At a US Senate hearing last week on the looming childcare "cliff," ranking member John Kennedy, a Republican from Louisiana, averred that affordable childcare as policy is as likeable as a golden retriever dog, but then lamented it would simply cost too much for the government to help. It was a rather stunning declaration that affordable childcare is a bipartisan issue, followed by the sad admission that the will to fix it is not.
So, here’s an idea: Dedicate the revenue collected from the estate tax into a trust fund that finances early childhood education, spanning childcare to preschool.
The estate tax applies to non-spouse inheritors of wealth of a minimum size. That minimum has varied a lot over the past two decades, increasing from $600,000 in 2000 to $13 million for single filers this year. After 2025, the estate tax minimum will revert to $5.5 million and be set to increase with inflation. The Congressional Budget Office estimates it will take in as much as $40 billion a year at that level. That is remarkably close to the annual estimate of the childcare and universal preschool components in the Biden administration's Build Back Better bill.
There’s a neatness to that symmetry, with revenue and outlays being a similar amount. But there’s a symbolic motivation to marrying estate taxes to early childhood investments. The estate tax targets dynastic wealth, applying only to large fortunes passed down through generations. The inheritors of that wealth don’t just gain assets but incredible advantages in competition against their peers — peers who aren’t similarly endowed by their family's largesse.
As much as we’d like to believe that the US is a meritocracy, it’s not. Having wealthy parents makes a kid much more likely to be wealthy when he or she enters adulthood. And being from the top 0.1% of wealth — the type of wealth targeted by the estate tax — isn’t an advantage so much as a guarantee of future success. The estate tax alone doesn’t change that advantage, but spending the collected revenue on early childhood could help even the playing field.
The first five years of life are critically important to child development, yet they differ vastly among children in the US. This difference can be quantified through the school readiness gap that exists when children enter kindergarten. So great is the gap that interventions to provide educational care to children from lower-income households have breathtaking results. From the small-scale experiments in the 1960s and 1970s to the subsidized preschool programs that began in the 1960s and the pre-kindergarten expansions in Oklahoma and Georgia in the 1990s, all find base results of higher test scores, less grade repeating and less special education need in elementary school. The long-term results range from less crime and better high school performance to higher earnings in adulthood.
No government program can give the middle and working classes an equal chance to compete with the dynasty class, but it can put a thumb on the scale for the better.
An estate-tax-financed children’s trust fund also has a parallel to the type of intergenerational compact embodied by Social Security. Retired workers worked long and hard, and they saved to take care of themselves. But whatever happens, they have a floor from Social Security, a floor that’s financed by younger generations who are paying it forward now.
Parents of young children also work hard and long, and they spend what they can afford on their children, but their children need the same type of floor. So why not have that floor financed by older generations, especially the lucky few with excess wealth?
We all pay up for older people, but the older people who did spectacularly well — who leave estates worth many millions of dollars behind — they pay down for children. At just 1% of total federal revenue, dedicating the estate tax to a single fund would hardly break the bank for federal spending. If anything, it serves as its own kind of sad commentary of how little we spend on very young children currently that even 1% of revenue would be a historic commitment.
But that’s what kids deserve — the same type of permanent commitment that the elderly get. And if it helps equal the playing field even marginally with the dynasty class, so much the better.
A message from Advisor Perspectives and VettaFi: To learn more about this and other topics, check out our podcasts.
Bloomberg News provided this article. For more articles like this please visit
bloomberg.com.
