Trump Accounts.

Trump era babies are set to get the gift of a lifetime. A thousand bucks just for being born on U.S. soil (to parents that can prove citizenship.) In the midst of China telling Scott Bessent to go pound salt on a trade deal, Pete Hegseth sending marines to police the streets of Los Angeles, a feud with the world’s richest man and war breaking out in the Middle East, President Trump is selling snake oil to babies like Eva Perón.

Giving every American baby a box of ziti might sound pretty darn magnanimous but it’s actually a rather cynical ploy to grab headlines and give more money to Wall Street. But there’s something even more nefarious at play.

Making Rich Babies

In a sleepy and meandering press conference, Don Trump sat alongside Mike “Little” Johnson to announce the creation of “Trump Accounts.” Under his plan, the Treasury would automatically create accounts for newborn babies and seed them with $1,000 to give them a head start in life. Parents can choose their preferred financial institution, but accounts will be auto-created through the Treasury if no action is taken.

I have to say, this Trump Account nonsense might be the most cynically brilliant piece of political theater to emerge from Washington in recent memory.

Originally dubbed “MAGA Accounts” (Money Accounts for Growth and Advancement) these accounts represent everything that’s wrong with how our political system prioritizes optics over substance and Wall Street over Main Street.

The funds would be invested in a single diversified index fund tracking the U.S. stock market, with no individual stock picking allowed. At age 18, beneficiaries can withdraw 50% for approved uses including education, home purchase, and business ventures; at age 25, full access for qualified expenses; and at age 30, unrestricted access. (How they would go about qualifying a business venture is beyond me, but let’s go with it.)

Like other vehicles, families can contribute up to $5,000 annually to these accounts. Amazing news that just happens to coincide with the median average of household savings in America under the age of 35, typically the age of people having babies. So you can deplete your entire savings in one shot by funding this new Trump baby account!

Also, if you’re new to investing and are just letting all that money rot in some little savings account, don’t worry, because the Trump administration is already coordinating with great stewards of personal savings like Goldman Sachs and Robinhood to help you manage these accounts. I’m sure it will all work out fine.

Rich Baby, Poor Dad

With approximately 3.6 million births annually in the U.S. and Trump Accounts providing $1,000 for each newborn born between 2025–2029, the annual cost for government seed money alone is roughly $3.6 billion per year. Easy peasy math. Over the four-year program duration, this totals about $14.4 billion just in seed funding, with additional administrative costs likely pushing the total closer to the Joint Committee on Taxation’s estimate of $17.2 billion.

To put this in perspective, the project expenditures of the U.S. government under Trump’s budget will be about $6.5 trillion dollars as we covered in a recent budget essay. So that means that the Trump accounts will come to roughly a half-of-a-percent of overall spending.

Maximum publicity, minimal impact.

Listen, I think it’s a fine idea. And I’ve already told you that I’m an MMT guy so I shouldn’t have a problem with this kind of giveaway right?

Mmmm. I actually have a huge problem with this program, and I’ll do my best to explain why so it doesn’t sound like I’m shitting all over it just because it’s Trump, or that they’re calling them Trump accounts, which is objectively gross. So let’s start by drawing some comparisons.

The biggest comparison the GOP is trying to draw is with the popular and successful 529 program for education savings. Now to be fair before we start, the Trump Accounts aren’t a real thing yet and there’s very little detail regarding the administration and tax implications on things like withdrawals because it has to move through the Senate first. But there’s enough to do a head-to-head comparison on the top level.

So to start, 529 plans offer superior tax benefits, with earnings growing tax-deferred and withdrawals for qualified education expenses being entirely tax-free at the federal level. Starting in 2024, unused 529 funds can even be rolled over into a Roth IRA for the beneficiary.

Trump Accounts, by contrast, provide tax deferral but withdrawals are taxed at long-term capital gains rates even for approved uses. While Trump Accounts allow broader uses including home purchases and business ventures, this flexibility comes at the cost of less favorable tax treatment. (I can’t wait to see how many scams appear in 18 years to help people set up those “businesses.”)

Anyway, in terms of penalties, non-qualified withdrawals from Trump Accounts face ordinary income tax plus a ten percent penalty on gains, making them less attractive than existing investment vehicles for families serious about long-term savings.

Bottom line, if you want effective education savings, use a 529 plan. But to all you babies born in the next four years, congrats on your box of ziti. I hope the market doesn’t tank when you need the money.

But I have a better comparison. To understand the breathtaking inadequacy of Trump Accounts, we need to examine what real child poverty relief looked like during the pandemic. The expanded Child Tax Credit (CTC) under the American Rescue Plan Act of 2021 cut child poverty by 46% to 55% percent, with the Supplemental Poverty Measure showing child poverty dropping to a record low of 5.2% in 2021, down from 9.7% the previous year.

