Against Trump Accounts: A Debate

A uniquely bad version of an old, bad idea.

Note: This is the second of a two-part debate on the value of Trump Accounts. Ray Boshara arguing in favor of Trump Accounts is available here.

Trump accounts are an obnoxiously bad version of an inherently bad idea. The bad idea is that in modern advanced economies, good wages and good benefits will not be enough for middle-class security. Wage income must be supplemented, partly or entirely, by capital income, which allegedly will always outpace the growth of wage income. According to this theory, the model citizen in a modern democracy is a “trust-fund baby” born to inherited wealth. In the interest of fairness, the majority of citizens should be turned into trust-fund babies at birth by government redistribution through “child trust funds,” colloquially known as “baby bonds.”

Baby bonds are not new. Child trust fund proposals were debated in the late 1990s and early 2000s, when they were promoted by my colleagues Ray Boshara and Ted Halstead and I along with others at New America, the nonpartisan think tank I co-founded in 1999. In Britain, a child trust fund program was created by parliament in 2005, only to be shut down in 2011. In the last quarter-century, my early doubts about the idea have matured into full-scale opposition.

Despite feel-good statements like “every child can be a trust-fund baby,” not only existing Trump Accounts, but also any alternative baby bond proposal that has a chance of being enacted by Congress is likely to have the same five birth defects: child trust funds undermine the dignity of work, they encourage illegal immigration, their amounts are too small, their uses are restricted, and their balances will be used as excuses by politicians to cut Social Security and other public programs.

Child Trust Funds Undermine the Dignity of Work

A subtle but nonetheless harmful effect of all child trust fund proposals is the implicit delegitimation of income earned by labor, compared to income from the ownership of assets. In a well-designed, democratic version of a flourishing modern technological society, it should be possible to belong to the middle class, however defined, without owning title to any major assets at all, be they homes, small businesses, or big savings or investment accounts. During their working years, all able-bodied, sane adults should be employed and paid an adequate wage. Social insurance, paid for by broad, universal taxes, should maintain a middle-class living standard for non-workers: the young, the elderly, and their full-time or part-time family caregivers.

The goal is a middle-class stream of income for all, whether or not they own specific favored assets. This is not the “you will own nothing and be happy” dystopia attributed to Davos Man. This is old-fashioned, pro-worker Americanism. To suggest that full participation in the American middle class requires ownership of income-generating capital is to implicitly endorse the theme of get-rich-quick hucksters on TV and the internet: working for a wage is for suckers and losers.

Child Trust Funds Incentivize Illegal Immigration

In their present form, all children who are U.S. citizens are eligible for Trump Accounts, regardless of the citizenship or even legal status of their parents. Under existing judicial interpretations of the Fourteenth Amendment, the children of illegal immigrants who are born on American soil are automatically U.S. citizens.

Assuming that the Supreme Court rejects the Trump administration’s argument against “birthright citizenship” and upholds the traditional interpretation, Trump Accounts create a major new incentive to get across the border and are likely to prompt a massive expansion of the already large birth tourism industry that brings pregnant foreign nationals to the U.S. to give birth to American citizen babies.

A minimal Trump account of $1,000 would be a substantial share of the median annual income in Honduras, which is equivalent to around $10,000 a year in U.S. dollars, and in the Philippines, with its median annual salary of around $4,000 in U.S. dollars, to name only two of the countries that send the most illegal immigrants to America.

Child Trust Fund Amounts Are Too Small to Make a Difference to Most People or to Reduce Wealth and Income Inequality

Advocates of child trust funds have claimed for decades that they can reduce inequality among classes and races.

But without additional funds from parents, parents’ employers, or philanthropy, by age 18 the account would grow only to an estimated $5,389. Chump change. And it is difficult to imagine future lawmakers reforming Trump Accounts to make them generous enough to make a perceptible difference in either income or wealth inequality in the U.S.

Government Imposes Restrictions on How Child Trust Fund Money Can Be Spent

Almost all proposals for child trust funds in the last half century have included limits on the purposes for which money can be withdrawn after age 18 without financial penalties. Such restrictions in themselves prove the claim that child trust funds constitute personal “wealth” to be a lie.

Genuine wealth can be spent for any purpose you choose, subject to taxation. In contrast, if the government hands you money and then tells you that you can only spend the money it just handed you for particular purposes, then it is not your money. It is government money spent on a specific government program. But instead of being spent transparently, simply, and directly, the government money is routed through a tax-favored personal account to give the illusion of ownership without the reality. At best, a child trust fund account that can only be spent on one or a few things, at the discretion of the account-holder, is a government voucher.

A quarter century ago, during the earlier debate on this topic, the only advocates of child trust funds who to my knowledge proposed no restrictions at all on how the money could be spent at age 18 were Bruce Ackerman and Anne Alstott in The Stakeholder Society (1999). If rich kids could go on grand tours of Europe after high school or college, why shouldn’t less-privileged beneficiaries of child trust funds be able to do the same?

As far as I am aware, all other major child trust fund proposals have imposed paternalistic limits on how the money can be spent once the beneficiary reaches adulthood. Trump Accounts reflect the fear shared by most baby-bond proponents that the ignorant and undisciplined masses might waste their child trust fund money on the wrong things. Between the ages of 18 and 59 and a half, withdrawals, in addition to being taxed at ordinary income rates, are punished with a 10% penalty unless they are used for one of six purposes: education expenses, a first-time home purchase, birth or adoption expenses, medical expenses, or disability.

