'Trump Accounts' included in the tax and spending cut bill would be available to U.S. citizens born between 2025 and 2028, and whose parent, or parents, if legally married, already have Social Security numbers. (Getty Images)

WASHINGTON — Tucked in the “one big beautiful bill” is a proposal for tax-advantaged “Trump Accounts,” each seeded with $1,000 from the government for certain babies born in the United States over the next few years.

But financial experts and advocates for low-income children are not overly impressed.

The idea is not new and has been likened to other “baby bonds” programs aimed at reducing the growing wealth gap, like state-run trust funds in California and Connecticut. Democrats in Congress have introduced a bill to create a similar federal program. 

The White House has touted the proposal in the tax and spending cut measure as “pro-family” and one that “will afford a generation of children the chance to experience the miracle of compounded growth.”

At a June 9 event to promote the “Trump Accounts” featuring CEOs of top American companies, President Donald Trump promised the pilot program will make it possible for “countless American children to have a strong start in life at no cost to the American taxpayer.”

Speaking at the same event, top House Republican tax writer Rep. Jason Smith of Missouri said “every child born under this policy will have a better shot at a future. It does not matter if they live on a city block or on a county road, this will make a significant difference to their lives.”

Critics say the accounts, as proposed, would mostly benefit children born to wealthier families.

They also say the restricted-access accounts, and the one-time government contribution of $1,000, will not help in the face of cuts to food and health programs for low-income people written into the massive budget reconciliation bill, titled the “One Big Beautiful Bill Act.”

How ‘Trump Accounts’ would work

The investment savings accounts would be available to U.S. citizens born between 2025 and 2028, and whose parent, or parents, if legally married, already have Social Security numbers.

Each year, from a child’s birth to age 18, family and friends, parents’ employers, churches and other private foundations, could contribute up to a combined $5,000 annually to the investment account that will track a stock index and gain interest accordingly.

Deposits into the account are taxed. Later on, withdrawals would be subject to the long-term capital gains tax — a tax on the profit made from selling an asset, or investment, that a person has held for longer than a year.

After reaching 18, the account beneficiary could access half the account’s value only for qualified expenses that include higher education, vocational training, the purchase of a first home, and costs associated with an enterprise for which the beneficiary has received a small business loan or small farm loan.

The beneficiary could access the remaining half of the account after age 25. At age 31, the account loses its status as a “Trump Account” and any remaining balance is taxed as income.

Drawbacks seen

The Urban Institute warns that the proposed structure of the account will mostly benefit wealthy families who already have the resources to grow the funds.

The bottom 80% of households, by income, only hold half as much cash on hand as the top 20% of households, according to the left-leaning think tank’s nationwide financial health data.

Additionally, because of penalties for early withdrawals, lower-income families would be incentivized to save in less restrictive accounts, according to the think tank’s May 27 analysis.

The institute recommends the government provide more contributions based on income level, beyond just the one-time $1,000, and lessen the penalties for accessing cash for catastrophic events.

A 2023 Democratic legislative proposal put forth by Sen. Cory Booker of New Jersey and Rep. Ayanna Pressley of Massachusetts aimed to create an account that would target the benefit to children from lower-income households.

Their plan suggests accounts be initially seeded with $1,000, and then children would receive up to an additional $2,000 annually based on their family’s income level.

According to Booker’s and Pressley’s plan, a child from a family of four that brings in less than $25,100 in annual income would have an estimated $46,200 in investment savings by the time they turn 18.

Under the Trump Account proposal, a child’s one-time $1,000 deposit from the government would grow to roughly $5,000 by age 18 if no other contributions were ever made, according to the Urban Institute.

Child tax credits

Brendan Duke, senior director for federal fiscal policy at the left-leaning Center on Budget and Policy Priorities, said the GOP proposal “wasn’t particularly well thought through.”

“It’s this question of whether it makes more sense to give every family $1,000 that they can’t access in those really important years, or whether you should have expanded the child tax credit,” Duke said.

