Trump Accounts Are Not Baby Bonuses. They’re Another Giveaway to the Wealthy.
Much has been made of the supposed transformation of the GOP into a pro-worker and pro-family party. And yet the new GOP has pushed policies that, in the horrific damage they will visit upon working-class households, are functionally indistinguishable from the old GOP.
OK, you might say, but what about the child tax credit (CTC)? Surely that is an example of a kinder, gentler GOP policy initiative. After all, Ivanka Trump pushed to expand it as part of the Tax Cuts and Jobs Act of 2017. And the GOP has proposed expanding it in their reconciliation bill. And get this, they have added a “baby bonus!” Sounds pretty pro-family, right?
Well no, it is not. There are already several good pieces explaining how the proposed new citizenship requirements for tax filers to claim the CTC will lead to millions of citizen children losing aid. And several more explaining why the proposed $500 increase to the CTC will do literally nothing to help working-class families. Back in 2021, Jack Landry and I published a microsimulation analysis of various CTC reform proposals that shows that even a much larger increase in the value of the CTC does little to reduce poverty and nothing at all to reduce deep poverty if the policy includes an earned income requirement and benefit phase-in. It’s worth keeping all this in mind when GOP senators promise to push the value of the CTC even higher; ultimately, without removing the phase-in, all they’re promising is another upper-middle-class tax cut.
But I want to use this piece to address the so-called baby bonus, which has served as the centerpiece of recent articles discussing the new pro-family and “pro-natal” GOP. If words mean anything anymore, then I can confidently say that the policy the GOP has inserted into their reconciliation bill is not, in fact, a baby bonus. It isn’t a baby bond either (we’ll get to that shortly). It’s (surprise!) another giveaway to the wealthy.
Trump accounts (sigh) are not a baby bonus
A baby bonus is a lump sum cash payment given to parents upon the birth of their child or shortly thereafter. It is often paired with a child allowance, regular payments to support families as they raise their children. During the 2024 election cycle, the Harris campaign proposed a baby bonus of $6,000 along with the restoration of the American Rescue Plan (ARP) CTC reforms, which expanded the benefit value but crucially also removed the earned income requirement and benefit phase-in (consequently cutting child poverty by almost 50 percent while briefly in effect). The idea behind baby bonuses and child allowances (what the ARP CTC reform was meant to create) is that children are expensive. Millions of families need financial assistance right now to help cover the cost of food, clothing, toys, diapers, medicine, and other expenses. Researchers have also learned that growing up poor can lead to negative impacts on physical and mental health, criminal justice involvement, educational attainment, and earnings in adulthood. These negative impacts also cost the government and the economy hundreds of billions of dollars each year. So it makes sense to intervene early to ensure that parents have the resources necessary to provide a stable and nurturing environment for their children.
Earlier this year, news articles suggested that the Trump administration was considering a $5,000 (remember this number) baby bonus in its reconciliation package to help incentivize couples to have (more) children. Setting aside the many concerns folks (rightly) have with the pro-natalist movement, at least some folks were cautiously optimistic about this idea. A single $5,000 lump sum payment in isolation is not going to have the same impact as a true child allowance that provides assistance throughout a child’s life. But it would deliver necessary aid during the crucial first year of a child’s life. The GOP baby bonus, however, appears to have undergone some changes in the intervening months, beyond its marketing makeover as “Trump accounts” (and before that, “MAGA accounts”). So let’s see how they did. ::drumroll::
It’s a tax-advantaged investment account in which a family can invest up to $5,000 of their own money each year.
OK! Well that is quite a bit different, but I guess the number 5,000 does show up in both so who’s to say this isn’t the same thing?
More seriously, a tax-advantaged savings account whose funds can be accessed after turning 18 is a very different beast than an immediate cash transfer upon birth. So this isn’t a baby bonus. But maybe it is a good policy nonetheless? Parts of it seem familiar. There is, for example, a publicly funded $1,000 initial deposit for every account opened. And the money can be used to pay for educational expenses, to put toward a down payment, or to help start a new business. The Trump account is not a baby bonus but maybe it is a baby bond? Indeed at least some folks on social media noted similarities between the Trump account and proposals that Senator Cory Booker and Representative Ayanna Pressley have put forth. But a closer inspection reveals that the similarities are superficial.
Trump accounts (double sigh) are not baby bonds either
Baby bonds are wealth-building instruments. Though the idea has been around for a while, stratification economists like Roosevelt Senior Fellows Sandy Darity and Darrick Hamilton have taken interest in them because they recognize their potential to close the racial wealth gap created by structural racism. The wealth gap plays an important role in diminishing the life chances and economic mobility of Black, Hispanic, and Indigenous people in the United States because wealth accumulation is necessary1 to buy a home, to pay for college, to start a business, to pay for long-term care, and to retire in comfort. And income support programs, though necessary, will never be enough to close that gap.
Baby bonds are thus meant to serve as complements to generous income support policies like child allowances (recall that childhood poverty affects adult outcomes). They bear some similarities to other wealth-building instruments like Individual Development Accounts and 529 college savings accounts (notable in that they increase wealth inequality) but are structured to ensure that working-class people, who are disproportionately Black, Hispanic, and Indigenous, derive the most benefit. And the details matter. There are simulations that show that properly structured baby bond programs can significantly reduce the racial wealth gap. So what does a properly structured baby bonds program look like? Luckily, researchers have already laid out the six features necessary to create an effective baby bond program. So let’s see how the Trump accounts do:
Source: Urban Institute; See also CBS News for limitations in the program design
The verdict
Trump accounts have only two of these six necessary features. Both baby bonds and Trump accounts are universal, individual investment accounts, but Trump accounts are designed to build wealth for the wealthy, not the working class. They will increase the racial wealth gap if they do anything at all (wealthy people already have access to plenty of other, better tax advantaged savings accounts, so it’s not clear how much use they’ll get out of these). The initial $1,000 deposit does nothing to change that.
So just to sum up, Trump accounts are not baby bonuses and they are not baby bonds. They let households invest their own money in a tax-advantaged account but are of almost no use to working-class households that don’t have spare money to invest. But if you are someone who has already maxed out your other tax-advantaged savings vehicles—401K ($23,500) + IRA ($7,000) + 529 ($19,000 per kid, $38,000 per kid if married), someone who, in other words, saves more than $49,500 per year (median individual income)—then Trump accounts might be right for you!
Combine this with a CTC that does nothing for working-class folks, savage cuts to SNAP and Medicaid, and yet more tax cuts for the rich, and the new GOP starts to look suspiciously like the old GOP. In the immortal words of Peter Townsend: “Meet the new boss. Same as the old boss.” (Don't get fooled again.)
If you ask Eleanor
“Many of us understand the difficulties which have brought about our low rating as a nation in the care of our mothers and babies. Now that we understand what our difficulties are, we are in a better position to overcome them.”
- Eleanor Roosevelt, My Day (April 30, 1938)
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Why this is so and how to change it is a subject for another piece.