The truth about Trump’s proposed cash savings plan

Last week, Donald Trump touted “a pro-family initiative that will help millions of Americans leverage our economic power to boost the next generation.” He referred to a provision in a tax and spending bill pushed by House Republicans in May that would create tax-giving investment accounts for every child for the next four years, with the federal government contributing a thousand dollars to each child. House Speaker Mike Johnson also attended the White House meeting, describing the proposal as “bold, transformative.”

It can be described more accurately as placing lipstick on a pig. As we all know, the House bill (normally known as the “One Big Bill” bill) has been stuffed with tax cuts for companies and the rich, suggesting cuts to fund Medicaid, food aid and other programs targeting low-income Americans. The proposal for a new investment account has not changed the highly regressive nature of the bill. According to a report from the Congressional Budget Office, the bill’s provisions, including new accounts, will reduce household financial resources by about 16 relative to the benchmark scenario in one tenth of the income distribution and increase the average of the highest tenth household resources by about $12 million a year. In other words, this is a reverse hood bill.

The new savings truck proposed by the Republican Party also needs to be inspected. Johnson and other Republicans are trying to elevate them as family and pro-workers, with some media reports calling them “baby bonds.” But the proposal has little resemblance to some progressive economists and one of the same name names that Democrats have been promoting for years, and is a way to address the wealth differences in the United States. Given the way the Republican plan is structured, it is likely that it will eventually form existing gaps rather than help eliminate them.

Of course, it is certainly not a new idea to give children some wealth to help them become children with proper start. Wealthy families have established trust funds in some form for centuries. But what about the children in families with almost no wealth? (According to the Fed, the average net worth of the lowest-level households in wealth distribution is $1 in 2022.)

In 2010, Darrick Hamilton, the economist at the new school, and William Darity of Duke, outlined a plan to create interest-based government trust accounts for families born in families with less than median net worth. Under the Hamilton-Darity program, the average value of these government contributions (they call “baby bonds”) will gradually rise to about $20,000, with children from the poorest families benefiting greatly. Hamilton and Darity added that due to the interest that these accounts will accumulate, Hamilton and Darity calculated that some of these children might earn more than $50,000 as adults.

Although baby bonds will be distributed on a racially blind basis, black, native and Latino families (and) disproportionately represent the program within the lower tier of wealth distribution, meaning that the program will have a benefit to their children, a consistent impact on the racial wealth gap. (In 2022, the median wealth of black families is $44,890, while the funding of white families is $285,000, according to Fed survey data.) Indeed, Hamilton and Dilnis claim that their proposals “can go a long way” and eliminate the cost of racial strengths and weaknesses in international politics.

The proposal never took effect. However, one version of it lived in the form of legislation proposed by Democratic Senator Cory Booker, and was later reintroduced in 2023 by Booker and representative Ayanna Pressley. Under the Booker-Pressley Act, all U.S. children born in the United States will receive a publicly financed investment account worth one thousand dollars, and the government will make further payments to these accounts annually based on family income. When the account owners are eighteen years old, they will be allowed to use the money for certain designated expenses, including buying a home or helping the university pay. “Baby bonds are one of our most effective tools for closing the racial wealth gap,” Pressley commented when introducing legislation.

On the Republican side of the aisle, some politicians and policy analysts have long supported tax-friendly private savings accounts to encourage thrift and avoid socialist tendencies. But it wasn’t until recently that the party had the idea of ​​sowing these accounts with public funds. Texas Senator Ted Cruz promotes under the label of “Invest in the United States.” In the House Bill, it is called “Magazine Account, the acronym stands for “currency account growth and promotion.” Republicans renamed it at the last minute “Trump’s Account.”

From a political standpoint, Cruz might be right: Coronavirusit turns out that direct federal payments are popular among voters (Trump also insists on putting his name on the check). But from a socio-economic perspective, the Republican proposal will not be so effective. “It’s inverted,” Darrick Hamilton told me last week. “This is equivalent to wealthy people who can save already.”

The details of the proposal confirm Hamilton’s point of view. Funds in the new Trump account must be placed in low-cost stock index funds, and investment returns will be accumulated until these funds are used. Parents and others will be allowed to supplement one thousand dollars of original government donations, up to five thousand dollars a year. But poor families obviously do not have the means to provide recharge. “This means poor families will receive $1,000 in 18 years in 18 years, while wealthy families will be able to invest up to $90,000,” Stephen Nuñeez, an analyst at the Roosevelt Institute, wrote in an article about the Republican plan. “This will widen the wealth gap.”

There are other questions. It is obvious that banks or brokerage firms will be willing to manage new accounts without charging high fees that exhaust them. Some financial experts say most families will get better returns by contributing to the existing 529 college savings plans. (There are higher limits on the contribution of 529 programs, and in many states they do not pay state taxes.) It is conceivable that these problems can be addressed by pooling money in accounts, fiddling with tax laws, and encouraging the employer of the parents of the account holder’s parents to make other contributions to them. (At last week’s White House meeting, Dell’s CEO Michael Dell said the company was willing to match the administration’s contribution.) But these are just suggestions, and it’s hard to avoid the conclusion that the entire project is largely an effort to shift attention to the true nature of the Republican economic agenda.