Bad Bill Alert! (well, actually, silly bill alert)
Sometimes good intentions lead to really terrible laws. Everyone wants people to be responsible and save for the future. But making a law that gives $500 to every baby born in California (regardless of their parent’s legal residency status) in hopes they will save it is just plain silly.
SB 752 authored by Democrat Senator Darrel Steinberg and co-authored by Republican Senator Bob Dutton will give every newborn $500 – which will cost taxpayers a whooping $283 million per year – in hopes that their parents will be encouraged to save for their children’s future. Another nanny-state bill that believes that people aren’t capable of taking care of themselves, so the government should.
Notwithstanding this literally pays illegal immigrants $500 to come to California and have a baby, it also fails the math test. In an article in the Sacramento Bee today, Senator Steinberg makes the argument that this bill will help people save:
Steinberg said the $500-per-baby seed money would promote lifelong savings and financial literacy. Parents, relatives, friends and others would be encouraged, but not required, to make regular contributions to the accounts.
Interest rates are not predictable, but if the account averaged 5 percent annually, a $500 state investment supplemented by $50 per month in family contributions would total nearly $17,500 after 18 years, Steinberg said.
But a CPA friend of mine (btw – who is also a Democrat) points out that it is just as easy to get the same results without the taxpayers footing a multi-billion dollar bill. Here’s his numbers:
- The amoritization of $50 per month at 5% for 18 years WITH the $500 birth entitlement is $18,688.00 (Steinberg actually underestimated his total).
- BUT, if the government stayed out of it all together and instead of putting $50 dollars a month in the fund, you put in $53.52 (only $3.52 a month more – what a deal!) you’d get the exact same total. In other words, the amoritization of $53.52 per month at 5% for 18 years WITHOUT the $500 birth entitlement is $18,688.00
Ah – the magic of compound interest….
So, how about this…..lets not spend billions of dollars of taxpayer money during a time when California is running a huge multi-billion dollar budget deficit, and let’s create a tax-free fund where responsible citizens can put money aside for their children’s future. For just three bucks a month more we get exactly the same results.
And, what if those same people who aren’t saving today don’t save in the future – even after they get their $500 baby bonus? The $500 only becomes $1,230 in 18 years……not much of a nest egg for the future – but during those 18 years the taxpayers would have spent over $4.5 billion.
Good intentions – bad law.
Senator Tom McClintock has a great perspective on his bill that is featured on today’s FR main page. (it’s worth a read).