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Whoever wins the White House will confront challenges and opportunities that were lost in the fog of electioneering. Penn scholars address five areas that the campaigns muddled, ignored, or failed to think big about.

The Futures Account
How to expand homeownership and higher-education access—while shrinking government bureaucracy at the same time.


In the last 10 years, as a social scientist and present dean of the School of Social Policy and Practice, I have slogged through the morass of government efforts to help disadvantaged citizens. Although this began as a struggle to identify a policy that would benefit disadvantaged children, I have concluded that it is a mistake to focus narrowly on the hungry, homeless, or disadvantaged child. The real face of the problem is the working and middle class. It will be Main Street that creates the jobs and opportunities that benefit the poor and those at risk of being poor. And, equally important, it is the aspiration and commitment to live on Main Street that can directly benefit all children.

Many people aspire to the Main Street lifestyle, which includes home ownership and enough education to assure job security. Unfortunately, that lifestyle is unattainable without an education and sufficient resources for a down payment on a home. And if enough people give up aspiring to join the middle class, if education and home ownership become far out of reach, it is likely that wide segments of the population will give up aspiring to the dream. Giving up the goal of social advancement—at least as far as gaining membership in the middle class—can quickly lead to alienation. If you are not going to go to college and if a high school diploma is insufficient to assure economic advancement, why even bother to finish high school?

The task of separating good policy proposals from bad ones is complex for at least four reasons. First, most people believe “I’m from the government and I’m here to help you” is just a big lie. Second, those on the right want no part of more big government and more spending. Third, those on the left continue to believe that more and more funding for bigger and bigger programs is the answer, despite a good deal of evidence to the contrary. Fourth, any program will have to meet the daunting challenge of being truly affordable, with a funding formula that is not merely smoke and mirrors.

Government has struggled for years to create policies that help needy citizens, and for all its well-intentioned failures, it does sometimes hit the bull’s eye. Successful programs have at least three things in common. First, they are universal, that is, they provide for a specified population without a means test or some form of complex targeting; second, they have a minimum eligibility test, like serving in the military or turning a specific age; and third, they require relatively small bureaucracies to support them.

Without a secure middle class, stimulus packages, tax cuts, short-term job programs, and stronger safety nets will not rebuild and solidify Main Street. Without a strong middle class, the United States’ economic outlook is dire. To rebuild a true Main Street that will support a consumer market economy, government policy has to look in the long term at building and securing a future. Toward that end, I propose a program that would offer the opportunity for higher education and homeownership to every child born in the United States.

The Futures Account
The Futures Account builds on the work of Michael Sherraden and his concept of Individual Development Accounts. However, it is not just an antipoverty program. It would be universal, available to every child born in the United States or who is a legal resident of the United States. When he or she reaches the age of 18, access to the account is guaranteed. There would be no disqualifying factors. Even people incarcerated at the time they turn 18 would be eligible to access the account for education or housing (obviously, at a later date). People who are not mentally capable of making decisions would have a guardian appointed to allocate the funds from the account.

The Deposit
The actual amount of the Futures Account must be meaningful as an asset. The amount I propose is based on the assumption that $3,000 would be deposited into the account for eighteen years. The account would not generate interest; thus, a child would accumulate $54,000 by the time he or she turned 18.

That would be enough to pay for one year of tuition and fees at an Ivy League or private university or all four years at the University of California, Los Angeles (at the 2010 cost of tuition). This amount would be enough for a 20 percent down payment on a $270,000 home. The US Census Bureau estimated that the median sales price of a home and land in July 2009 was $210,100, while the average was $269,200.

In 2011, 4.4 million Americans turned 18. In the first year of implementation, the cost of providing the asset of $54,000 to 4.4 million children would be $237 billion. In order to be considered even remotely possible, a Futures Account would require finding a $237 billion offset in current federal spending and in the tax code. More on that later.

Unlike the Social Security Trust Fund, the Futures Account is a real account with an annual defined obligation. Monies raised through taxes in a single year would have to be available to pay the appropriation in the account each year. However, unlike Social Security, there would be no continuing obligation for annual payments, nor would one generation of workers pay for the benefits of a later generation.