The CTC was increased to $3,600 per child under age 6 and $3,000 per child ages 6–17, with payments made monthly from July to December 2021, providing $250–$300 per child per month to most American families. For many families, the direct payment mechanism was a godsend. The credit was made fully refundable, allowing families with little or no earned income to receive the full benefit.

It put money in pockets and despite what Republicans like to say about these giveaways, the surveys all revealed the same thing. People used it for food. For rent. To pay down credit cards. To breathe again. When you give money directly to parents who need it, they do what most normal parents would do. They make sure their kids are okay.

In terms of cost, the IRS issued more than 37 million Child Tax Credits totaling nearly $94 billion in 2021. That’s $94 billion in a single year going to families who can put it to immediate use. Money that circulates through the economy. Relieves child poverty and hunger. Only 1.4% of the federal expenditures and a fraction of the cost associated with Trump’s tax cuts. And we know it works. After the expansion expired at the end of 2021, child poverty rates spiked by 41% in 2022, returning to pre-pandemic levels.

In the context of federal spending, $3.6 billion annually is still a rounding error. The Pentagon spends more than that on a single major weapons system. We spend more than that on agricultural subsidies to major corporations. In a bill that reduces federal revenues by $3.67 trillion over a decade while adding $2.4 trillion to the deficit, the Trump Accounts represent the epitome of “political theater.” The difference between programs that work and programs designed for this kind of political theater couldn’t be more stark.

Enter Wall Street

Here’s where the true purpose of Trump Accounts becomes clear.

Do the math: 3.6 million babies times $1,000 equals $3.6 billion in immediate stock market investment annually. Add the projected private contributions of up to $5,000 annually per account, and we’re talking about tens of billions of dollars (potentially) in new money flowing directly into index funds tracking the U.S. stock market; although relatively few families could afford to actually pad these investment accounts considering they have no savings. So that means the real compound gains from these accounts would go to those who already have money.

And even though it’s not a big deal at first, if these accounts continued past Trump’s term then over time they would add up. Ultimately the major financial institutions managing these accounts will receive revenue through asset under management fees, creating a guaranteed income stream from taxpayer-funded accounts. This is a direct wealth transfer from the federal Treasury to Wall Street portfolio managers, disguised as a benefit for children, with the real compound gains made available to people who already have money.

The beauty of this scheme, from Wall Street’s perspective, is that the money is locked up for decades. With withdrawal restrictions until age 18 and full access delayed until age 30, financial institutions get to manage these funds for potentially three decades, collecting fees the entire time, without doing anything because they’re going to be tied to some combination of the stock market indices.

Now, unfortunately, I have to get really dark. There’s a long game here as well. The Trump Accounts serve a larger ideological purpose that extends far beyond their immediate budgetary impact. They represent another step in the decades-long conservative project to normalize private investment accounts as an alternative to public social insurance programs.

This is the same playbook that’s been used to undermine Social Security through proposed privatization schemes. By creating government-backed individual investment accounts, Republicans are conditioning Americans to think of government benefits as personal accounts tied to market performance rather than guaranteed public benefits.

The accounts are subject to market volatility risks, meaning gains are tied to stock market performance and funds are vulnerable to market declines. It’s the complete opposite of Social Security’s guaranteed benefits, for example, which aren’t subject to market fluctuations. So you don’t have to worry about the very same assholes on Wall Street destroying the equity markets like they did in the Great Recession, which crushed or at least deferred retirement for millions of Americans.

Imagine committing yourself to these accounts and having them grow over time only to watch Wall Street piss your gains away at the moment you’re trying to buy a house or start that business.

The psychological impact is crucial: instead of citizens expecting the government to provide security and stability, Trump Accounts teach the lesson that your financial future depends on market performance managed by private financial institutions. It’s a fundamental shift from public insurance to privatized risk.

So let’s be crystal clear about what Trump Accounts actually accomplish. They take government funds and immediately hand them to private financial institutions to manage. They create a new revenue stream for Wall Street while providing minimal benefit to families compared to existing programs, and that’s assuming you can even afford to really participate in the way it’s designed, which is to put in family matching funds. That no one has.

Meanwhile, families get accounts that are inferior to existing 529 plans for education savings and provide no immediate relief for current child poverty. All this does is exacerbate wealth inequality and put investments at risk due to market volatility.

Again, this is another Trump masterclass in political theater—just expensive enough to generate headlines, but just cheap enough to avoid real budgetary sacrifice. These aren’t investments into your child’s future, or the country’s. They’re investments into the hands of the investor class.

Here endeth the lesson.

Image Source

• Shealeah Craighead, Public domain, via Wikimedia Commons. Changes were made.