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Speaker 1: There's been a lot of talk about what the president's

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Speaker 1: calling Trump accounts. So I want to dive in with

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Speaker 1: you and explore how this new policy will affect you,

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Speaker 1: your family, and our economy. Here's the point. Babies get

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Speaker 1: a thousand bucks, they get a little steak in the

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Speaker 1: stock market, and over time, we're told the money grows

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Speaker 1: into something much bigger. That's one story. Here's the reality.

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Speaker 1: This is really two policies jammed together. One is a tiny,

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Speaker 1: temporary giveaway for babies and only those babies born in

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Speaker 1: the narrow window. The other is a brand new, permanent

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Speaker 1: tax break. Hey, there's a lot to unpack here, so

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Speaker 1: let's get into it. This is a story in five parts. First,

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Speaker 1: let's talk about the baby story that they're selling. Second,

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Speaker 1: I need you to know about the real story, which

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Speaker 1: is a tax break. Third, I want to dig into

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Speaker 1: who this helps. Spoiler it's well off families, and the

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Speaker 1: reality is that this will increase inequality. Fourth, you may

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Speaker 1: have seen some spectacally big numbers from the wide house.

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Speaker 1: You're going to be a lot better off if you

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Speaker 1: understand how those numbers are misleading. And Fifth, as you

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Speaker 1: think about rearranging your financial affairs, let's ask, is a

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Speaker 1: Trump account even the right account for you? Here's the

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Speaker 1: big picture. The baby story it's simple, it's popular, and

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Speaker 1: it's got some genuinely progressive roots. The tax story, it's

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Speaker 1: more more familiar. It's another wrinkle in the tax code,

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Speaker 1: another way for families who already have money to save

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Speaker 1: and do a little better, which means this policy, in fact,

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Speaker 1: is not about giving poor kids a leg up. Instead,

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Speaker 1: it's more likely to widen the gap between rich and poor.

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Speaker 1: So let's start with the bit the administration wants you

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Speaker 1: to notice. The White House says that babies can get

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Speaker 1: one thousand dollars from the government. They talk about the

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Speaker 1: magic of compound interests. They show you glassy future balances.

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Speaker 1: They wrap the whole thing and the language of opportunity

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Speaker 1: and ownership and getting a head start in life. Politically,

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Speaker 1: this is really clever, because the idea of handing a

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Speaker 1: child and asset at birth it's not crazy. In fact,

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Speaker 1: it's got a long and really pretty progressive history. There's

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Speaker 1: a whole tradition of what economists called child development accounts

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Speaker 1: or baby bonds. It's public money set aside for kids

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Speaker 1: so that where your parents start in life matters a

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Speaker 1: bit less for where you end up. That's the moral

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Speaker 1: idea underneath all of this. If wealth inequality starts early,

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Speaker 1: then maybe policy should start early too. And the progressive

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Speaker 1: versions of this idea, they're usually trying to do three things.

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Speaker 1: They want to make the contribution automatic, they usually make

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Speaker 1: it a whole lot bigger, and they try to steer

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Speaker 1: more of it towards the kids who start with less.

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Speaker 1: Said that, in that case, the policy actually does what

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Speaker 1: it says on the tin. Like take Senator Cory Booker,

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Speaker 1: He's got a baby bond proposal. It's started with a

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Speaker 1: public deposit of birth and then are piled on larger

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Speaker 1: annual public contributions for poorer kids. The whole point it

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Speaker 1: was to offset the unequal starting wealth, not just to

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Speaker 1: provide tax subsidies for the wealthy to pass on more

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Speaker 1: cash to their kids. Now, let's compare that with Trump accounts.

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Speaker 1: Trump accounts take that broad moral intuition and they shrink

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Speaker 1: it right down. They might even flip it on its head.

