'Trump Accounts' Cannot Possibly Replace Social Security [View all]

[justaprogressive]

At a Breitbart conference yesterday, Treasury Secretary Scott Bessent said that the so-called “Trump accounts” could serve as a “back door for privatizing Social Security.” These accounts, part of the “Big Beautiful Bill,” allow parents and some others to put up to $5,000 per year into an index fund investment account for their child, tax-free, with the government pitching in $1,000 for newborns for the next four years.

The Trump mega-bill does not actually affect Social Security, and Bessent later clarified on Twitter/X that “Trump Baby Accounts are an additive benefit for future generations, which will supplement the sanctity of Social Security’s guaranteed payments.” But at the event, he said that the accounts would teach “the power of compound interest” and “if all of a sudden these accounts grow, and you have in the hundreds of thousands of dollars for your retirement, that’s a game-changer.” The idea seems to be that the rapid success of Trump accounts would render Social Security irrelevant, and therefore easier to eliminate down the road.

snip

There are two basic problems with Trump accounts. The first is administrative burden. Rather than every new baby being automatically enrolled, parents will have to sign up. Straight away, that will exclude many if not most working-class and poor people, who tend to struggle with paperwork or knowledge of the tax code. The very poorest people often don’t even have a bank account.

The second is that the government will only put in a measly $1,000, The second is that the government will only put in a measly $1,000, and that for just newborns over the next four years, from 2025 to 2028. As Anne Kim points out, that glorious compound interest, with solid 8 percent returns over an 18-year period, works out to something like $4,000. And that’s if your returns don’t get eaten up by fees, which they probably will, because rather than the government managing these accounts centrally—as it already does for federal workers with the Federal Retirement Thrift Investment Board—Trump accounts have to be at a private brokerage or other financial firm.

https://prospect.org/blogs-and-newsletters/tap/2025-07-31-trump-accounts-cannot-possibly-replace-social-security/