Last week, at a White House meeting with the C.E.O.s of Uber, Goldman Sachs, and Salesforce, Donald Trump touted “a pro-family initiative that will help millions of Americans harness the strength of our economy to lift up the next generation.” He was referring to a provision in the tax-and-spending bill that House Republicans pushed through in May, which would establish tax-deferred investment accounts for every child born in the United States during the next four years, with the federal government contributing a thousand dollars to each. House Speaker Mike Johnson, who was also present at the White House meeting, described the proposal as “bold, transformative.”
It could more accurately be described as an effort to put lipstick on a pig. As everybody surely knows by now, the House bill—formally called the One Big Beautiful Bill Act—is stuffed with tax cuts for corporations and for the rich, and it proposes to slash funding for Medicaid, food assistance, and other programs that target low-income Americans. The proposal for new investment accounts didn’t change the bill’s highly regressive nature. According to a report by the Congressional Budget Office, over all, the bill’s provisions, including the new accounts, would reduce the financial resources of households in the bottom tenth of the income distribution by about sixteen-hundred dollars a year relative to a baseline scenario, and raise the resources of households in the top tenth by an average of about twelve thousand dollars a year. In other words, it’s a reverse-Robin Hood bill.
The new savings vehicles that Republicans are proposing also demand inspection. Johnson and other Republicans are trying to promote them as pro-family and pro-worker, and some media accounts have described them as “baby bonds.” But the proposal bears little resemblance to one of that same name which some progressive economists and elected Democrats have been promoting for years, as a way to tackle gaping wealth disparities in America. Given the way the Republican scheme is structured, it could well end up entrenching existing disparities rather than helping to eliminate them.
Endowing children with some wealth to help give them a proper start in life isn’t a new idea, of course. Rich families have been setting up trust funds, in some form or another, for centuries. But what about children in families that have little or no wealth to hand down? (According to the Federal Reserve, in 2022, the average net worth of households in the bottom ten per cent of the wealth distribution was one dollar. One.)
In 2010, the economists Darrick Hamilton, who is now at the New School, and William Darity, Jr., of Duke, outlined a plan to create interest-bearing government trust accounts for children who were born into families that fell below the median net worth. Under the Hamilton-Darity plan, the average value of these government contributions, which they described as “baby bonds,” would gradually rise to roughly twenty thousand dollars, with children from the poorest families benefitting even more. Adding in the interest that would accumulate in these accounts over the years, Hamilton and Darity calculated that some of these kids could end up with more than fifty thousand dollars by the time they reached adulthood.
Although the baby bonds would be distributed on a race-blind basis, the fact that Black, Indigenous, and Latino families were (and are) disproportionately represented in the lower reaches of the wealth distribution would have meant that the scheme would have worked to the benefit of their children—with a concomitant impact on the racial wealth gap. (In 2022, according to survey figures from the Federal Reserve, the median wealth of Black households was $44,890, compared with $285,000 for white households.) Indeed, Hamilton and Darity claimed that their proposal “could go a long way towards” eliminating the intergenerational transmission of racial advantage and disadvantage.
This proposal was never put into effect. But a version of it lived on in the form of legislation proposed by Cory Booker, the Democratic senator, in 2018, and subsequently reintroduced, in 2023, by Booker and Representative Ayanna Pressley. Under the Booker-Pressley bill, all American children at birth would be given a publicly financed investment account worth a thousand dollars, and the government would make further payments into these accounts annually depending on family income. When the owners of the accounts turned eighteen, they would be allowed to use the money for certain specified expenditures, including buying a home or helping to pay for college. “Baby Bonds are one of the most effective tools we have for closing the racial wealth gap,” Pressley commented when proposing the legislation.
On the Republican side of the aisle, some politicians and policy analysts have long supported tax-advantaged private savings accounts as a way of encouraging thrift and staving off socialistic tendencies. But it was only recently that the Party came around to the idea of seeding these accounts with public money. The Texas senator Ted Cruz promoted it under the label of “Invest America.” In the House bill, it was rebranded as a “MAGAAccount,” with the acronym standing for “Money Account for Growth and Advancement.” Republicans renamed it a “Trump Account” at the last minute. “You can call it anything you like,” Cruz told Semafor. “What is powerful is enabling every child in America to have an investment account and a stake in the American free-enterprise system.”
In political terms, Cruz may be right: duringCOVID, direct federal payments proved popular with voters (and Trump insisted on putting his name on the checks, too). But in socioeconomic terms, the Republican proposal would be much less potent. “It’s upside down,” Darrick Hamilton told me last week. “It amounts to a further subsidy to the affluent, who can already afford to save in the first place.”
The details of the proposal confirm Hamilton’s point. Money in the new Trump accounts would have to be placed in a low-cost stock index fund, and investment gains would be allowed to accumulate tax free until the funds were used. Parents and others would be allowed to supplement the original government endowments of a thousand dollars with contributions of up to five thousand dollars a year. But poor families obviously wouldn’t have the means to provide top-ups. “That means poorer families with no savings will get $1,000 compounding over 18 years while rich families will be able to invest up to $90,000,” Stephen Nuñez, an analyst at the Roosevelt Institute, wrote in a piece about the G.O.P. plan. “That will widen the wealth gap.”
There are other issues, too. It’s far from that clear that banks or brokerages will be willing to administer the new accounts without charging hefty fees that would deplete them. Some financial experts say that most households would earn better returns by contributing to existing 529 college-savings plans. (The limits for contributions to 529 plans are higher, and in many states they aren’t subject to state taxes.) Conceivably, some of these concerns could be resolved by pooling the money in the accounts, by fiddling with the tax code, and by encouraging employers of the account holders’ parents to make additional contributions to them. (At the White House meeting last week, Michael Dell, the C.E.O. of Dell, said the company would be willing to match the government contributions.) But these are only suggestions, and it’s hard to avoid the conclusion that the entire project is largely an effort to divert attention from the true nature of the Republican economic agenda.
“You certainly would want to question the timing of the proposal,’ Hamilton said to me. However, he added, that, “with regard to the Trump Accounts, the idea of a stakeholder society is not bad. That part is valuable, if you ask me.” He said that when he was growing up, in the Bedford-Stuyvesant neighborhood of New York, and attending an élite private school, the role that inherited wealth played in determining people’s life prospects was “vivid” to him. Where Trump and the Republicans have gone wrong in promoting the stakeholder concept, he went on, is “one, by relying on saving, and, two, in the regressive structure of the program.”
To be sure, Hamilton’s “baby bonds” initiative would involve considerable costs, and that is one reason why it has never got off the ground politically. In our conversation, Hamilton cited a figure of a hundred billion dollars a year. That sounds like a large number, he conceded, but he also pointed out that it would amount to less than two per cent of over-all federal spending, and he said that it would be considerably smaller than the sums currently devoted to subsidizing private wealth accumulation by people who already have some wealth, through things like the mortgage-interest deduction and the low tax rate on capital gains.
Hamilton didn’t mention it, but according to the Congressional Budget Office an extension of the soon-to-expire 2017 G.O.P. tax cuts, which is the primary purpose of the One Big Beautiful Bill Act, would cost nearly five hundred billion dollars next year—five times the estimated cost of his baby-bonds proposal. Given the Republicans’ dominance in Washington and the gaping budget deficit, there’s obviously no immediate prospect of the U.S. government reorienting its priorities to tackle rampant wealth inequality, in the way that Hamilton and his colleagues recommend or in some similar manner. But that doesn’t mean it wouldn’t be possible. If the commitment to levelling out wealth were broadly shared, the possibilities would be many. ♦