Duke criticized lawmakers’ proposals that do not expand the child tax credit to the lowest-income families in the massive GOP budget reconciliation package.

While the House version temporarily expands the credit to $2,500 per child, up from $2,000, and the Senate version permanently expands the credit by a more modest amount of $2,200, neither version expands income or refundability parameters that would benefit the poorest families.

The CBPP estimates that 17 million children are left out of the credit because of the restrictions.

Existing savings vehicles

Another criticism of the Trump Accounts is that they provide a redundant option among the several existing tax-preferred savings vehicles for Americans, including 529 education investment savings accounts, Roth and Traditional IRAs and Health Savings Accounts.

The Tax Foundation’s Alex Muresianu said the account is “a move toward complexity rather than simplification.”

“We already have plenty of savings accounts with specific purposes, and a lot of different strings attached,” said Muresianu, senior policy analyst with the right-leaning foundation.

“We don’t really need another targeted account for a specific purpose, rather than a more easily accessible account with fewer conditions.”

A measure passed by the U.S. House Ways and Means Committee allows individual taxpayers such as waiters and waitresses to deduct qualifying tips earned throughout the year, a tax break that would end in 2028. (Getty Photos)

WASHINGTON — House Republicans advanced the tax portion of the “one big, beautiful” reconciliation package early Wednesday, a step forward in permanently extending, and in some cases expanding, the 2017 tax law and temporarily handing President Donald Trump a win on campaign promises like no tax on tips.

The House Committee on Ways and Means voted along party lines to pass the measure, 26-19, after nearly 18 hours of debate that went through the night. Republicans rejected numerous amendments offered by Democrats, including protecting tax credits meant to combat climate change enacted under Democrats’ own 2022 budget reconciliation law, the Inflation Reduction Act.

The marathon debate occurred as the House Committee on Energy and Commerce debated overnight and into Wednesday afternoon over deep budget cuts, including some to Medicaid assistance for low-income individuals, to pay for the cost of tax provisions.

As of now, the massive tax package is estimated to add $3.8 trillion to the budget deficit over 10 years, according to the nonpartisan Committee for a Responsible Federal Budget.

If any temporary expansions in the bill are eventually made permanent, it would add roughly $5.3 trillion to the deficit over the next decade, according to the CRFB. The official congressional budget score has not yet been released.

Overall the bill is “a very, very big tax cut,” said Howard Gleckman, senior fellow at the Tax Policy Center, part of the left-leaning Brookings Institution and Urban Institute. “Much of the benefit will go to higher income people.”

Tax brackets, business breaks would continue

The bill permanently extends the underlying tax provisions passed in 2017 under the GOP-backed bill titled the Tax Cuts and Jobs Act, which is set to expire in 2025.

This means:

• Individual taxpayers would remain in the same tax brackets that were lowered in 2017, and they would continue to see the doubled standard deduction — two of the most costly measures. Additionally, taxpayers will receive a boost up to $2,000 on the standard deduction through 2028.
• Individual brackets would remain at 10%, 12%, 22%, 24%, 32%, 35% and 37%, though the proposal would change how inflation adjustments are calculated, meaning income would be taxed less over time, except for those in the 37% bracket.
• The $2,000 child tax credit, per child, would remain permanent but temporarily increase to $2,500 through 2028. The refundable portion of the credit — meaning how much money taxpayers can get back — would be increased to $1,400, but the amount remains subject to income thresholds, meaning lower income households would receive less of a refund.
• The child tax credit would now only be accessible if the parent submits a Social Security number, as well as a spouse’s if legally married, in addition to the already required Social Security number of each qualifying child.
• On the business side, the corporate tax rate would stay at 21%.
• Business owners who run sole proprietorships, partnerships and S-corporations would see an increase, to 23% up from 20%, in the amount of business income they can deduct from their federal returns, otherwise referred to as the pass-through income deduction.
• Expensing for research and development would be restored through 2029, as well as deductions available to businesses for certain investments, including equipment purchases.

