'Trump Accounts' for babies could make economic inequality worse

President Donald Trump’s investment accounts for newborns born during his term could end up worsening economic inequality, economists warn.

Under the plan, the U.S. Treasury will deposit $1,000 into “Trump accounts” on behalf of every child born during Trump's second term, with an estimated 25 million families eligible. The money will be invested in low-cost index funds that grow tax-deferred. Those children will be able to withdraw the funds starting from age 18, to be spent on “qualified expenses” such as college fees, a first home, or starting a business.

"Decades from now, I believe the Trump accounts will be remembered as one of the most transformative policy innovations of all time," Trump said Wednesday at a summit unveiling the policy.

The plan allows for additional contributions to the accounts from family, friends, and employers, up to $5,000 annually.

But despite claims that the accounts will “jumpstart the American Dream” by giving low-income children a head start in life, some economists believe the initiative will actually exacerbate the wealth divide.

Promoting the power of saving

“When we look back in time, Trump accounts will go down as a policy where we miss the mark, and that it will make wealth inequality significantly worse, because it favors those who have resources to begin with,” said David Radcliffe, a policy director at The New School’s Institute on Race, Power, and Political Economy. 

By age 18, an untouched account will generate $15,000, versus $742,000 with the maximum contributions, according to Trump administration's website for the accounts. By age 55, the disparity widens to $243,000 versus $13 million.

“Allowing those who are richer to put more in than those who are poor runs counter to any notion that there's any kind of redistributive justice taking place,” said William Darity, an economist and director of the Samuel DuBois Cook Center on Social Equity at Duke $DUK University. 

By permitting family contributions, the plan promotes saving behavior as a tool for wealth generation. Yet the bottom 50% of American households hold just 2.5% of wealth. Almost half of Americans only have enough savings to cover three months of expenses, while nearly 1 in 4 have no emergency savings at all. While it’s true the accounts will increase the baseline of wealth, distribution will be more unequal, Darity said.

“Can the poor save? Well, the answer is yes, the poor can save more, but it is at the cost of their standard of living, which is already meager,” Darity said.

Permitting contributions from employers and friends also disproportionately advantages the wealthy, Darity said, who drew a comparison between members of churches in affluent areas, with the resources that can be put into the children's account, versus a low-income congregation.

A ‘let them eat cake’ strategy 

The government allocations also don’t compensate for how much worse off lowest-income households are estimated to be as a result of the One Big Beautiful Bill (OBBB), signed into law last July. It cut $1.2 trillion in federal spending, primarily from the low-income health insurance program Medicaid and the food assistance program SNAP, to pay for tax breaks. The nonpartisan Congressional Budget Office estimates that the bottom 10% of poorest Americans will lose almost $1,600 annually over the next decade as a result.

The $25 billion in federal funding for Trump accounts is “underwritten” by these households, Radcliffe said. “It’s like a ‘let them eat cake’ strategy.” 

Speaking at Wednesday’s summit, O'Leary Ventures Chairman Kevin O'Leary noted that the accounts are “better than Social Security” because the funds grow over time. 

But money to help buy a house or pay off college fees infers a level of wealth that many households will not reach, and may instead be better utilized by funding things that help a child’s development like food and healthcare.

“For the 10 million children living in poverty in the U.S., the promise of a Trump account won’t help their parents put dinner on the table,” said Megan Rivera, a fellow for policy and advocacy at the Washington Center for Equitable Growth, although she added that any investment in children is net positive."

Corporate America has been lining up to match the Treasury's contributions for employees, including tech giants like Broadcom $AVGO, Intel $INTC, Dell $DELL, Comcast $CMCSA, Nvidia $NVDA and Uber $UBER. 

Altimeter Capital CEO Brad Gerstner, pledging to deposit $250 into each account in Indiana, said the accounts aren’t serving America’s “wealthy folks,” but instead “the families who will be lifted up and reconnected to the American Dream."

While businesses pledging to pay tax-free bonuses of $1,000 per eligible employee may sound radical, it pales compared to the $1.1 trillion in tax breaks corporations will see over the next decade due to the OBBB. What's more, for large employers, these accounts will be invested into their own companies. 

An alternative: 'Baby bonds'

Economists Darity and Radcliffe have spent years advocating for an alternative investment vehicle to tackle inequality: “baby bonds."

First introduced in a 2010 paper co-authored by Darity, the policy resembles Trump accounts, except the bonds would be exclusively funded by the government, and allocations would be scaled by family wealth, with children from lower income households receiving more.

A 2019 study suggests a nationwide baby bond proposal could “considerably narrow wealth inequalities.” It found that baby bonds reduced the racial wealth disparity between young white and Black Americans by 91%. 

As policy director for the Office of Connecticut State Treasurer in 2023, Radcliffe helped to implement the country’s first baby bond effort, providing $3,200 to every child whose birth is covered by the state’s Medicaid program. Pilot projects are underway across 11 states, including in New Mexico, Vermont, Georgia, Missouri, and Maryland.

Without compensating for pre-existing inequalities in this way, Trump accounts will do the opposite of redistributive justice, said Darity and Radcliffe. To them, Trump accounts have the hallmarks of the “bread and circuses” used by the Roman and Byzantine Empires: give handouts to placate the masses and appease public discontent.