Economist Darrick Hamilton’s work shows publicly funded savings accounts for children could reduce income inequality over time. But he said the $1,000 accounts for babies that Congress approved this month were poorly designed and will benefit the wealthy. (Photo by Brandon Bell/Getty Images)
With fertility rates declining in the United States, Republicans backed a policy tucked inside the megabill President Donald Trump signed earlier this month that they say will help save for children’s futures.
The $1,000 investment accounts established by the government have some passing similarities to baby bonds, a concept proposed by economist Darrick Hamilton more than 15 years ago as a way to reduce income inequality.
But Hamilton told States Newsroom the design of these so-called Trump accounts, which hinge on contributions from a child’s relatives instead of the government, will benefit those who come from wealthier families that have more money to chip in.
“They’re subsidizing the transmission of intergenerational wealth for those that already have wealth in the first place,” he said.
Money plays a significant role in deciding whether to grow a family, according to a United Nations Population Fund report on falling fertility rates released in June.
Fifty-three percent of Americans surveyed said the ideal number of children to raise is two, but 38% said financial limitations led them to have fewer children than they initially wanted. Unemployment or job insecurity, housing limitations and lack of sufficient child care options — also financial factors — rounded out the list.
Policies restricting abortion play a role, too. Some young Americans have sought voluntary sterilizations or delayed having children, citing how pregnancy care has been diminished by the U.S. Supreme Court decision that overturned federal abortion rights.
The U.S. fertility rate reached a historic low: 54.4 births per 1,000 women of reproductive age in 2023, down 3% from the previous year, according to the latest data from the Centers for Disease Control and Prevention.
The GOP that’s branded itself “pro-family” has voiced concerns about fewer people having children in the United States.
A provision included in the tax break and spending cut bill Trump signed into law on July 4 establishes $1,000 savings accounts for babies born between 2025 and 2028.
Parents, other relatives and friends can contribute up to $5,000 annually, and employers can add up to $2,500 yearly for an employee’s dependent. The Treasury Department will roll out the accounts, which have several tax rules, next year.
Initially, lawmakers included caveats in the policy that said people could only use half of the money for education, home ownership or entrepreneurship when they turn 18, but the final version Trump signed is less restrictive when the account holder reaches adulthood.
Before the bill passed, conservative and liberal tax experts told States Newsroom’s D.C. Bureau that the proposal favors the wealthy and contains so many rules that a 529 savings plan — tax-free accounts that must be used for college expenses — would be a better option for parents saving for their child’s future.
Democrats have pitched their version of these accounts since 2019. The American Opportunity Accounts Act, introduced by New Jersey Sen. Cory Booker and Massachusetts Rep. Ayanna Pressley, would create savings accounts for babies. The legislation was introduced in recent sessions but never gained momentum.
One key difference: Trump accounts rely on individual contributions, while in Booker and Pressley’s proposal, the federal government would contribute up to $2,000 yearly depending on the family’s income. A child born to a family with low income could have a decent-sized launchpad of cash at age 18.
Booker and Pressley’s initiative would be considered baby bonds, according to Hamilton, a professor at The New School and founder of the Institute on Race, Power and Political Economy.
Hamilton has been writing about how baby bonds could reduce the widening wealth gap since 2010. Since then, several states and cities have enacted baby bonds programs.
He said baby bonds stemmed from “understanding the role of assets in poverty” and studying the work of economists focused on income inequality, the racial wealth gap and how they manifest generationally.
Hamilton’s personal experience shaped his scholarship, too: He grew up in the Bed-Stuy neighborhood of Brooklyn, New York, where he said he was exposed to networks of wealth and poverty. He learned that economic mobility is not about motivations, attitudes or astuteness, but access.
“Individuals from one set of environments will grow into families that can provide a foundation in terms of capital to allow them to get into an asset like a home, like higher education without debt or some capital to start a business,” Hamilton said. “Other individuals will not have access to those things.”
States Newsroom spoke to Hamilton about state baby bonds programs, the pros and cons of Trump accounts, and how investing in children’s futures is connected to reproductive justice.
The following interview has been edited and condensed.
