The idea builds on the concept of “baby bonds” which California, Connecticut and the District of Columbia have introduced as a way to reduce gaps between wealthy and poor people.
The Associated Press reports the House GOP proposal would create tax-deferred investment accounts, coined “Trump Accounts.”
At age 18, individuals could withdraw the money to put toward a down payment for a home, education or to start a small business. If the money is used for other purposes, it’ll be taxed at a higher rate.
Utah Republican Rep. Blake Moore led the effort to get the initiative into a massive House spending bill. He said the accounts would give young people a stake in Wall Street and could be an antidote to wealth inequality.
Moore said in an op-ed for the Washington Examiner, “If we can demonstrate to our next generation the benefits of investing and financial health, we can put them on a path toward prosperity,” Moore wrote in an op-ed for the Washington Examiner,
If passed, the bill would be available for families of all income levels, unlike other baby bond programs, which generally target disadvantaged groups.
But, at least one parent would be required to produce a Social Security number with work authorizations, meaning the U.S. citizen children born to some categories of immigrants would be excluded from the benefit.
Economist Darrik Hamilton who first pitched baby bonds 25 years ago said the GOP proposal would exacerbate rather than reduce wealth gaps.
Hamilton added that $1,000 — even with interest — would not be enough to make a significant difference for a child living in poverty.
While the investment would be symbolically meaningful, it’s a relatively small financial commitment to addressing child poverty in the wider $7 trillion federal budget. Assuming a 7% return, the $1,000 would grow to roughly $3,570 over 18 years.
