Last July 4th, a new type of savings account was launched. Called Trump Accounts, they are part of the President’s Big Beautiful Bill, and they have three parts. (1) The government will put money into an account for new babies; (2) employers can contribute to these accounts; and (3), parents can contribute to their child’s account. Each part has different flaws. Also, problems plague the entire program.

Part 1 has drawn the most media attention. It provides a one-time payment of $1,000 if parents open a Trump Account for their new child. It is available only to children born between January 1, 2025 and December 31, 2028, and funds must be invested in low-cost stock funds that fluctuate with the S&P 500.

This money, plus any additions, cannot be touched until the child turns 18, at which time the child controls the account and it becomes a traditional IRA—with all withdrawals taxed as regular income. Money taken out for reasons other than paying for college, starting a business, or buying a home incur a 10% tax penalty until age 59-and-a-half.

The Trump Account homepage proclaims that the $1,000 payment will become $6,000 in 18 years. This result assumes that money in the account grows 10%-11% annually, the average S&P 500 gain over the past 20 years. Making the same assumption, account balances reach $243,000 by age 55, and $1 million by age 55 if people add a bit more than $250 annually to the initial $1,000 government deposit.

While this sounds good, it is actually deceptive advertising.

Due to inflation, $6,000 will be worth less in 18 years than today. With 3% inflation (the average over the past 5 years), $6,000 in 2044 will be able to purchase the same things as $3,380 today. Similarly, $243,000 at age 55, after decades of 3% inflation, could buy the same things as $47,000 buys now.

Also, as investment brochures are required to state, past results don’t guarantee future success. Stock returns averaged 5%-6% from 1930 to the late 1970s, and again from the late 1990s to 2018. If returns are half what the Trump Account homepage assumes, figures in the above paragraph must be halved. Retirees will have money worth under $25,000; after 18 years, the initial $1,000 deposit will be worth $1,690.

Furthermore, as IRAs, all withdrawals are treated as taxable income. An 18-year old living with his or her middle-class parents faces tax rates of 22% or 24% on any withdrawal. An 18-year old living with low-income parents receiving an Earned Income Tax Credit and in the phase-out range of the program (or having incomes between $30,000 and $65,000), faces a 25% tax on Trump Account withdrawals. And there can be an additional 10% penalty, depending on what the money is used for.

Accounting for inflation, lower stock returns, and taxes of nearly 25%, the original $1,000 government deposit might not be worth much more at age 18 than the $1,000 today. And despite advertising a figure of near $250,000, the initial $1,000 government gift will not fund anyone’s retirement.

More disconcerting, the $1,000 deposit provides no aid to families with new babies. During the first years of their child’s life, these families have less income and higher expenses due to the new family member. Yet money during the first years of life matters most for success in life. Prohibiting the $1,000 from being used before age 18 ignores this crucial fact. An actual $1,000 gift (usually called a Baby Bond) would have helped families with new babies and would have improved the life trajectory of their child. Trump Accounts fail to do so.

Part 2 is the big scam. It lets businesses contribute up to $2,500 annually to Trump Accounts. (This figure increases each year with inflation.) The administration seems to think that this too will be free money for people, although provided by firms rather than the government. However, there are few free lunches in life. Businesses will fund Trump Accounts only if their employees accept less pay in return.

We should think of this employer contribution as similar to employer contributions for employee health insurance. Employees get paid with benefits rather than cash. Most US families are struggling to make ends meet and cannot give up a sizable chunk of income if their employer puts money into a Trump Account for their child. Business contributions thus become another tax break for highly paid employees who can afford less money in their paycheck and who will save because this new benefit (like other employer-provided benefits) will escape income taxation. Also, as money accumulates in these accounts, wealthy parents will have given money to their children without having to pay estate taxes on it, as the money will reside in an account with their child’s name on it. Trump Accounts thus become another way for the very rich to pass money to their children tax free—thereby worsening inequality in the US.

Part 3 lets parents add up to $5,000 annually to the Trump Account of each child. (Again, this figure increases each year with inflation.) Individual contribution limits get reduced dollar for dollar by business contributions. One problem here is that around two-thirds of the nation has little net worth, with much of it tied up in real estate, and an average household saves close to nothing each year. Even for upper middle-class families it will be hard to find an extra $10,000 to contribute to Trump Accounts for their 2 children every year for nearly two decades.

Worst of all, making an individual contribution to a Trump Account is a bad investment for everyone. For wealthy families, withdrawals will be taxed at 35% or 37%. Putting $5,000 each year into an S&P stock fund, which has no capital gains unless money is withdrawn from the account, and small dividend payments, would be a substantially better investment. Withdrawals from a standard S&P stock account would be taxed as capital gains, with a maximum 20% tax rate (rather than 35% or more). Even most middle-class families would be better off with a regular stock fund, where withdrawals get taxed at capital gains rates (10% or 20%, depending on income level) lower than their income tax rate. In addition, all households can withdraw money from a regular stock fund when needed for medical expenses or other emergencies, without worrying about a 10% penalty for withdrawals before age 59-and-a-half.

One final problem afflicts Trump Accounts: Initial government funding for these accounts must come from somewhere. As noted above, business contributions will reduce government tax revenues from wealthy families. So, government borrowing will increase, other government spending will fall, or both.

The result will be more government borrowing, and higher interest rates on government borrowing, trends that have already begun. This has also raised consumer borrowing rates, especially for mortgages and car loans, making life considerably less affordable. Consequently, Trump Accounts worsen the financial condition of most low-income and middle-class families with children—even counting the initial $1,000 deposit.

If the past is a good guide, Republicans will soon demand spending reductions to pay for Trump Accounts and other tax breaks for the rich. The Big Beautiful Bill already reduced Medicaid spending and Obamacare subsidies by $1 trillion [see “One Big Bad Bill,” The Washington Spectator). If Republicans still control Congress in 2027, expect future program cuts. And don’t assume that Republicans won’t go after Social Security (see “Retirement Is Up for Grabs in November,” The Washington Spectator).

We ought to call our new savings accounts what they really are—Trumped-Up Accounts. They don’t help young families raise their children. They won’t provide much help to people saving for college or retirement. Mostly they are a fraud perpetrated on the American public in order to give tax breaks to the rich and cut government programs for everyone else. It is the same old Republican playbook—but this time with Trump’s name on it.

Steven Pressman is part-time professor of economics at the New School for Social Research, professor emeritus of economics and finance at Monmouth University, and author of Fifty Major Economists (Routledge, 2013).