BILL NUMBER: SB 752 INTRODUCED
BILL TEXT
INTRODUCED BY Senators Steinberg and Dutton
(Principal coauthors: Senators Florez and Oropeza)
(Principal coauthors: Assembly Members Berg, Jones, Lieu, and
Mendoza)
FEBRUARY 23, 2007
An act to add Title 19 (commencing with Section 99100) to the
Government Code, and to add Section 17140.1 to the Revenue and
Taxation Code, relating to investment accounts, and making an
appropriation therefor.
LEGISLATIVE COUNSEL'S DIGEST
SB 752, as introduced, Steinberg. The California Kids Investment
and Development Savings (KIDS) Account Act: state-funded investment
accounts.
Existing law establishes various programs to provide financial
assistance to California children and their families.
This bill would enact the California Kids Investment and
Development Savings (KIDS) Account Act that would create in the State
Treasury an investment account for every child born in California
each year beginning on or after January 1, 2008, and would provide
for a one-time deposit by the state to each account in the amount of
$500 at the child's birth, as provided. The act would exempt from the
personal income tax, as provided, any earnings in a KIDS account and
any qualified special purpose distribution amounts, as defined, made
from that account, would allow other persons, as provided, to make
additional contributions to a KIDS account, and would restrict the
purposes for which the funds in the account may be used once the
accountholder reaches 18 years of age. The act would additionally
require each accountholder to repay, as specified, the amount of
initial deposit to the state, specifically, to the Franchise Tax
Board.
This bill would require the Treasurer to prescribe rules and
regulations to implement the provisions of the act.
By requiring the state to make specified contributions to KIDS
accounts, this bill would make an appropriation.
Vote: 2/3. Appropriation: yes. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Title 19 (commencing with Section 99100) is added to
the Government Code, to read:
TITLE 19. The California Kids Investment and Development
Savings (KIDS) Account Act
99100. This act shall be known, and may be cited, as the
California Kids Investment and Development Savings (KIDS) Account
Act.
99101. The Legislature finds and declares all of the following:
(a) Historically, the public sector has played a significant role
in the expansion and distribution of wealth. American history is
marked by a series of major policy initiatives, such as the Homestead
Act and the GI Bill, that have successfully expanded home ownership
by individuals. These efforts were based on the assumption that home
ownership produces social and economic benefits by creating
stakeholders and expanding opportunities for households to accumulate
productive assets.
(b) Today, the United States continues this wise policy of
encouraging people to accumulate wealth. The federal government
spends more than three hundred billion dollars ($300,000,000,000) a
year in tax subsidies to reward people who purchase houses, save for
college and retirement, and invest in businesses.
(c) Although these policies are effective, more than 90 percent of
the tax benefits accrue to households earning more than fifty
thousand dollars ($50,000) a year, or roughly the upper-half of
America. Rather than penalize wealthy individuals, policies are
needed to create opportunities for those without resources to save
and accumulate wealth.
(d) Many Americans have no assets in their names. They are
disadvantaged from the beginning of their lives in comparison to
those children who are born into affluence. Across the country,
one-quarter of Caucasian children and one-half of non-Caucasian
children grow up in households without any significant savings or
resources available for investment. Unfortunately, California
families are no exception to this financial insecurity; some 7.8
million California households, or 29 percent, live in "asset poverty,"
meaning that they would only survive three months at the poverty
level were they to lose their income and rely solely on their savings
and other assets.
(e) California's asset poverty rate is the fourth worst in the
nation and more than twice the state's income poverty rate of 12
percent. In fact, 16.7 percent of California households have zero or
negative net worth, and California ranks eighth from the bottom in
the number of families with zero net worth.
(f) Home equity is the primary way Americans build wealth. But in
the year 2000, only 57.1 percent of California households owned their
own homes; only New York and Hawaii had lower rates of
homeownership. According to the United States Bureau of Census, 28
percent of Californians do not have a checking or savings account,
and only 39 percent of workers participate in an employer-sponsored
retirement plan.
(g) Recent pilot programs in California and throughout the nation
have proven that low-income people can save if they have incentives
and mechanisms encouraging them to do so. In California, more than
5,000 people of modest incomes are saving in matched savings
accounts. In Silicon Valley, 1,700 savers with average median incomes
of twenty-four thousand dollars ($24,000) have saved over two
million three hundred thousand dollars ($2,300,000) in restricted
savings accounts. All participants were required to take financial
management classes. More than 800 people have used their savings to
buy homes, go back to school, and start college funds for their
children.
