Everyone deserves a chance to build their financial future, not just the few who are born into wealth. Public policies play a critical role in creating an inclusive economy and providing wealth-building opportunities that enable everyone to enjoy financial security. Baby bonds are a policy solution that could disrupt intergenerational poverty and help close the racial wealth gap by providing a nest egg to every eligible baby to use when they reach adulthood to attend postsecondary education, start a business, or buy a home. Baby bonds legislation has passed in Connecticut, the District of Columbia, California, and Vermont, and over a dozen other states and Congress have introduced similar legislation.
Read more about baby bonds and how they would close the racial wealth gap in WA in our previous blog post.
The recently passed House Reconciliation Bill co-opts the idea of baby bonds with a provision to create what they call “Trump Accounts.” These accounts are part of a budget package that guts vital programs for millions of people – including health care, housing, child care, food assistance, and tax credits – while handing billions of dollars in tax breaks to multinational corporations and the wealthiest 1%. Trump Accounts are a deeply flawed, regressive policy masked as equity and would benefit the wealthiest families rather than close the racial wealth gap. In short, these accounts are not baby bonds.
Trump Accounts bear some resemblance to baby bonds but include deeply flawed components
Some key features of Trump Accounts include:
- A one-time federal contribution of $1,000 for every child born between January 1, 2025 and January 1, 2029
- Annual, tax-free contributions of up to $5,000 from families, states, or local governments
- Access to 50% of funds at age 18 and full access between the ages of 25 and 30
- A designation that funds be used for postsecondary education, entrepreneurship, or home ownership (at age 30, funds can be used for any purpose)
- An exclusion of children whose parents don’t have a Social Security Number (SSN)
Trump Accounts are a political distraction from the deep cuts to vital public benefits programs
Republican lawmakers are pointing to Trump Accounts to claim that their proposed budget is pro-family, while simultaneously gutting and restricting programs that support millions of families, like Medicaid, Supplemental Nutrition Assistance Program (SNAP), and the Child Tax Credit. This proposal to give families a one-time $1,000 contribution is a disingenuous ploy to distract from their plans to take away people’s health care, drive up household expenses, and withhold critical income support. They are using the language of providing “opportunity for all” without offering any substantive assistance and instead, denying families and people essential services and supports.
In Washington state, hundreds of thousands of people will be harmed by the cuts proposed in the Reconciliation Bill. Specifically:
- 149,000 people are at risk of losing at least some SNAP benefits.
- 500,000 people are at risk of losing Medicaid coverage.
- 137,000 children with parents who don’t have SSNs would become ineligible for the Child Tax Credit.
[Republican lawmakers] are using the language of providing “opportunity for all” without offering any substantive assistance and instead, denying families and people essential services and supports.
Trump Accounts are untargeted, regressive, insufficient, and exclusionary
The many design flaws of this policy means that Trump Accounts would do little to help the families that need it most and even widen the racial wealth gap. They are:
- Untargeted: Families would receive the same $1,000 investment regardless of their financial status. A family making $40,000 faces much greater financial challenges than a family making $400,000, and they would benefit from a larger investment.
- Regressive: Allowing tax-free individual contributions benefits families with more disposable income and provides another way for the wealthy few to shield their wealth through the tax code.
- Insufficient: At a 7% return, the initial $1,000 grows to just roughly $3,500 by age 18. This is hardly enough funds for people to pursue wealth-building activities.
- Exclusionary: Restricting eligibility to only children whose parents have SSNs excludes some U.S. citizen children and is a flagrant racist and anti-immigrant policy.
Senators could improve the Trump Accounts by using the principles of baby bonds
Let’s be clear: Improving these accounts will not make up for the massive cuts to basic needs programs that will force millions more families into poverty. As senators assess the Trump Accounts and their provisions, they should use these principles of baby bonds:
- Progressive funding: Families with fewer financial resources should receive a greater investment.
- Ensure benefits protection: Funds in these accounts should not count against eligibility for other public benefits.
- Include all children, regardless of their parent’s immigration status: All U.S.-born children should be eligible.
We must call out the Trump Accounts for what they are – a cheap, performative gesture that distracts from the significant harm that the budget package will cause to millions of Americans. Protecting existing public programs from cuts and restrictive policy changes will support families much more than a one-time $1,000 investment. If Congress wants to close the racial wealth gap and lift families out of poverty, they should increase access to Medicaid, SNAP, and the Child Tax Credit and establish a true baby bonds program.
If Congress wants to close the racial wealth gap and lift families out of poverty, they should increase access to Medicaid, SNAP, and the Child Tax Credit and establish a true baby bonds program.
