early amendments.
Happiness, they evidently thought, may be the ultimate goal, but property
is darn useful in the pursuit of it.
If this was true in the eighteenth century, it’s even truer in the
twenty-first. The unalienable right to pursue happiness is fairly meaningless
under capitalism without a chunk of capital to get started.
And while Social Security provides a cushion for the back end of life, it
does nothing for the front end. That’s where we need something new.
A kitty for the front end of life has to be financed differently than Social
Security because children can’t contribute in advance to their own
inheritances. But the same principle of intergenerational solidarity can
apply. Consider an intergenerational transfer fund through which departing
souls leave money not just for their own children, but for all children.
This could replace the current inheritance tax, which is under assault in
any case. (As this is written, Congress has temporarily phased out the inheritance
tax as of 2010; a move is afoot to make the phaseout permanent.) Mind you,
I think ending the inheritance tax is a terrible idea; it’s the least
distorting (in the sense of discouraging economic activity) and most progressive
tax possible. It also seems sadly ironic that a nation that began by abolishing
primogeniture is now on the verge of creating a permanent aristocracy of
wealth. That said, if the inheritance tax is eliminated, an intergenerational
transfer fund would be a fitting substitute.
The basic idea is similar to the revenue recycling system of professional
sports. Winners — that is, millionaires and billionaires — would
put money into a kitty (call it the Children’s Opportunity Trust),
to be divided among all children equally, so the next round of economic play
can be more competitive. In this case, the winners will have had a lifetime
to enjoy their wealth, rather than just a single season. When they depart,
half their estates, say, could be passed to their own children, while the
other half would be distributed among all children. Their own offspring would
still start on third base, but others would at least be in the game.
Under this plan, no money would go to the government. Instead, every penny
would go back into the market, through the bank or brokerage accounts (managed
by parents) of newborn children. I’d call these new accounts Individual
Inheritance Accounts; they’d be front-of-life counterparts of Individual
Retirement Accounts. After children turn eighteen, they could withdraw from
their accounts for further education, a first home purchase, or to start
a business.
Yes, contributions to the Children’s Opportunity Trust would be mandatory,
at least for estates over a certain size (say $1 or $2 million). But such
end-of-life gifts to society are entirely appropriate, given that so much
of a millionaire’s wealth is, in reality, a gift from society. No one
has expressed this better than Bill Gates Sr., father of the world’s
richest person. “We live in a place which is orderly. It’s a
place where markets work because there’s legal structure to support
them. It’s a place where people can own property and protect it. People
who have the good fortune, the skill, the luck to become wealthy in our country,
simply have a debt to the source of their opportunity.”
I like the link between end-of-life recycling and start-of-life inheritances
because it so nicely connects the passing of one generation with the coming
of another. It also connects those who have received much from society with
those who have received little; there’s justice as well as symmetry
in that.
To top things off, I like to think that the contributors — millionaires
and billionaires all — will feel less resentful about repaying their
debts to society if their repayments go directly to children, rather than
to the Internal Revenue Service. They might think of the Children’s
Opportunity Trust as a kind of venture capital fund that makes startup investments
in American children. A venture capital fund assumes nine out of ten investments
won’t pay back, but the tenth will pay back in spades, more than compensating
for the losers. So with the Children’s Opportunity Trust. If one out
of ten children eventually departs this world with an estate large enough
to “pay back” in spades the initial investment, then the trust
will have earned its keep. And who knows? Some of those paying back might
even feel good about it. ... read
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