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. ...
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