Lifetime Savings Accounts plan could liberate future generations

What if every child started out in life with his or her own personal savings program for college, for first-time home purchases and for retirement?

A savings program started at birth has more years to earn and accumulate interest, resulting in a bigger nest egg through time. Granting every child such an opportunity would result in broader and more equal ownership of savings and capital for each citizen. Such widespread capital ownership would empower and liberate every American in their personal pursuit of happiness and the American Dream.

Sen. Chuck Schumer, D-N.Y., has proposed a program along these lines with a recent bill that would give every American newborn a government account of $500. A variation of the very successful Child Trust Fund plan in Britain, the bill was first introduced by former Sens. Jon Corzine, D-N.J., and Rick Santorum, R-Pa.

Under Schumer’s version of the plan, parents can invest a maximum of $2,000 a year in these “Lifetime Savings Accounts (LSAs)” with a government match of up to $500 a year, for each of their children. The plan offers an additional $500 per child for low-income families.

After age 18, the child could legally withdraw from the account — tax-free — to finance college tuition and education-related expenses. After age 25, the child could withdraw additional funds tax-free for a down payment on a first home, while continuing to accumulate funds to supplement retirement savings.

Under Schumer’s plan, the Treasury Department would hold and invest LSAs for each child during their lifetime. The estimated cost of the bill is $4 billion per year. While not a small price tag, it’s dwarfed by the $617 billion that the government spends on Social Security annually.

The LSAs could eventually replace Social Security and the payroll taxes that finance it. Social Security’s current deficits would be eliminated in the process as well. At death, the accounts would be left to the retiree’s own children (or designee, for those without children), to be combined with their accounts that started at birth. This would further build up the savings and capital of all Americans through the generations.

But to accomplish this goal, and fit with an American free-market model, we must ensure that the LSAs are not just another entitlement program added on top of all the excessive entitlement obligations we already have. Done right, these accounts would instead be a potentially enormous beneficial solution to America’s long-term entitlement crisis.

Newt Gingrich is the former speaker of the House.

Emily Renwick is his research assistant. Peter Ferrara is director of entitlement and budget policy for the Institute for Policy Innovation.