Economist Darrick Hamilton emphasizes that publicly funded savings accounts for children could significantly lessen income inequality over time. However, he criticizes the $1,000 baby account recently approved by Congress, calling it poorly structured and more favorable to affluent families.
With infertility rates declining in the U.S., Republicans back this initiative recently signed into law by President Donald Trump, who believes it will protect children’s futures.
The concept of a government-funded $1,000 investment account, proposed by Hamilton over 15 years ago, resembles baby bonds aimed at reducing income disparities.
However, Hamilton pointed out to a state newsroom that the design of these “Trump accounts,” which rely on contributions from children’s relatives rather than direct government support, primarily benefits those from wealthier backgrounds who can afford to contribute more.
“They’re essentially subsidizing the transfer of wealth among those who are already affluent,” he stated.
The United Nations Population Fund reports that finances play a critical role in family planning. A survey indicated that 53% of Americans believe the ideal number of kids is two, while 38% feel financial constraints have led them to have fewer children than they desired. Factors like unemployment, housing costs, and a lack of childcare options were significant contributors to these decisions.
Moreover, restrictions on abortion also have an impact, with some young Americans citing delays in having children due to reduced pregnancy care following the Supreme Court’s ruling that overturned federal abortion rights.
The U.S. fertility rate was recorded at 54.4 births per 1,000 women of reproductive age in 2023, marking a 3% drop from the prior year, according to the Centers for Disease Control and Prevention.
Concerns have been raised by the GOP, branding themselves as “ProFamily,” as they note the declining birth rates in the country.
The legislation includes provisions from the Tax Credits and Spending Reduction Bill signed by Trump on July 4, which establishes a $1,000 savings account for children born between 2025 and 2028.
Parents, relatives, and friends can contribute up to $5,000 annually, while employers can add up to $2,500 for employee dependents, with the Treasury set to manage this account with specific tax guidelines next year.
Originally, lawmakers planned to limit the use of funds when account holders turned 18 to education, home ownership, or entrepreneurship, but the final version signed by Trump places tighter restrictions on their use as adults.
Prior to the bill’s passage, tax experts from both conservative and liberal perspectives voiced concerns that the proposal favored wealthier individuals and involved numerous regulations akin to the 529 Savings Plan, which offers tax-free accounts for educational expenses—arguably a superior option for saving for children’s futures.
Since 2019, Democrats have supported concepts for these types of accounts. The America’s Opportunity Account Law, introduced by Senators Cory Booker and Ayanna Pressley, aimed to establish a baby savings account. While this proposal was presented in a recent session, it did not gain traction.
A key distinction is that Trump’s accounts depend on individual contributions, while the Democratic proposal suggests federal contributions of up to $2,000 annually, based on family income. Children from low-income families could thus have a more substantial financial foundation by age 18.
Hamilton, who is also a professor and a founder at the Institute for Race, Power, Politics, and Economics, notes that Booker and Pressley’s plan aligns more closely with the baby bond concept. His research indicates that implementing such bonds since 2010 could aid in addressing the widening wealth gap, and several states and cities have already initiated baby bond programs.
Hamilton’s own background, having grown up in Brooklyn, has influenced his understanding of wealth and poverty. He believes economic mobility is less about personal attributes like motivation and more about access to resources.
“Individuals from certain backgrounds can provide their families with a solid foundation, including capital for housing or debt-free education,” he explained. “Others don’t have those opportunities.”
In an interview with the state newsroom, Hamilton discussed the current baby bond program, weighing the merits and drawbacks of the Trump accounts, and the connection between investing in children’s futures and reproductive justice.
In terms of the baby bond program, which is in operation across ten locations—including California, Connecticut, Washington D.C., and Rhode Island—he noted an increased understanding of the political dynamics at play and the importance of resources being invested in children, particularly from low-income families.
Though local governments, particularly in places like Washington, D.C., have expressed clear legislative goals, Hamilton pointed out that executive actions, like funding, are also necessary for these initiatives to succeed.
“At the end of the day, it’s the federal government that really holds the key to proper funding,” he emphasized.
Hamilton remarked that while the recent legislation introduces some beneficial concepts, its design resembles a tax shelter that may exacerbate wealth inequality. He expressed concerns that the $1,000 starting funds may inadvertently lead to issues for recipients regarding social safety net programs.
“While the $1,000 foundations are not inherently negative, the regression within the design may increase inequality rather than alleviate it,” he noted, adding that these funds would likely be inadequate for achieving the desired outcomes like home ownership or education.
On the other hand, he articulated that the Democratic-backed American Opportunity Account Act offers a more progressive approach, as it could help reduce inequality and address the racial wealth gap by ensuring resources reach those in need.
Addressing the potential relationship between baby bonds and reproductive justice, Hamilton indicated that the new accounts cannot be viewed in isolation from broader fiscal policies geared toward the wealthy, pointing out that this approach might be more of a rhetorical strategy to appear populist.
He maintained that a more effective way to promote family formation would be to invest in the fertility decisions of Americans by providing equitable resources, allowing individuals to make their own choices regarding family planning.