The devil in any proposal to help children has always been that funding must be given to parents or some other guardian—the state, county, or school system. In contrast, the Futures Account is under the sole control of the individual when he or she turns 18. At that point, assets can be withdrawn from the account for only two purposes: education and housing. The withdrawal would be accomplished only by electronic transfer to a qualified educational institution or as part of a housing transaction through a lending institution. The funds are, in reality, a form of voucher for education or home ownership.

There would be no survival rights to asset accounts. If an account holder dies prior to his or her 18th birthday, or after it with an unspent balance, the assets would be returned to the US Treasury.

The Futures Account could also include incentivizing provisions based on a child’s specific accomplishments before the age of 18. The most significant incentive would be a high-school graduation incentive payment of $5,000. In 2009, 87 percent of adults 25 years of age or older in the United States had completed high school. While this is an impressive overall statistic, it still leaves 13 percent without a high-school degree. This is a population exposed to numerous risks, including poverty, a population that lacks a key credential for entry into the skilled workforce. Without unusual talents or accomplishments, those without a high-school diploma are substantially blocked from a Main Street lifestyle and Main Street security.

Moreover, this statistic does not tell the whole story. In Detroit, only 21.7 percent of students graduated from high school in 2008, while in Baltimore the figure is a pitifully small 34.6 percent. In Philadelphia, fewer than half—49.2 percent—of students in urban high schools graduate, compared to more than 8 in 10 (82.4 percent) of students in the Philadelphia suburban high schools.

What is especially attractive is the ability to incentivize graduation without creating a new bureaucracy.

High-school graduation is not the only possible incentive. Not being convicted of a juvenile offense is another. Another plausible incentive is public service. In the last two decades, high schools, colleges, and universities have increasingly required students to engage in public service. Of course, some of the volunteerism is as much motivated by resumé building as by altruism. The problem with encouraging public service is not motivation, but elitism. Those who can “volunteer” are young men and women who can afford to do so.

Paying for the Futures Account
For the Futures Account to become a reality, immediate tax offsets would have to be applied to the federal budget. One could argue forever about the potential long-term cost savings and economic advantages of the Futures Account, but that will not pay one cent of the first-year cost.

The obvious offsets are:

a) Eliminate the child exemption from the tax code. According to the Internal Revenue Service Reports, in 2002 there were 130 million tax returns filed, of which 90.6 million represented taxable returns. The average tax rate was 14 percent. Thus, nearly 70 percent of tax-filers paid an average of 14 percent of their adjusted gross income.

Not every one of the nearly 75 million children in the US are cared for by parents or caregivers who are obliged to pay taxes, so the quick math does not work here. I have neither the expertise nor knowledge of IRS data to fully calculate the possible gain in revenue the federal government would receive by eliminating the child dependent exemption. However, a cursory calculation using the figures above indicates that it would result in a total estimated increase in tax payments of $35 billion.

b) Reduce federal funding for college aid. A second offset would require that the federal government get out of the college financial aid business, although the savings here would be modest. Federal funding for higher education has always been a sacred cow, especially the federal Pell Grant program, which offers need-based grants to low-income undergraduate and certain post-baccalaureate students to promote access to postsecondary education. The budget for fiscal year 2007 for Pell Grants was nearly $14 billion. President Bush’s 2009 budget request included $95 billion for grants and loans for some 10.9 million students.

With a Futures Account in place, the Pell Grants, as well as other higher education grants and loans, along with the bureaucracy that supports them, could be phased out because they would no longer be needed. Other categorical federal fellowship and scholarship support for higher education could also be eliminated, as any means-tested aid would no longer be needed. And again, the savings would also include the elimination of a federal bureaucracy supporting such programs.

c) Eliminate federal earmarks designed to help children. Billions of dollars are spent annually on sacred cow programs that are supposed to aid children, and each program has an embedded constituency that would fight vigorously to protect their turf, whether or not it benefits children. In the area of juvenile justice alone there are hundreds of millions of dollars in federal spending—much of the money earmarked or designated by Congress—that provide little empirically measured benefit. My personal choice of the most outrageous example is a program that on the surface seems like a good thing: the National Center for Missing and Exploited Children. The center was created in the aftermath of the 1981 kidnapping and slaying of six-year-old Adam Walsh in 1981, after the enactment of two federal laws that focused on missing children. In 2009, the total budget for the center was $48 million, $37 million of which was funded by the federal government. The funding was a sole-source allocation—meaning no other organization was allowed to apply for funding for a center on missing or exploited children. Thus the funding became a yearly no-bid entitlement for the center. The executive director of the center, Ernie Allen, received a salary of $724,363 in 2009.

