White House projections assume sustained 10% annual returns
Economists are challenging the Trump administration’s framing of “Trump accounts,” the federal child investment program launched in early July, arguing that the initiative will widen — rather than narrow — the wealth gap between rich and poor Americans.
In a speech in Las Vegas last month, Trump promoted the program, saying: “It’s really giving [children] a head start on the American dream… They start off with $1,000 … and they can end up with $100,000, $200,000, $300,000” and, if the stock market booms, “you’d end up with $1m.”
When the Treasury Department launched the program in early July, it said: “Trump Accounts level the playing field by allowing every parent to invest in their children’s future, not just wealthy families with trust funds.”
University of Michigan economics professor Justin Wolfers said in a video that the program will not equalize opportunity. “This policy is not about giving poor kids a leg up. It’s more likely to widen the gap between rich and poor,” Wolfers said.
The White House website forecasts that many children with Trump accounts will have $271,000 in their account by age 18 and $13 million by age 55. According to Wolfers, those projections assume a 10% annual rate of return sustained for decades — a rate he said is “extraordinarily hard to achieve year after year.” The larger figures also assume parents contribute $5,000 annually until the child turns 18 and $7,000 a year during the child’s 20s. Wolfers called the White House estimates “ridiculous,” “dishonest” and “misleading.” Administration officials told The Guardian the projections are “not dissimilar to similar projections issued by retirement account providers.”
The Guardian reported that Trump has in some speeches given “the inaccurate impression” that a $1,000 seed deposit alone will grow to $200,000 or $300,000 by the time a child turns 18, without specifying the additional contributions the larger White House projections assume. According to the Guardian, an account receiving only the initial $1,000 — and no further contributions — would grow to about $6,000 by age 18, also assuming a 10% annual return.
Darrick Hamilton, a New School economics professor and one of the inventors of the “baby bonds” concept, said the projected amounts are too small to change the life trajectories of children from low-income families. “It’s really an income transfer, not a wealth-building tool,” Hamilton said.
Hamilton argued that the program’s benefits flow primarily to wealthier households, because the main mechanism requires parents to contribute money they can afford to set aside. “The main mechanism for these accounts is active savings by parents, and that’s by nature regressive,” he said. “These accounts will actually increase wealth inequality because they favor people wealthy enough to have money to put into savings.” Hamilton added that “people in the bottom 80% are usually dis-savers, they’re usually borrowers,” while “it is the wealthiest 20%, especially the top 10%, who save money.”
The accounts allow annual contributions of up to $5,000 into tax-deferred funds, a structure that gives wealthier families larger tax advantages because they are more likely to be able to contribute the maximum. Employers can contribute up to $2,500 a year to an employee’s child; that contribution is excluded from taxable income, providing a larger tax break to higher-bracket workers than to lower-paid ones. The $1,000 seed deposits — the central feature aimed at lower-income families — are scheduled to expire when Trump’s second term ends, while the tax-deferred contribution limits that primarily benefit wealthier families are set to continue indefinitely.
White House spokesperson Kush Desai defended the program in an email to The Guardian, saying: “Trump Accounts are already shaping up to make a generational difference for working-class children who have not historically benefitted from traditional tax advantaged accounts.” He said billionaires Michael Dell and Ray Dalio, along with multinational corporations, have “pledged to donate billions of dollars of their wealth to the Trump Accounts of working-class children.”
Desai rejected economists’ concerns that the accounts would widen inequality: “High income parents have always had an array of tools to grow wealth for their kids, but Trump Accounts are giving middle class parents the same opportunity – with billionaires chipping in to help. Only a moron would argue billionaires giving money away to working-class kids will worsen inequality.”
Sen. Ted Cruz offered an ideological defense of the program: “Trump accounts are, in many ways, Donald Trump’s New Deal – but instead of having government taking care of everyone, Trump accounts are about making every child and every American a capitalist.” Hamilton, by contrast, said the program fits a broader Republican effort. “This is part of their larger plan to privatize our social safety net. This is in line with Republican plans to dismantle social security,” he said.
The debate echoes a long-standing policy proposal from Democrats. Sen. Cory Booker and Rep. Ayanna Pressley introduced a baby bonds bill in 2019 that would have given children $1,000 in their birth year and up to $2,000 more each year until age 18. Under that proposal, modeled on ideas from Hamilton and Duke professor William Darity, lower-income families would receive larger government contributions than wealthier ones.
The Guardian reported that children from families at the poverty level would see their accounts reach an estimated $46,000 by age 18 — about three times the amount for children from families earning twice the poverty line and more than 20 times the amount for children from wealthy families. Hamilton said a program that directed larger deposits to children from poorer families would give those children a more meaningful boost. But, he noted, “that’s not the program that Trump and the Republican-controlled Congress approved.”