President Trump has proposed "Trump accounts" to be giving to newborns to invest in.

 

President Donald Trump. AP. 

President Trump and Republicans in congress have proposed "Trump accounts" which would give every newborn $1000 to invest and redeem when they are 18. AP. The $1000 would be given to children born in the next four years. The money could be used for education, a down payment on a home or to start a small business. It would be taxed at a higher rater if used for any other purpose. Assuming 7% growth, the recipients would average around $3570 when withdrawn. Unlike similar programs in California, Connecticut and Washington DC, the program would not be means tested and anyone would be eligible as long as they had at least one parent with a Social Security number (meaning children of illegal aliens would not be approved). Critics say it would not do enough to end poverty for young people. 

My Comment:

This proposal is part of Trump's "Big Beautiful Bill" which is currently stalled in the Senate, largely due to fiscal hawks being opposed to things like this. The bill will be modified and I would think that this would be one of the first things to go. I can't see someone like Rand Paul supporting this despite the fact that it would be popular, because it would likely add to the deficit. 

About 3.6 million people are born in the United States a year and over four years 14.6 million would be born. If my math is right it would be about $14 billion for a total cost, assuming that not everyone would qualify. That's not chump change but it is also a rounding error for the federal budget and if the goal of the Senate version is to reduce the deficit, it's prime to be cut. 

It's not at all clear if this part of the bill will survive the Senate but if it does would it be worth it? I do think it would help people. It would depend on how well the stock market went over the next 18 years but I know if I had gotten $3570 right at 18 it would have been absolutely welcome. It would have been great and a real help for me as I was starting out as an adult. 

What I think would happen though is that the vast majority of people would probably spend the money irresponsibly. Folks would be fine with taking both the tax hit and the 10% penalty if it meant they could spend it on anything they wanted. I know I probably would have used it towards a new car, which isn't an approved use. 

Some folks would use it for schooling or to start a new business but I can't imagine anyone using the money to buy a house, simply because it's not anywhere near enough money to buy property outside of the most remote and dilapidated regions in the United States. I think a lot of folks would use it for college though, which would help reduce costs and the amount of money that folks would have to lend. 

The other problem is that these aren't bonds, they are investments. If the market crashes they could lose money, and there is certainly a chance that could happen. How likely is that? I am not sure. But if the market does go badly, it could be rather pointless. Though it would still be essentially free money, but instead of being $3570 it could be less than $1000. 

I do think this is a good idea and I would support it, but I can't see it actually happening. The fiscal hawks are circling and though this is a good idea, it's not free and they are absolutely looking for cuts. It's also something that has no immediate benefit to anyone and does have a cost associated with it. I'd like to see it happen, but I am also not holding my breath.