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Speaker 1: So what is the baby part exactly? Well, if a

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Speaker 1: baby's born between January one, twenty twenty five and December

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Speaker 1: thirty first, twenty twenty eight, they can get a one time,

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Speaker 1: one thousand dollars government contribution. If someone opens a Trump

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Speaker 1: account for them, that's it. One thousand bucks, one time,

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Speaker 1: and only if you're lucky enough to be born during

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Speaker 1: Trump's second term. So yeah, look, there really is a

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Speaker 1: baby bond sort of thing going on here. But mate,

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Speaker 1: this is baby bonds after they've been through the wash

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Speaker 1: too many times. It's the same idea, it's only smaller,

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Speaker 1: it's thinner, it's more faded. And then come January one,

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Speaker 1: twenty twenty nine, conveniently, just after the next presidential election.

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Speaker 1: I'm sure that was a coincidence, that baby bond, it

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Speaker 1: just vanishes all together. No other babies will ever get

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Speaker 1: a penny. So the part of this policy with a

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Speaker 1: progressive pedigree, that's the part that the administration made temporary,

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Speaker 1: small and disposable. Hey, there's one practical thing I need

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Speaker 1: you to know this program. It's not you have a baby,

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Speaker 1: you get money. You've got to claim it if your

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Speaker 1: kid's in the eligible birth window. So basically, if you

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Speaker 1: gave birth under the second President Trump, you need to

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Speaker 1: sign in through the IRS submit Form forty five forty seven.

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Speaker 1: That's not a joke. That's the form number, and then

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Speaker 1: grind through the account election and activation process, and at

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Speaker 1: the end, your baby will be one thousand dollars richer.

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Speaker 1: So let me say something plainly. If your kid was

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Speaker 1: born after January one, twenty twenty five, or you reckon

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Speaker 1: you might become a parent before the end of twenty

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Speaker 1: twenty eight, go and fill out that form. Your baby's

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Speaker 1: going to be one thousand dollars richer. I want the

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Speaker 1: best for you. I want the best for your baby.

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Speaker 1: But that plan it also gives away the priorities. The

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Speaker 1: headline grabbing, family friendly, populist part of this thing only

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Speaker 1: applies to four birth cohorts. It only hands over one

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Speaker 1: thousand dollars. It makes families do paperwork to get it,

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Speaker 1: and then it vanishes. So let's turn to the real policy.

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Speaker 1: This is a bit they're not talking much about. The

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Speaker 1: lasting part of the Trump accounts isn't the thousand dollars seed.

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Speaker 1: The lasting part is the account and the tax breaks

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Speaker 1: that people get for pouring their own money into it.

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Speaker 1: Any eligible child can have one of these accounts opened

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Speaker 1: before they turn eight. In these accounts will have tax advantages.

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Speaker 1: That bit's going to keep on keeping on. It'll be

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Speaker 1: there for future babies long after the next election. So

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Speaker 1: if you've got one of these accounts, then during childhood,

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Speaker 1: families can chip in up to five grand a year

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Speaker 1: if they've got it. Employers can also add up to

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Speaker 1: twenty five hundred bucks a year in a way that

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Speaker 1: doesn't count as taxable income to the employee, and that money,

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Speaker 1: of course, that does count towards that five thousand dollars cap. Look,

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Speaker 1: let me slow down here, because this is where the

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Speaker 1: economics really lives. Suppose that your employer hands you twenty

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Speaker 1: five hundred dollars in wages. Normally, that's going to show

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Speaker 1: up as income. That's going to go on your tax return.

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Speaker 1: You're gonna have to pay tax on it. Now. So

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Speaker 1: maybe your employee gives you twenty five hundred, but you

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Speaker 1: only get to keep fifteen hundred. But if instead the

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Speaker 1: employer drops that money into a Trump account for you

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Speaker 1: and your kid, the law says, we're not going to

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Speaker 1: count that as taxable income. Right now, your kid's account

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Speaker 1: it's going to get the full twenty five hundred bucks.

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Speaker 1: So this is what economists call a tax expenditure. It's

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Speaker 1: the government saying, rather than writing you a check will

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Speaker 1: help you out by collecting less tax, so the support

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Speaker 1: flows through the tax code instead of through direct spending.

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Speaker 1: But the effect and importantly the cost of the government

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Speaker 1: is the same as if the government had sent you

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Speaker 1: a check as a reward for saving for your kid.

