Investing for babies

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MYRNA BROWN, HOST: Coming up next on The World and Everything in It:

A nest egg for babies.

While President Trump’s Big Beautiful Bill Act is best known for budget cuts and tax breaks, the law he signed on July 4th will also give billions of dollars to the youngest Americans. The idea is to put $1,000 in an investment account for every baby born in the United States for the next 4 years.

LINDSAY MAST, HOST: So how will the accounts work, and are there strings attached?

WORLD reporter Carolina Lumetta has the story.

SOUND: [Hail to the Chief]

CAROLINA LUMETTA: At a White House roundtable event in June, House Speaker Mike Johnson explained the President’s plan to invest in the future of Americans with actual investments.

JOHNSON: if you have a 401k, you understand the power of investing early for the future. Trump accounts uh take that same principle and they apply it from the very beginning of Americans lives.

Here’s how it works: When a baby is born, the Treasury Department will automatically open a diversified investment account and put $1,000 into it. The account will then be managed by a bank of the family’s choice.

TRUMP: They'll be open for additional private contributions each year from family, friends, parents, employers, churches, private foundations, and more.

Up to $5,000 a year. Once the child turns 18, he or she may withdraw half of the funds, but only for higher education tuition costs, a trade school, starting a business, or buying a home. While the original version before Congress restricted the program to children born to American citizens, the Senate removed that provision.

TRUMP: This is a pro-family initiative that will help millions of Americans harness the strength of our economy to lift up the next generation and they'll really be getting a big jump on life, especially if we get a little bit lucky with some of the numbers in the economies into the future.

During the White House event launching the proposal, business leaders also signed on. Dell Technologies CEO Michael Dell said his company would match the government’s initial contribution for its employees.

DELL:…and it embodies our core belief that opportunity should begin at birth.

The idea of accounts for babies is not new. In fact, it’s been a Democratic talking point for years. Former Secretary of State Hillary Clinton brought up the idea of a baby bonus during her 2007 presidential campaign. And in 2021, New Jersey Senator Cory Booker sponsored a bipartisan bill to launch baby bonds that could accrue up to $50,000 per baby. Then in 2023, Connecticut launched the first statewide baby bond program.

RADCLIFFE: There is a discussion at the highest levels of government, both Democrats and Republicans, who recognize the value and the importance of wealth, particularly seeding it for babies.

David Radcliffe studies state and local policy for the New School Institute on Race, Power, and Political Economy, based in New York. He helped implement Connecticut’s program. Radcliffe likes the idea behind Trump accounts, but has some concerns about how the President’s plan will work.

RADCLIFFE: We really see this as a rich-get-richer plan that focuses significantly on savings versus assets.

The Connecticut program is reserved for children born into low-income families, while the Trump version is open to all. While Connecticut’s program is tax-free, the Trump accounts will be taxed on withdrawal. Furthermore, the account owner can only withdraw half of the amount at age 18 and then the full account once he or she turns 25.

The total investment will also depend on the additional contributions, something that wealthy parents can take advantage of while poorer parents cannot. Assuming 5% growth over 18 years, that $1000 looks different with additional investment.

RADCLIFFE: The young person in the poorer circumstance $3,000, the wealthier child can accrue up to $150,000.

Another concern for analysts is the expected price tag. Adam Michel is director of tax policy studies at the Cato Institute.

MICHEL: The government will be transferring $1,000 into each of these accounts temporarily through 2028, but that money has to come from somewhere…

The Joint Committee on Taxation expects the program to cost $17 billion dollars over ten years. President Trump says the savings in the Big Beautiful Bill will cover the cost. But Michel suspects the government will need to borrow money or raise taxes to keep funding the accounts down the road.

MICHEL: So that transfer itself is not making anyone in the aggregate better off.

There are already nearly a dozen savings programs with tax advantages available to American families. Michel at the Cato Institute recommends a universal savings account that’s managed by the individual, not the Treasury Department.

MICHEL: You put the money in, it grows, and you can spend the money whenever and on whatever you like. And they're a way of actually letting individuals and families save for their future in a way where the government is less involved rather than more.

Republicans in Congress praised the program as part of a larger pro-family agenda. Senator Bernie Moreno of Ohio told me the seed amount might be small but is compounded with other investments included in the bill.

MORENO: …that $1,000 will make a big difference. The other piece is, of course, the child tax credit going to $2,200. I think that's a really good part of it. This is clearly a bill that's gonna help working families.

For analysts like Adam Michel, government promises of free money don’t sound like a recipe for future success.

MICHEL: Republicans in every other piece of economic policymaking will tell you that simply writing people checks is an incredibly ineffective and often counterproductive way of making people better off for the long run.

It’s now up to the Treasury Department to start building Trump accounts for babies born back in January until the end of 2028.

Reporting for WORLD, I’m Carolina Lumetta, in Washington.

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