The Truth About Trump’s Proposed Cash-for-Kids Savings Scheme
Last week, during a White House meeting with Uber CEOs, Goldman Sachs and Salesforce, Donald Trump presented “a pro-family initiative that will help millions of Americans to exploit the strength of our economy to raise the next generation”. He referred to a provision in the tax bill and spend that the Republicans of the House passed in May, which would establish investment accounts for each child born in the United States over the next four years, the federal government contributing to a thousand dollars to each. The president of the room, Mike Johnson, who was also present at the meeting of the White House, described the proposal as “daring, transformer”.
It could be described more precisely as an effort to put lipstick on a pig. As everyone knows surely now, the House bill – officially called the Big Beautiful Bill Act – is filled with tax reductions for companies and the rich, and it proposes to reduce funding for Medicaid, food assistance and other programs that target low -income Americans. The proposal of new investment accounts has not changed the highly regressive nature of the bill. According to a report by the Congressal Budget Office, overall, the provisions of the bill, including new accounts, would reduce household financial resources in the tenth lower income of approximately sixteen hundred dollars per year compared to a reference scenario and increase household resources in the tenth on average by an average of around twelve thousand dollars per year. In other words, it is an inverted dress hood bill.
The new savings vehicles that the Republicans offer demand of demand. Johnson and other Republicans are trying to promote them as families and professional workers, and some media accounts have described them as “baby links”. But the proposal is little like one of the same name as certain elected progressive and democratic economists have been promoting for years, as a way to fight against gaping disparities in America. Given how the republican scheme is structured, it may well anchor existing disparities rather than helping to eliminate them.
The implementation of children of wealth to give them a good start in life is not a new idea, of course. Rich families have set up trust funds, in one form or another, for centuries. But what about children from families who have little or no wealth to put? (According to the Federal Reserve, in 2022, the average net value of households in the ten percent of at least of the distribution of wealth was a dollar.)
In 2010, economists Darrick Hamilton, who is now at the new school, and William Darity, Jr., of Duke, described a plan to create government trust accounts with interests for children born in families who fell below the median net value. As part of the Hamilton-Darity plan, the average value of these government contributions, which they have described as “bonds for babies”, would gradually reach around twenty thousand dollars, children from the poorest families while benefiting even more. Adding the interest that would accumulate in these accounts over the years, Hamilton and Darity have calculated that some of these children could end up with more than fifty thousand dollars when they reached adulthood.
Although babies’ obligations are distributed on a breed base, the fact that black, indigenous and Latinos families were (and are) represented disproportionately in the lower scope of the distribution of wealth would have meant that the program would have worked for the benefit of their children – with a concomitant impact on the racial difference in wealth. (In 2022, according to survey figures from the Federal Reserve, the median wealth of black households was $ 44,890, against $ 285,000 for white households.) Indeed, Hamilton and Darity said that their proposal “could go a lot towards” to the elimination of the intergenerational transmission of the racial advantage and the advantage.
This proposal has never been implemented. But a version of it lived in the form of legislation proposed by Cory Booker, the Democratic senator, in 2018, then reintroduced, in 2023, by Booker and representative Ayanna Pressley. Under the Booker-Pressley bill, all American children at birth would receive an investment account funded by the public worth a thousand dollars, and the government would make additional payments on these accounts according to family income. When the owners of the accounts were eighteen years old, they would be authorized to use the money for certain specified expenses, in particular by buying a house or by helping to pay the college. “Baby obligations are one of the most effective tools we have to fill the gap in racial wealth,” said Pressley during the legislation.
On the republican side of the aisle, some politicians and political analysts have long supported private savings accounts advantageous by taxes as a means of encouraging savings and diverting socialist trends. But it was only recently that the party came to sow these accounts with public money. The Senator of Texas Ted Cruz promoted it under the label “Invest America”. In the House bill, he was renamed as “Maga Account “, with the acronym which represents” the currency account for growth and advancement “. The Republicans renamed him a “Trump account” at the last minute.
In political terms, Cruz may be right: during CovidDirect federal payments have proven to be popular with voters (and Trump insisted to put his name on checks too). But in socio-economic terms, the republican proposal would be much less powerful. “It’s upside down,” said Darrick Hamilton last week. “This is equivalent to a new grant for the rich, which can already save themselves to save in the first place.”
The details of the proposal confirm Hamilton’s point. Money in the new Trump accounts should be placed in a low -cost stock market fund, and investment gains would be authorized to accumulate without tax until the funds are used. Parents and others are said to be authorized to complete the allocated government endowments with contributions up to five thousand dollars a year. But poor families would obviously not have the means to provide recharges. “This means that poorer families without economy will get $ 1,000 will make more than 18 years old while wealthy families will be able to invest up to $ 90,000,” wrote Stephen Nuñez, analyst at Roosevelt Institute, in a GOP article. “This will extend the gap of wealth.”
There are also other problems. It is far from clear that banks or brokerage houses will be ready to administer new accounts without charging high costs that exhaust them. Some financial experts say that most households would gain better yields by contributing to the existing plans of 529 colleges. (The limits of contributions to plans 529 are higher, and in many states, they are not subject to state taxes.) In theory, some of these concerns could be resolved by pooling money in accounts, playing the tax code and encouraging employers of parents of account holders to contribute to them. (During the meeting of the White House last week, Michael Dell, CEO of Dell, said that society would be willing to match the government’s contributions.) But it is only suggestions, and it is difficult to avoid the conclusion that the entire project is largely an effort to divert attention from the true nature of the republican economic order.