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Speaker 1: And here's the thing. Because it's a cut and your

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Speaker 1: taxable income, it's worth more if you pay a higher

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Speaker 1: tax rate. So if you're in a higher tax bracket,

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Speaker 1: which is to say, it's like the government is making

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Speaker 1: an even bigger contribution to savings put away for the wealthy. Okay,

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Speaker 1: that's the employer contribution. And part of this, let's turn

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Speaker 1: back to the family contributions, because both family and employer

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Speaker 1: can contribute towards saving for the kid. On the family side,

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Speaker 1: the tax break is actually a whole lot weaker and

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Speaker 1: a little more complicated. So if a family puts in

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Speaker 1: its own money, there's no upfront deduction. Instead, the family

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Speaker 1: side benefit it's mostly this the money that you put in.

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Speaker 1: It's the money your employer gives you after tax. You

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Speaker 1: put it in and it can grow without annual tax

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Speaker 1: on the gains like dividends or interests that accrue while

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Speaker 1: it sits in the account. That then means that your

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Speaker 1: money or your kid's money can compound without having to

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Speaker 1: compete with a taxman taking his slice every year. But

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Speaker 1: you will or your kid will have to pay tax

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Speaker 1: at the end when they withdraw the money. This type

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Speaker 1: of tax break, it's called tax deferral. Right, you do

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Speaker 1: pay tax, you just defer it till after you've compounded it.

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Speaker 1: And tax deferral can help, but it's often not the

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Speaker 1: best deal. Look, I'll come back. I'll say more about

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Speaker 1: that in the moment. So the real policy here isn't

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Speaker 1: it is. It's not the government building wealth for children.

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Speaker 1: It's the government creating yet and now that tax favored

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Speaker 1: place to stash savings that you can give to your

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Speaker 1: kids if you've got the money to give them. And

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Speaker 1: that brings us to the question that really matters who

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Speaker 1: wins from this tax break. Look, I wish the families

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Speaker 1: that are struggling the most, but unfortunately that's not what

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Speaker 1: this is about. Those families. Well, hopefully they'll watch this

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Speaker 1: video and go grab the thousand bucks, but that'll be

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Speaker 1: the end of the story for them. Now, wealthier families,

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Speaker 1: they've got more money, they're more likely to be able

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Speaker 1: to add money every year. They're more likely to be

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Speaker 1: in the types of jobs where their employers are going

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Speaker 1: to offer employer contributions to this savings plan. And they'll

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Speaker 1: get real value out of the tax shelter because they're

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Speaker 1: actually paying federal income tax at pretty high rates, and

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Speaker 1: so that means that their benefit from dodging that tax

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Speaker 1: makes it all the more worthwhile. So that's the heart

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Speaker 1: of it, and once you see that, the logic falls

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Speaker 1: out pretty quickly. This policy isn't so much opportunity enhancing

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Speaker 1: as it is inequality exacerbating. It's more likely to lock

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Speaker 1: in that old American rule. It's the one we all deny,

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Speaker 1: but it returns to the reality of generation after generation.

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Speaker 1: The rule is that your parents' station in life helps

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Speaker 1: determine yours, and these accounts give them another way of

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Speaker 1: helping reinforce this inequality. So when politicians talk as if

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Speaker 1: this is going to give every child an equal start,

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Speaker 1: it's deeply, deeply misleading. Sure, the same account exists for everyone,

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Speaker 1: but the families with money, with higher tax brackets and

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Speaker 1: better jobs are going to walk away with a whole

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Speaker 1: lot more. And that brings us to the numbers let's

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Speaker 1: talk about those great, big, glossy numbers. And I want

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Speaker 1: to pause here because you can probably hear already from

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Speaker 1: my tone of voice. I'm not impressed by the government,

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Speaker 1: which has been floating some genuinely enormous figures. And so

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Speaker 1: what I want to do is square the circle for you,

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Speaker 1: so that you can understand what the government's saying, how

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Speaker 1: it got there, and what your reality might look like.