The 1990s are calling and want their placebo populism back! Instead of increasing the power of the working-class majority to demand higher wages from employers, higher benefits from government policymakers, and lower prices from price-gouging monopolies and oligopolies, what can be called placebo populism seeks to buy the acquiescence of underpaid, insecure, powerless workers with cheap, knock-off versions of various badges of elite status, like modest homes mortgaged to the hilt and worthless diplomas from low-ranked colleges. The hope of cynical policymakers is that the proles who obtain these merit badges will believe that they have joined the bourgeoisie, even though they are still proles.

In the bubble economy of the 1990s it was possible, without being stupid, to hope that all Americans could leverage a starter home into a larger house later and any four-year college diploma into a well-paying job. It is impossible to believe this in the 2020s, when growing numbers of American college grads are working in jobs that do not require their degrees, and when even modest down payments on modest homes have priced many young Americans out of home ownership.

In 2025, the median down payment by first-time homebuyers in the U.S. was $35,856—around seven times the value of a Trump Account for a beneficiary at 18 whose “trust fund” lacks any contributions by parents or others to the initial small government grant.

What about the other uses of Trump Account funds that are not punished by government-mandated penalties for withdrawal before 59 and a half: birth and adoption expenses, medical expenses, and disability expenses? There are already multiple federal programs that help families with children in general and a federal adoption tax credit.

For medical expenses and disability expenses we already have public social insurance and private health insurance, including Medicaid and Supplemental Security Income (SSI). Even Milton Friedman, the patron saint of libertarians, favored, and Ronald Reagan proposed, catastrophic health insurance for all Americans.

Hedging against medical disaster or unexpected disability by means of insurance based on small, recurrent payroll taxes or private insurance premiums makes sense. If that fails, access in an emergency to public or private loans that can be repaid in small installments over time on non-usurious terms might make sense as well. What makes absolutely no sense is the bizarre idea that government should encourage individuals to amass financial assets that can be liquidated to deal with medical crises or disability. That’s the equivalent of encouraging people to forego automobile accident insurance in favor of hoarding bars of gold bullion as a precaution against wrecks.

And yet from the perspective of the small-government conservatives who hope to co-opt the idealistic rhetoric of universal capitalism, this seemingly irrational duplication of existing public programs is a feature, not a bug, of child trust funds. This in turn brings us to the next harmful feature of Trump Accounts as well as of other child trust fund policies that have been or might be enacted in the real world:

Child Trust Funds Are Used as Excuses to Cut or Eliminate More Efficient and Fair Public Programs

At first glance it seems perverse to build up, piece by piece, a growing, parallel framework of tax-favored savings accounts—child trust funds, education savings accounts, health savings accounts, IRA’s and 401(k)s—when public programs already exist to fund the same goods like public education, health care, and retirement. But there is a method in this apparent madness. At some point the privatizers and government-shrinkers of the Old Right plan to use rising balances in child trust funds and other private, specialized savings accounts to declare that Americans now have so much money for retirement and other purposes that it is safe to cut Social Security and various other existing public programs.

While Geoge W. Bush’s proposal to divert some payroll tax money away from Social Security into private retirement accounts in 2005 went nowhere, thanks in part to resistance from working-class Republicans, Trump Account supporters proudly frame them as a stealth form of Social Security privatization.

At an event hosted by Breitbart News, Treasury Secretary Scott Bessent blurted out the truth: “In a way, it is a backdoor way for privatizing Social Security. Social Security is a defined benefit plan paid out ‒ that to the extent that if all of a sudden these accounts grow, and you have in the hundreds of thousands of dollars for your retirement, that’s a game-changer.” And at the Milken Institute’s Global Summit in May, Texas Senator Ted Cruz declared: “Here’s the dirty little secret: Trump accounts are Social Security personal accounts.” This explains a curious feature of Trump Accounts—no withdrawals are allowed before age 18, at which point every account will automatically turn into an IRA.

To the five congenital flaws of all mainstream child trust fund proposals, the Trump administration and Republicans in Congress have added a sixth—Trump Accounts are incredibly, unbelievably, grotesquely regressive. The White House Council of Economic Advisers itself has modeled two scenarios assuming “moderate” returns of 10.3% before inflation. In one scenario, there is no contribution by parents or qualified others to the initial government seed money of $1,000. In another scenario, the maximum contribution of $5,000 a year is made by parents alone or with money from their employers. The result? At the age of 18, Tiny Tim Cratchett has a mere $5,389 in his Trump Account. Meanwhile, Richie Rich, born to wealthy parents, when he turns 18 has $303,787 in his Trump Account.

So much for Trump Accounts reducing income and wealth inequality. The official Trump Account FAQ page boasts: “Would wealthy families be excluded? No. There are no income restrictions for Trump Accounts. Unlike Roth IRAs, there is no income phaseout. Families at any income level can open an account and contribute.” Small wonder that Trump Accounts, instead of being openly debated in advance for years and voted into existence in stand-alone legislation, were hidden from public scrutiny in advance and smuggled into the One Big Beautiful Bill (OBB) Act of 2025.

In addition to undermining the dignity of work, incentivizing illegal immigration, providing negligible amounts for most people, using restrictions on their use to promote patronizing house-and-diploma placebo populism, and encouraging the stealth privatization of Social Security and other universal and means-tested public programs, Trump Accounts by design are a sleazy scheme by which American taxpayers subsidize the sheltering from taxation of the multigenerational wealth of the richest families. This is a program that only the selfish, unpatriotic, rent-seeking, tax-avoiding Old Money Right could love. Its repeal should be sought not only by progressives but also by populist conservatives for whom the idea of a “Republican Workers Party” is more than a cynical campaign slogan. The Trump Account version of baby bonds deserves to be strangled in the cradle.