Trump's 'baby accounts' really just another handout for the rich: experts

WASHINGTON — Tucked in the “one big beautiful bill” is a proposal for tax-advantaged “Trump Accounts,” each seeded with $1,000 from the government for certain babies born in the United States over the next few years.

But financial experts and advocates for low-income children are not overly impressed.

The idea is not new and has been likened to other “baby bonds” programs aimed at reducing the growing wealth gap, like state-run trust funds in California and Connecticut. Democrats in Congress have introduced a bill to create a similar federal program.

The White House has touted the proposal in the tax and spending cut measure as “pro-family” and one that “will afford a generation of children the chance to experience the miracle of compounded growth.”

At a June 9 event to promote the “Trump Accounts” featuring CEOs of top American companies, President Donald Trump promised the pilot program will make it possible for “countless American children to have a strong start in life at no cost to the American taxpayer.”

Speaking at the same event, top House Republican tax writer Rep. Jason Smith of Missouri said “every child born under this policy will have a better shot at a future. It does not matter if they live on a city block or on a county road, this will make a significant difference to their lives.”

Critics say the accounts, as proposed, would mostly benefit children born to wealthier families.

They also say the restricted-access accounts, and the one-time government contribution of $1,000, will not help in the face of cuts to food and health programs for low-income people written into the massive budget reconciliation bill, titled the “One Big Beautiful Bill Act.”

How ‘Trump Accounts’ would work

The investment savings accounts would be available to U.S. citizens born between 2025 and 2028, and whose parent, or parents, if legally married, already have Social Security numbers.

Each year, from a child’s birth to age 18, family and friends, parents’ employers, churches and other private foundations, could contribute up to a combined $5,000 annually to the investment account that will track a stock index and gain interest accordingly.

Deposits into the account are taxed. Later on, withdrawals would be subject to the long-term capital gains tax — a tax on the profit made from selling an asset, or investment, that a person has held for longer than a year.

After reaching 18, the account beneficiary could access half the account’s value only for qualified expenses that include higher education, vocational training, the purchase of a first home, and costs associated with an enterprise for which the beneficiary has received a small business loan or small farm loan.

The beneficiary could access the remaining half of the account after age 25. At age 31, the account loses its status as a “Trump Account” and any remaining balance is taxed as income.

Drawbacks seen

The Urban Institute warns that the proposed structure of the account will mostly benefit wealthy families who already have the resources to grow the funds.

The bottom 80% of households, by income, only hold half as much cash on hand as the top 20% of households, according to the left-leaning think tank’s nationwide financial health data.

Additionally, because of penalties for early withdrawals, lower-income families would be incentivized to save in less restrictive accounts, according to the think tank’s May 27 analysis.

The institute recommends the government provide more contributions based on income level, beyond just the one-time $1,000, and lessen the penalties for accessing cash for catastrophic events.

A 2023 Democratic legislative proposal put forth by Sen. Cory Booker of New Jersey and Rep. Ayana Pressley of Massachusetts aimed to create an account that would target the benefit to children from lower-income households.

Their plan suggests accounts be initially seeded with $1,000, and then children would receive up to an additional $2,000 annually based on their family’s income level.

According to Booker’s and Pressley’s plan, a child from a family of four that brings in less than $25,100 in annual income would have an estimated $46,200 in investment savings by the time they turn 18.

Under the Trump Account proposal, a child’s one-time $1,000 deposit from the government would grow to roughly $5,000 by age 18 if no other contributions were ever made, according to the Urban Institute.

Child tax credits

Brendan Duke, senior director for federal fiscal policy at the left-leaning Center on Budget and Policy Priorities, said the GOP proposal “wasn’t particularly well thought through.”

“It’s this question of whether it makes more sense to give every family $1,000 that they can’t access in those really important years, or whether you should have expanded the child tax credit,” Duke said.

Duke criticized lawmakers’ proposals that do not expand the child tax credit to the lowest-income families in the massive GOP budget reconciliation package.

While the House version temporarily expands the credit to $2,500 per child, up from $2,000, and the Senate version permanently expands the credit by a more modest amount of $2,200, neither version expands income or refundability parameters that would benefit the poorest families.

The CBPP estimates that 17 million children are left out of the credit because of the restrictions.

Existing savings vehicles

Another criticism of the Trump Accounts is that they provide a redundant option among the several existing tax-preferred savings vehicles for Americans, including 529 education investment savings accounts, Roth and Traditional IRAs and Health Savings Accounts.

The Tax Foundation’s Alex Muresianu said the account is “a move toward complexity rather than simplification.”

“We already have plenty of savings accounts with specific purposes, and a lot of different strings attached,” said Muresianu, senior policy analyst with the right-leaning foundation.

“We don’t really need another targeted account for a specific purpose, rather than a more easily accessible account with fewer conditions.”