Economist warns Trump Accounts could widen wealth gaps

The federal government launched Trump Accounts on July 4 as a tax-based savings program for children, giving eligible newborns a $1,000 investment account. Economist Darrick Hamilton argues the structure could widen wealth gaps because the largest gains would likely flow to families with money to add to the accounts.

The program covers children born in the United States from Jan. 1, 2026, through Dec. 31, 2028, according to Hamilton, a New School professor and founding director of the Institute on Race, Power and Political Economy. Families, employers and philanthropies can contribute as much as $5,000 a year until a child turns 18, with investment gains growing tax-free.

Hamilton wrote in Fortune that the initial federal deposit is less important than the contributions that follow. He said the accounts function as financial multipliers, compounding the resources families already have rather than creating equal wealth-building capacity across households.

529 plans offer a warning, Hamilton says

Hamilton said researchers at the New School institute examined 15 years of Survey of Consumer Finances data on 529 college savings plans, which also use tax benefits to encourage long-term investment for children. He said those plans show how contribution-based savings programs tend to skew toward higher-income families.

Among lower-income families with young children, fewer than 1% have a 529 account, according to Hamilton. Nearly three in 10 of the highest-income families do, and more than three-quarters of all money in 529 accounts is held by the wealthiest 10%, he said.

Hamilton argues that Trump Accounts could repeat that pattern because households facing high costs for rent, groceries, child care and health care may not have spare cash to invest. A family that can contribute several thousand dollars every year for 18 years would accumulate far more than a family that relies mainly on the government’s $1,000 deposit.

Using 529 contribution patterns to model Trump Accounts, Hamilton’s research team projected that a typical account seeded with $1,000 and receiving no substantial outside contributions would be worth about $4,000 when the child reaches adulthood. He described that outcome as limited, particularly if modest balances affect eligibility for means-tested programs such as housing assistance, food assistance, child care subsidies or Medicaid.

Baby Bonds proposed as an alternative

Hamilton contrasts Trump Accounts with Baby Bonds, publicly funded investment accounts that would give larger endowments to children born into families with fewer assets and smaller endowments to those born into wealthier households. He argues that such a design would better address unequal starting points.

He cited research by public health scholar Naomi Zewde projecting that a well-funded Baby Bonds program could nearly eliminate the racial wealth gap among participating cohorts within about a generation and a half while increasing wealth more broadly.

Hamilton said Trump Accounts deserve credit for recognizing that assets matter. But he argues that extending a tax-preferred savings model is unlikely to create broadly shared wealth if the benefits depend heavily on private contributions.

He placed Baby Bonds in a longer U.S. history of public asset-building efforts, including the Homestead Act and the G.I. Bill. Hamilton noted that those programs expanded ownership for some Americans while excluding many others, including Native people affected by dispossession and Black veterans denied equal access under Jim Crow administration.

This story draws on original reporting from Fortune.