States Newsroom: Baby bond programs have been piloted in 10 places total, including California, Connecticut, Washington, D.C, and most recently Rhode Island. What aspects of the state policies are working?
Darrick Hamilton: The thing that is percolating is the political momentum, as well as a better understanding of the role of the state as it relates to engaging with families, particularly low-income families, one of investment. Narratives are changing, and resources are being invested in children for which we’ll see the full rewards once the children are of age to receive the accounts.
SN: Is there anything that could be improved in the places where baby bond programs have been piloted so far? For instance, I know the latest D.C. mayoral budget hasn’t necessarily given funding to the baby bonds program there.
DH: Yes, so there are several places for which there’s been legislative movement, but one needs executive movement as well. As exemplified in Washington, D.C., the municipal legislator made clear what their priority was in terms of passing the law, but the mayor has yet to offer the resources to yield the accounts. That’s a problem.
Big shout out to Connecticut, for instance, and in particular, (former) Treasurer (Shawn) Wooden and Treasurer (Erick) Russell for not only ensuring that the legislation passed, but being diligent in both economically and politically generating the funds — politically building up momentum and movement to command it from the executive branch, and then economically having the wherewithal and the astuteness to be able to best find within the state budget how to fund the accounts.
But the big point is at the end of the day, it is the federal government that really has the capacity to fully fund this in the way that it should be funded.
SN: The tax break and spending cut bill approved by Congress earlier this month includes a provision that sets up $1,000 savings accounts for babies born between 2025 and 2028, and lets them use the money, whatever that may end up being, when they turn 18. What’s your take on these so-called Trump accounts?
DH: Well, they co-opted a good idea in both rhetoric and design. The regressive design is essentially tax shelters akin to the 529 college and education savings plans that will lead to further inequities. The problem of wealth inequality in America is largely one of endowment and capital, rather than the behavior of active savings, so they’re going to further facilitate the capacities of those people that have resources in the first place.
The legislation as is doesn’t address the benefit cliff. A $1,000 seed growing over time would render individuals perhaps ineligible for some of the social safety net programs. That’s a regressive design that I don’t know if they even did it intentionally.
The $1,000 seed in and of itself is not bad. However, if you add on the regressive component, that’s going to grow inequality rather than reduce inequality. And a $1,000 seed, even if compounding over time with interest, is not going to be nearly enough to achieve the goal of the program, which is to allow individuals who otherwise would not have access to something like a home and education without debt, or to be able to start a business.
SN: The Democratic-backed American Opportunity Accounts Act would create $1,000 savings accounts the federal government would add money to annually, depending on the family’s income. How would this proposal affect economic inequality?
DH: I’d say two things. One is the progressive design — it will have an impact on reducing inequality. So it facilitates those that will have the least resources to actually have enough to get into an asset that will appreciate over their lives. It facilitates the capability of wealth-building in a progressive way, in an inclusive way, which is the opposite of what the Trump accounts do. The second part is it will have the added benefit of redressing the racial wealth gap, because if we look at the dimension by which Blacks and whites are most disparate, it’s wealth.
SN: Do baby bonds, in your view, have a connection to reproductive justice?
DH: You can’t isolate these so-called Trump accounts from the larger reconciliation bill that passed in the first place. What they’re investing is trivial compared to the ways in which they’re structuring inequality writ large with the tax code for the wealthy. This is a rhetorical distraction that’s aimed at trying to appear populist, especially when they’re cutting Medicaid, SNAP and other investments that go toward low-income individuals. So that’s thing one. We’d be naive to ignore the political context in which this comes up.
The second part is, again, with the larger package that they’re putting forth. This is almost trying to manage the demography, and if they’re not saying it out loud, they certainly are saying it implicitly. With policies aimed at trying to promote additional births, the subtext is which women are they trying to incentivize to have children or not.
In contrast, what baby bonds do is they invest in the fertility decisions of our people. A good way to promote fertility and family formation is to trust the American people, to ensure that there’s resources directed at them in fair and just ways, and allow them to make fertility decisions for themselves. In other words, part of our humanity should be able to reproduce, to be able to form family formations in ways in which we identify. We need a role of government to facilitate these decisions in ways that are just and inclusive.
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