(NEXSTAR) – During a roundtable meeting on Monday, President Trump spoke about the introduction of “Trump Accounts” with a group of lawmakers and business leaders, which included the CEOs from Dell, Uber, and Goldman Sachs, among others.
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“This is an initiative that supports families by enabling millions of Americans to utilize our strong economy for the benefit of the next generation,” Trump stated during the gathering. “They’ll truly gain a substantial head start in life, especially if financial conditions and the economy work in our favor.”
The initiative, which is part of Trump’s “big, beautiful bill,” proposes setting up tax-deferred investment accounts for newborns, with an initial contribution of $1,000 per child. When the child turns 18, they could withdraw funds to assist with costs for a home down payment, education, or starting a small business. Should the money be used for other purposes, it will incur higher taxation.
Dell CEO Michael Dell called the proposed accounts a “simple yet powerful way to transform lives” Monday.
Dell and the other assembled CEOs were expected to earmark billions of dollars to be invested in the Trump Accounts for their employees’ children.
“Decades of research has shown that giving children a financial head start profoundly impacts their long-term success,” Dell said, according to the White House. “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.”
How do the accounts work?
In order to qualify for one of the accounts, the child must have at least one parent with a Social Security number with work authorizations, meaning that some babies born in the U.S. to immigrant parents might not qualify.
The money will be invested in an index fund where it will grow until the child reaches 18 and can withdraw funds to buy a home, pay for education or start a small business. Money spent on other things would be taxed at a higher rate.
Families, guardians and private entities will be able to deposit up to $5,000 more per year.
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.
It builds on the concept of “baby bonds,” which two states — California and Connecticut — and the District of Columbia have introduced as a way to reduce gaps between wealthy people and poor people.
What do the experts think?
Economist Darrick Hamilton of The New School, who first pitched the idea of baby bonds a quarter-century ago, said the GOP proposal would exacerbate rather than reduce wealth gaps. When he dreamed up baby bonds, he envisioned a program that would be universal but would give children from poor families a larger endowment than their wealthier peers, in an attempt to level the playing field. The money would be handled by the government, not by private firms on Wall Street.
“It is upside down,” Hamilton said. “It’s going to enhance inequality.”
Hamilton added that $1,000 — even with interest — would not be enough to make a significant difference for a child living in poverty.
A Silicon Valley investor who created the blueprint for the proposal, Brad Gerstner, said in an interview with CNBC last year that the accounts could help address the wealth gap and the loss of faith in capitalism that represent an existential crisis for the U.S.
“The rise and fall of nations occurs when you have a wealth gap that grows, when you have people who lose faith in the system,” Gerstner said. “We’re not agentless. We can do something.”
The Associated Press contributed to this report.