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Speaker 1: The White House put out a bunch of projections on

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Speaker 1: Trump accounts dot gov that show that kids with Trump

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Speaker 1: accounts might end up with huge balances because of this policy,

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Speaker 1: hundreds of thousands, possibly even millions of dollars. These claims,

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Speaker 1: they're ridiculous, they're dishonest, and they're misleading. Look, I can

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Speaker 1: say those things while still conceding the arithmetic is real,

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Speaker 1: but it's really in the narrowest possible sense. Those gigantic

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Speaker 1: balances that Trump Accounts dot gov is promising they lean

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Speaker 1: on three things that are wildly unrealistic for most families.

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Speaker 1: First of all, decades of private contributions. The big balance

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Speaker 1: that they say you're going to get at the end,

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Speaker 1: it's not from the government giving your baby a thousand bucks. No,

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Speaker 1: these are the results of simulations in which they assume

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Speaker 1: that you feed five thousand dollars in year after year

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Speaker 1: for eighteen year, the first eighteen years of your kid's life.

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Speaker 1: Oh and if you really track the footnotes on the

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Speaker 1: White House website, you'll figure out that not only do

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Speaker 1: they assume you're putting five thousand dollars every year for

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Speaker 1: the first eighteen years of your kid's life, they assume

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Speaker 1: your feed in another seven grand a year into an

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Speaker 1: IRA for the decade after that. So, look, the government

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Speaker 1: did open the Trump account with one thousand dollars balance.

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Speaker 1: But really, what's going on here is they're saying, if

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Speaker 1: you do a lot of saving, you'll have a lot

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Speaker 1: of money. Look, mate, you don't need much math to

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Speaker 1: figure that out. Second, they made some unbelievably rosy assumptions

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Speaker 1: about how the stock market will perform. Remember, these accounts

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Speaker 1: are going to be invested in stocks, and so they

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Speaker 1: assume incredibly strong stock market turns across long stretches of time.

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Speaker 1: Quite literally, this is not a joke. This is literally

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Speaker 1: the case. They're assuming that the highest ever recorded rates

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Speaker 1: of return will just conveniently happen to repeat themselves when

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Speaker 1: you invest in a Trump account. Thank you President. Hey,

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Speaker 1: look I get it, that could happen, I guess. But

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Speaker 1: this is a value saying. When I try to communicate

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Speaker 1: facts to people, I usually try to represent what's likely

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Speaker 1: to happen instead, and what's likely to happen is very,

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Speaker 1: very different. Third inflation. A dollar in thirty years sounds

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Speaker 1: like a dollar, but it's not. Inflation. Swollen future figures

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Speaker 1: look impressive in a press release or on a website,

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Speaker 1: but they turn out to be a whole lot less

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Speaker 1: impressive when you try to spend them at a grocery store.

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Speaker 1: If I tell you what something might be worth decades

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Speaker 1: from now in nominal dollars, I can make the number

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Speaker 1: look huge, even when it's actual purchasing powers a lot

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Speaker 1: less impressive. The honest way to talk about the future

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Speaker 1: is to take these numbers and adjust for changes in

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Speaker 1: the cost of living. That's not what the White House did,

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Speaker 1: and it makes a big difference. So overall the White House,

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Speaker 1: it's big, glossy numbers showing a best case wishful thinking

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Speaker 1: scenario in which families keep doing a whole lot of contributing,

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Speaker 1: markets repeat their record returns, and inflation does the rest.

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Speaker 1: And look, the point I want you to draw from

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Speaker 1: this is do your own math, because the White House

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Speaker 1: numbers are ridiculous. Okay, Finally, I want to address the

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Speaker 1: question is this even the right account for you? Yes,

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Speaker 1: a three thousand bucks is terrific, but what about the rest?