(h) While the need to broaden asset ownership is great, the
promise is even greater. Financial education is taken more seriously
when people, including kids, have an account of their own, with real
money, to make investment decisions. If we are to witness a gradual
increase of the "investor class" or ownership society, it is
imperative that children and adults become comfortable with private
savings accounts. The accounts would also be a perfect catalyst and
centerpiece for building the financial literacy of all young
Californians.
(i) Individuals who own assets not only have brighter economic
prospects but also are better, happier, and more productive citizens.
New research confirms that when families, including very poor
families, own assets, they are more likely to stay married, work
harder, enjoy better physical and mental health, make educational
plans for their children, feel more confident about, and in control
of, their futures, take better care of their property, and be
involved in community and political affairs. The future of California
and its economy is better off with more savers, investors, and
owners.
(j) California can certainly learn from history. Nearly
one-quarter of United States adults today have a legacy of asset
ownership directly traceable to the Homestead Act and the GI Bill,
once dubbed "the magic carpet of the middle class," that have
returned to the nation seven dollars ($7) for every one dollar ($1)
invested.
(k) The Kids Account Act would create an investment account for
every child born in California each year and would provide for a
one-time deposit by the state in each KIDS account in the amount of
five hundred dollars ($500) at birth. At just over two hundred
seventy million dollars ($270,000,000) a year, this relatively small
investment, less than one-half of 1 percent of the state's $100
billion budget, would transform the life chances of young
Californians for whom these accounts would become a birthright.
() The KIDS Account Act will be the Homestead Act of the 21st
Century. Instead of democratizing access to land, it will democratize
access to financial assets.
(m) The state, financial institutions, community organizations,
and faith-based organizations could provide financial education
training for the families to ensure that families make sound
investments with the account.
99102. (a) There is hereby established in the State Treasury the
California Kids Investment and Development Savings (KIDS) Account for
every child born in California on or after January 1, 2008.
(b) The state shall deposit an amount of five hundred dollars
($500) to the account of each child, at his or her birth.
(c) In addition to the initial deposit, a child, his or her
parents, legal guardians, grandparents, local organizations,
corporations, or others may make a voluntary contribution to the
child's account.
(d) An individual who is 18 years or older may withdraw funds from
the account for the following purposes:
(1) Pay for his or her postsecondary education, career technical
education, or training.
(2) Buy his or her first home.
(3) Fund his or her retirement account.
(e) (1) A KIDS account shall be exempt from taxation under Part 10
(commencing with Section 17001) of Division 2 of the Revenue and
Taxation Code.
(2) Except as otherwise provided, any amount paid or distributed
out of a KIDS account shall be included in the amount of gross income
of the accountholder.
(f) The Treasurer shall prescribe rules and regulations to
implement provisions of this section.
99103. Notwithstanding any other provision of law, the funds in a
KIDS account shall not be taken into account for purposes of
determining the eligibility of an individual for a state or a federal
program intended to provide assistance to low-income people.
SEC. 2. Section 17140.1 is added to the Revenue and Taxation Code,
to read:
17140.1. (a) For each taxable year beginning on or after January
1, 2008, except as otherwise provided in subdivision (b), the gross
income of an accountholder of a California Kids Investment and
Development Savings (KIDS) Account shall not include any of the
following:
(1) Any earnings in the KIDS account.
(2) Any contribution to the KIDS account.
(3) Any qualified special purpose distribution amount.
(b) (1) Notwithstanding subdivision (a), in the case of any
distribution from a KIDS account that is not a qualified special
purpose distribution, both of the following apply:
(A) Any earnings in that account shall be includable in the gross
income of the accountholder for the taxable year in which the
distribution is made, in the manner provided for by Section 72 of the
Internal Revenue Code, as modified by Section 17085, to the extent
not excluded from gross income under this part, and shall be subject
to a 10 percent penalty.
(B) An amount equal to the amount of initial deposit made by the
state to the account, as provided for in Section 99102, shall be paid
to the Franchise Tax Board by the accountholder for the taxable year
in which the nonqualified distribution occurred.
(2) The value of the account, any earnings in that account, and
investment in the account shall be computed as of the close of the
calendar year in which the taxable year begins.
(c) No deduction is allowed under this part or Part 11 (commencing
with Section 23001) of Division 2 for a contribution to a KIDS
account.
(d) For purposes of this section, all of the following definitions
apply:
(1) "Accountholder" means a child who is born in the State of
California on or after January 1, 2008.
(2) "KIDS account" means an investment account, as described in
Title 19 (commencing with Section 99100) of the Government Code.
(3) "Qualified special purpose distribution" means any payment or
distribution to an accountholder of a KIDS account that is used by
the accountholder for one of the qualified purposes, as defined in
subdivision (d) of Section 99102.