No tax on tips, but only for a few years

Trump promised on the campaign trail to eliminate taxes on tips, Social Security and car loan interest. House Republicans handed him a win in their bill, but only a limited one.

The bill allows individual taxpayers to deduct qualifying tips earned throughout the year, a tax break that would end in 2028. And like the new child tax credit requirement, taxpayers could only take advantage of the deduction by including a Social Security number on their federal tax return as well as their spouse’s SSN, if married.

No taxes on car loan interest would also go into effect through 2028, though taxpayers could only claim it for automobiles that received final assembly in the United States.

Senior citizens with incomes of $75,000 or less, or $150,000 for a married couple, would receive an extra $4,000 discount on taxable income, with the amount decreasing as incomes increase. The tax break would also expire in 2028. The bill does not specify an age for “seniors.”

Highly taxed states still unhappy 

House Republicans raised the cap on the amount of state and local taxes, or SALT, that can be deducted, but not enough to please both GOP and Democratic lawmakers who represent highly taxed states like New York and California.

Under the bill the committee advanced Wednesday morning, taxpayers could deduct up to $30,000 — three times the $10,000 ceiling in the 2017 law — from their federal taxable income. The full cap would apply to those making $400,000 or less in annual income but phases down for higher earners.

Raising the cap is costly and unpopular with lawmakers representing lower tax states.

Republican Reps. Mike Lawler and Nick LaLota of New York, and Rep. Young Kim of California, are threatening to vote no on the House floor if the cap isn’t raised. The House GOP cannot lose more than a handful of votes if all Republicans are present.

House Speaker Mike Johnson of Louisiana told reporters Wednesday he didn’t want to “handicap” negotiations by sharing details publicly and that he was talking to the SALT caucus until 1:30 a.m.

“But I will tell you I’m absolutely confident we’re going to be able to work out a compromise that everybody can live with,” he said.

A ‘tragic indifference’ for poor families

The committee’s party-line approval of the bill drew praise and criticism across organizations representing varying interests of Americans.

Kris Cox, director of federal tax policy for the left-leaning Center on Budget and Policy Priorities, wrote on social media that the temporary child tax credit bump does “zilch” for the roughly 17 million children whose parents do not earn enough money to receive a refund check from the credit.

“But it delivers an additional $500-per-kid to higher-income families,” Cox wrote.

The organization also slammed the bill for going “out of its way to take eligibility from 4.5 million US citizen kids who have at least one parent without an SSN.”

Kristen Crowell, executive director of the advocacy group Fair Share America, said in a statement Wednesday that the bill “shows a tragic indifference to the very real struggles of normal, working people.

“In order to save face in front of their constituents, Republicans are hiding behind misleading claims that everyone will see reductions in their taxes,” Crowell said.

The Natural Resources Defense Council, an environmental protection advocacy organization, estimates that phasing out and altogether eliminating clean energy tax credits would result in higher electricity bills in several states, including Ohio and Pennsylvania, according to an emailed statement.

‘Unshackle the economy’ for businesses

Groups representing businesses across the U.S. praised the House bill as a way to bolster investment and growth opportunities.

Former Republican Ways and Means Chair Kevin Brady of Texas released a statement Wednesday on behalf of the Alliance for Competitive Taxation praising the bill as a path to “unshackle the economy from burdensome taxes and unlock new growth.”

“The bill reported out by the House Ways and Means Committee is an encouraging step in that direction and, if implemented with its major pro-growth proposals intact, will help American businesses and workers compete at home and abroad,” Brady said.

The alliance hailed the extension of the 21% corporate tax rate and urged lawmakers to make permanent the research and development expensing, and capital investment deductions.

Kristen Silverberg, president and chief operating officer of the Business Roundtable, said her organization “applauds Chairman Smith and members of the House Ways and Means Committee for advancing a comprehensive, pro-growth tax bill,” referring to GOP Rep. Jason Smith of Missouri.

“Today’s vote is a critical step forward in securing a more competitive tax system for American businesses and workers,” said Silverberg, whose organization represents 200 CEOs of U.S.-based companies.