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Speaker 1: Should you be stashing money for your kid's future in

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Speaker 1: a Trump account? Here's the uncomfortable truth. The answer is

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Speaker 1: that for a lot of families, it's not going to

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Speaker 1: be the right choice. Remember when a family contributes to

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Speaker 1: their kids account, the main benefit is tax deferral. The

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Speaker 1: money grows without an annual tax on the gains. That helps,

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Speaker 1: but usually you've got better options. For a lot of families,

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Speaker 1: Trump accounts a less tax advantage than the alternative that

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Speaker 1: you already have. These new Trump accounts they just add

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Speaker 1: another layer of clatter to an already clartered tax and

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Speaker 1: saving system. So let's just talk through a couple of

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Speaker 1: the alternatives that I want you to look at instead. So,

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Speaker 1: if the goal is to fund your kid's education, a

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Speaker 1: five twenty nine is often better, first of all, and aside,

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Speaker 1: who the all names these things? A five twenty nine

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Speaker 1: as a way of saving for your kid's future Honestly,

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Speaker 1: that sounds like a high way to Maine, not a

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Speaker 1: savings plan. But the thing that's important about a five

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Speaker 1: twenty nine is when you pull money out for education,

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Speaker 1: it comes out tax free, not tax deferred like a

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Speaker 1: Trump account. Tax free. That usually makes it a better

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Speaker 1: savings vehicle. If your goal is retirement saving for a

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Speaker 1: kid who's got earned income, a wroth IRA is usually

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Speaker 1: the best option because the long run tax treatment is

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Speaker 1: usually more generous. Look, it's another reasonable savings plan with

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Speaker 1: just another terrible name. I know someone needs to go

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Speaker 1: through this, someone from marketing. If your goal's just flexibility,

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Speaker 1: then even just a plain old taxable brokerage or custodial

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Speaker 1: account can stack up surprisingly well because those are treated

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Speaker 1: as capital gains, and so you get a lower tax

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Speaker 1: rate than you would get on a Trump account withdrawal. Okay, look,

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Speaker 1: if all of that sounded like a lot of made

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Speaker 1: up words and financial mumbo jumbo, let me just come

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Speaker 1: back to the simpler advice. Do your homework talk with

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Speaker 1: a financial advisor, or here's a surprisingly cheap alternative, talk

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Speaker 1: with claude or chat GPT, which in this domain often

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Speaker 1: give better advice. And I say that having checked before

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Speaker 1: I give that advice. It's important you do this work.

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Speaker 1: Don't put it off. It really matters, and ten minutes

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Speaker 1: of research could well be worth thousands of dollars to

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Speaker 1: your kid. So go ahead and do it. Press pause

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Speaker 1: on the video if you need to. Doing your homework

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Speaker 1: here really pays. And it pays because the account that

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Speaker 1: the administration is hyping Trump accounts. They're not just over

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Speaker 1: solid for a lot of families, they're not even the

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Speaker 1: best tool in the draw. Okay, so where does this all?

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Speaker 1: I don't want to overstate the criticism. If you're eligible

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Speaker 1: for the thousand dollars, claim it free money is free money. Wait,

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Speaker 1: I'm an economist. It's not free to the rest of us,

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Speaker 1: but it's free to you. And I hope you get

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Speaker 1: the point. If some families use this as one more

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Speaker 1: savings tool, terrific. But let's not pretend that this is

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Speaker 1: some great equalizing reform. The baby bond bit, which could

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Speaker 1: be is small, temporary, and gone in twenty twenty nine.

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Speaker 1: The lasting bit, the bigger bit, is another tax favored account,

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Speaker 1: one whose main benefits flow to people with money to save,

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Speaker 1: employers willing to contribute, and tax rates high enough that

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Speaker 1: dodging taxes as a big payoff. That's not any sort

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Speaker 1: of anti inequality policy. If you actually wanted to shrink

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Speaker 1: unequal starting wealth, you'd make the public contribution big, are permanent,

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Speaker 1: and better targeted at the kids who need it. If instead,

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Speaker 1: what you want to do is hand already comfortable families

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Speaker 1: one more tax favored shelf for their savings, it build

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Speaker 1: something that looks a lot like this. And if you

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Speaker 1: wanted to take that second thing and dress it up

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Speaker 1: to make it politically palatable, well you'd name it after

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Speaker 1: a baby. And that mate is the real economics lesson here.

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Speaker 1: Not every policy with a smiling baby on the label

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Speaker 1: is about equal opportunity. Sometimes it's just a temporary populist

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Speaker 1: giveaway stitched onto a permanent tax break for those who

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Speaker 1: need at least