Even Dems might like MAGA accounts

One of the more remarkable aspects of the MAGA ideology is how often it fulfills the left-wing policy wish list. The latest example is a proposal for so-called MAGA accounts, which House Republicans are currently considering as part of their $4 trillion tax bill.

Under the plan, every baby born between 2025 and 2029 will get $1,000 from the government in a MAGA account (it stands for Money Account for Growth and Advancement). The general idea was popularized by Democratic Senator Cory Booker in 2018, when they were called "baby bonds." With the crushing cost of education and housing, not to mention wealth inequality, it is easy to see the appeal —which explains the bipartisan support.

There are some promising features of the plan. But it risks becoming another expensive way to paper over existing policy failures.

Under the current proposal, parents can deposit an additional $5,000 a year (indexed to inflation). The money will be invested in a low-cost stock index fund and can't be accessed until the account holder is 18. After age 18, the funds may be used for education, buying a home, or starting a business, and are subject to the capital gains tax. If the funds are used for a non-qualified expense before age 30, there will be an additional 10% tax. At age 31, the account will be terminated and the funds disbursed.

First, I should note that I find all of this sort of strange. To me, the main purpose of government is to create an environment in which citizens can thrive on their own. Giving everyone a check on day one seems to cut against that. That said, many young people are in fact burdened by the high cost of education or can't afford a home. The amount of student debt has been growing steadily, and the cost of education has lately outpaced the rate of inflation. House prices have been on the rise, and the average age of buying a first home is rising.

So it's undeniable that many young people today would've benefited from a MAGA account. At the same time, the rising cost of both housing and education is the result of government policies which subsidize demand and restrict supply, bidding up prices. From a policy and fiscal standpoint, and it would be better to undertake regulatory reforms in the housing market and higher education, including how they are financed, to make both these things more accessible. In some ways, MAGA accounts are just subsidizing further demand.

The other supposed benefit is that MAGA accounts grow wealth for children from poor families. But they are not necessarily the best way to address inequality, which largely depends on factors such as whether your parents can give you a head start — an inheritance, financial support for education, help with rent, a down payment for a house, and so on. If the goal is more equality, the accounts should be more targeted to families who need them. The option to deposit more money has the potential to worsen inequality. It is also duplicative of existing 529 college savings plans.

All this aside, however — there are worse policies. In some ways this is an improvement on the Booker plan, which invested the accounts in low-risk bonds that paid 3% a year, and had loftier goals like eliminating racial inequality. The 3% guaranteed returns would've meant less risk, but also probably less growth.

One of the great benefits of the expansion of 401(k) participation over the last several decades is that it got more Americans invested in the stock market. MAGA accounts would expand stock ownership even further — and from birth, which means more Americans would be invested in America's prosperity. I would just note that this program is addressing problems that the government created in the first place.

(COMMENT, BELOW)

Allison Schrager, a Bloomberg columnist, is a senior fellow at the Manhattan Institute and a contributing editor of City Journal.

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