Baby boon

In July, Nolan Osorio Ramirez will celebrate his second birthday with his family in Connecticut. The entire state will also celebrate the second anniversary of the statewide Baby Bonds program, of which Osorio Ramirez was the first recipient. His investment account is slowly accumulating value to become what should be a modest nest egg once he turns 18. Connecticut and California are the only states (along with the District of Columbia) that have created baby bond programs. Now the Trump administration wants to take the model national, with some tweaks.

“The thing that is really the missing ingredient for most folks are assets,” said David Radcliffe, a nonprofit policy director who previously worked at the Connecticut state treasurer’s office and helped design the state’s program. “What baby bonds attempt to do is to provide publicly funded trust accounts to young people, particularly those who are born in poor circumstances, so they can pursue wealth-building activities like home ownership, small business development, and debt-free education.”

President Donald Trump announced a plan earlier this month to create tax-deferred investment accounts for newborn American citizens. The provision is tucked into the One Big Beautiful Bill Act that the House narrowly passed in May. Lobbyists are petitioning the Senate to make some changes to the proposal before sending the bill to the president. The writers of state versions have numerous ideas for how to make the accounts more effective at lifting a new generation out of poverty.

Under the Trump Accounts proposal, for every U.S. citizen born between Jan. 1, 2025, and Dec. 31, 2028, the Treasury Department would put $1,000 into an investment account following a stock index such as the Dow Jones Industrial Average. The account can also receive voluntary contributions of up to $5,000 per year. The benefit is open to every child regardless of family income level. Once the child turns 18, he or she may begin to make withdrawals for higher education expenses, a house, or a business. Withdrawals for other reasons will be taxed at a higher rate.

At an event at the White House last week, Trump and several CEOs praised the accounts as a way to level the economic playing field. Dell Technologies CEO Michael Dell pledged to match the government’s contribution for every Dell employee’s child. Other CEOs also promised to make contributions but at varying rates.

“Decades of research has shown that giving children a financial head start profoundly impacts their long-term success,” Dell said. “With these accounts, children will be much more likely to graduate from college, to start a business, to buy a home, and achieve lifelong financial stability.”

But some experts are calling for changes to the plan to make the accounts work better for the most needy families.

“The good thing about the Trump Account discussion is that 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. That part is pretty good and exciting.” Radcliffe told me. The Connecticut program he helped design now has roughly 30,000 children enrolled.

The state creates a trust account with $3,200, managed by the state treasurer, for every child whose birth is covered by Medicaid, the government health insurance program for the poor. By the time the child turns 18, the value of the account might range from $10,000 to $20,000. Account holders can make withdrawals after completing a financial education course, and they can spend the money on higher education or trade school expenses, a down payment on a home in the state, a retirement account, or starting a small business in the state.

Radcliffe said the Trump Accounts could do more for needy families by adopting some of the provisions of Connecticut’s Baby Bonds, including:

• Automatically create the account at birth. Trump Accounts require families to complete an enrollment process, while Connecticut sets up Baby Bonds accounts for all Medicaid recipients.

• Provide more startup funds for poorer beneficiaries. The Trump Accounts give $1,000 to each recipient regardless of income level, while Connecticut gives more money to fewer recipients, since only those who qualify for Medicaid are eligible.

• Do not consider the funds as an individual asset for other income-based benefits such as college financial aid.

• Allow tax-free withdrawals from the funds.

Analysts with Americans for Prosperity, a conservative lobbying group, have brought up some of the same concerns on Capitol Hill. Kurt Couchman, a senior fellow on fiscal policy with AFP, said the general idea of the Trump Accounts is good, but he’s asking senators to improve the framework.

Couchman said the Trump Accounts also do little to address child poverty due to the constraints put on withdrawal. He is specifically asking lawmakers to remove the capital gains tax rate that users will have to pay when they withdraw at age 18.

“A lot of times, people who are lower-income are hesitant to put money away if they’re going to be penalized for pulling it out before the appointed time, like for retirement accounts or for 529s [college savings plans],” Couchman told me. “So, if you have something that is universally available and you can use the funds in it for any needs that come up, then you’re going to have much broader adoption.”

Couchman has recommended setting up the accounts to be more like a universal savings account that can accrue interest tax-free. That would allow the government and families to invest in children, but it would also provide the flexibility to withdraw the funds for a medical situation, to buy a car, or cover education costs before college.

Republican senators are busy reviewing the text to meet Senate Majority Leader John Thune’s July 4 deadline for voting on the bill. They will need to send the One Big Beautiful Bill back to the House before then to approve differences, including some potential changes to the Trump Accounts plan.

“It all has to fit within the budget and the larger question: ‘What can we afford?’” Sen. Pete Ricketts, R-Neb., told me. “We’re still in the process of doing that right now.”

Sen. Bernie Moreno, R-Ohio, on the other hand, supports the text as-is, adding that it would come with a proposed expansion to the child tax credit.

“It’s a really amazing program,” Moreno told me. “We’re investing in our future, which is phenomenal. This bill is really about helping working Americans, and that $1,000 will make a big difference.”