The cause of missing children is certainly heart-wrenching. The problem has a face—the kidnapped and slain Adam Walsh, Polly Klass, and the still missing Etan Patz. And it has a website well stocked with compelling statistics and stories. But in the end, this is an earmarked program that draws down $37 million per year in federal funding. Yet the FBI estimates that only between 43 and 147 children are kidnapped and killed by strangers each year. The vast majority of missing children are either runaways or children taken as part of parental abductions. Parental abductions are technically kidnappings, but they are not like the cases of Adam Walsh, Polly Klass, and Etan Patz.

Such earmarked programs are a cancer that has spread through government over the past two or three decades, and it is a shame that no one in the legislative or executive branch has had the fortitude to excise the malignancy.

d) Institute a value-added tax. When all acceptable program cuts can be identified and agreed upon, Congress and the executive branch can be tested as to whether they are truly willing to commit to the future of America’s children. The dreaded “T” word—tax—is the final offset. I would choose the simplest tax, one that has already been implemented in most European Union countries: a value-added tax on luxury goods.

There is an underlying logic and elegance to levying a tax on luxury purchases to fund programs for children. Taxing high-end automobiles, yachts, and jewelry would test Americans’ values.

What About Fraud?
It would be naive to believe there would be no fraud when the federal government suddenly makes $237 billion available to 18-year-olds for the purposes of education and/or housing. The bursting of the housing bubble in 2008 and the massive increase in foreclosures opened the eyes of policymakers, the media, and the public about fraudulent practices in the home mortgage industry, as well as about the great number of people who were persuaded to purchase homes they could not afford.

Similarly, there is increasing concern about colleges and universities that enroll students who have government loans and then leave school with an impractical or incomplete education and large loan debt. With $237 billion available for postsecondary or higher education, some forms of unethical practices are likely to crop up to defraud well-intentioned 18-year-olds.

There are other possibilities for fraud. Unscrupulous parents could persuade their adult children to purchase a home, and then force their offspring to sell and turn the money over to them. The 18-year-old could do the exact same thing—buy and sell the home and pocket the $54,000. Of course, the Futures Account could include a “lock-up” period during which the home could not be resold or, if resold, the $54,000 would have to be returned to the Futures Fund or to the government. Some argue that 18-year-olds are not mature enough to invest the funds wisely, and thus could easily waste or lose the money. I reject an “investment supervision” provision because I want to avoid creating a government entity to engage in or oversee such an enterprise. Social Security funds have been allocated for decades without such government supervision. Yes, there are those elderly who make unwise decisions or who are exploited, but that is always going to be part of a free-market economy.

No system could absolutely prevent fraud in the Futures Account policy. But the same arguments were raised when the GI Bill was debated in the 1940s. There must have been soldiers who used their education voucher and incurred debt for higher education that was not helpful. Some homes purchased with GI loans must have been foreclosed. But in the end, the positive results of the program far outweighed anecdotal accounts and concerns about waste and fraud.

I am certain of only two things: 1) Some young men and women will use the Futures Funds unwisely or inappropriately, and there will be unscrupulous people who will take advantage of 18-year-olds who access their $54,000; 2) It would be a waste of government funds to create an infrastructure to police and prevent misuse of the Futures Funds.

I believe, but cannot yet prove, that the government’s investing in education and an equity stake in society via homeownership will solidify the middle and the working classes and turn out to be a policy that can truly help individuals and the society at large. A program that offers a future to children—an education beyond high school and a chance to own a first home—is a program that will work.

Richard J. Gelles is dean of the School of Social Policy and Practice and the Joanne and Raymond Welsh Chair of Child Welfare and Family Violence. This essay is adapted from his latest book, The Third Lie: Why Government Programs Don’t Work and a Blueprint For Change.

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Illustration by Rich Lillash

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Last modified 08/31/12