A New Entitlement?

The big problem with U.S. fiscal policy is that, over the years, politicians of both parties have voted for unfunded entitlements for the elderly, which will (unless scaled back) result in substantially higher taxes on future generations. Click here for my views on the problem.

Today, Hillary Clinton floated a new idea: an entitlement for future generations. Here is the story:

Clinton: $5,000 for Every U.S. Baby

Democratic presidential candidate Hillary Rodham Clinton said Friday that every child born in the United States should get a $5,000 "baby bond" from the government to help pay for future costs of college or buying a home.

Clinton, her party's front-runner in the 2008 race, made the suggestion during a forum hosted by the Congressional Black Caucus.

"I like the idea of giving every baby born in America a $5,000 account that will grow over time, so that when that young person turns 18 if they have finished high school they will be able to access it to go to college or maybe they will be able to make that downpayment on their first home," she said.

The New York senator did not offer any estimate of the total cost of such a program or how she would pay for it. Approximately 4 million babies are born each year in the United States.

How might this be funded? There are only three groups that could be asked to pay for the new entitlement with higher taxes (or lower benefits): the current elderly, those currently of working age, or the same future generations who are getting the new benefit and are slated to pay for existing unfunded entitlements. Which group do you think Senator Clinton has in mind?

If any of my economist friends involved in the Clinton campaign wants to email me the answer and, more generally, the rationale for this idea, I will gladly post it for my readers.