Trump accounts are a new way to redistribute wealth

Now the wealthy are responding — not just by moving to walled compounds in Miami, but in a more productive way: by giving their money directly to children in lower-income families. First Michael Dell and his wife donated $6.25 billion last year to seed so-called Trump accounts for up to 25 million children with $250 each. Now there are reports that the administration is considering a plan to allow these accounts to accept direct donations of stock from billionaires, who are said to be interested in the idea.

It may be a pittance compared to how much billionaire wealth is redirected through the tax system or charitable giving. But it could mark a big shift in how the wealthy donate.

The rich have reason to worry. The last time the world experienced profound technological change was during the Industrial Revolution of the 19th and early 20th centuries, when wages stagnated, working conditions were miserable and a few got rich. In the end, wages caught up and prosperity did spread — but it was a long and difficult process, full of righteous anger, and some countries adopted a version of Marxism that ended badly for everyone involved.

Today we are dealing with another technological advance that may profoundly change the structure of the economy. It is unclear how the AI boom will play out, but there is a lot of anxiety. If it is like last time, at least initially, the biggest beneficiaries will be owners of capital. When wages don't go up or, worse, people lose their jobs, things will get worse.

There are reasons to think this time will be different. There are better working conditions and labor standards. In the 19th century there was a stark divide between owners of capital and labor. Now nearly 60% of Americans own stock, and there is a large middle class and a growing upper-middle class. But the risk of too many people falling behind is still too great. Of the 40% of the population that does not own stock, most have little or no wealth. That not only makes them more financially vulnerable, unable to buy a home or pay for education, but they also have less of a stake in the economy's growth.

In many ways, the philanthropic culture of the U.S. today is a product of the last Gilded Age. The generosity of so-called robber barons such as Rockefeller and Carnegie was critical to the growth of charities and nonprofit foundations, which have become a large part of the economy and provide many needed services, even as they face the same trust issues that afflict other U.S. institutions. Many nonprofits supplement government benefits, so donating to them is a form of redistribution. The alternative would be to increase government spending on social benefits, which would require higher taxes. The difference is that the wealthy give to charity at their pleasure (though they do get a tax benefit) and can direct their money to causes they favor.

Putting money directly into Trump accounts is fundamentally different: It goes directly to the beneficiaries. Whether it will be more effective at improving prosperity or reducing populist anger is unclear. The public/nonprofit model can be better targeted and address specific societal needs, such as hunger or education. And giving people shares in companies or a market fund exposes them to risk: If the market goes down, they may not be able to pay for college or buy a home. Benefits, either from the government or charity, act as insurance — they pay off when you most need them. That insurance can be especially valuable for low earners with volatile income.

On the other hand, putting money in the accounts addresses wealth inequality more directly. Individuals may bear more risk — but that also comes with upside. If the economy grows from an AI productivity boom, more Americans will share in the benefits. Individuals may also have a better sense of their own needs than the government or a charity. The system may also be more efficient, as more money goes directly to the people who need it rather than bureaucrats or nonprofit workers. People may appreciate the accounts more since they are more transparent. And some studies have found that cash transfers are more effective than government benefits, aid or charity.

Trump accounts will not displace government benefits, nor should they; the insurance aspect of the welfare state is too valuable to abandon. But they may mark a turn in how the very wealthy give back to society. The accounts may disrupt a system of charitable giving that has mostly served the U.S. well since the late 19th century. But just as the 21st-century economy has invented new ways to create wealth, it may also require new ways to redistribute it.

(COMMENT, BELOW)

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

Previously:
• Taxing the wealthy won't reduce their power
• A wartime economy would be different this time
• Why aren't Americans working as hard as they used to?
• $100,000 in Social Security benefits is too much
• The Laffer Curve is no longer a punch line
• Yes, Americans are saving enough for retirement
• Is free trade worth the cost in lives lost?
• Mamdani's New York is flirting with fiscal nihilism
• America's human capital is eroding
• Musk is wrong about AI and retirement --- You still need to save
• Go ahead and resent boomers but for the right reasons
• Raiding your 401(k) to buy a house should be an option
• Americans are living in the worst of all tax worlds
• Think of college like you would a junk bond
• The economy needs a little bit of unfairness
• The pension revolution is better for savers
• Affordability isn't a hoax. It's not a crisis for most, either
• America gets retirement wrong. Can Vanguard fix that?
• The American middle class is shrinking, and that's OK
• Want to buy a home? It's OK to wait till you're 40
• Mamdani is benefiting from New York City's changing workforce
• How can an economy this good feel this bad?
• Why boomers have more money than everyone else
• Democratize private investment?
• Lab-grown diamonds are testing the power of markets
• Inflation ate your free lunch, but you're still better off
• Good debt? Bad debt? There's no such thing
• Megabills didn't break the economy before and won't now
• America's broken politics is breaking economics, too
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• Break up Columbia? Maybe, and the rest of the Ivy League, too
• Even Dems might like MAGA accounts
• Reality Check about possibile volatility in trade war
• Is this really how American exceptionalism ends?
• The free-market conservative is a vanishing breed
• Shareholder capitalism is back
• Europe's risk aversion comes with consequences
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• Private equity won't diversify your portfolio
• The era of declining interest rates may have come to an end, and many investors don't seem to realize it
• This one weird trick could save the U.S. economy
• The Fed's damage to the housing market may last years
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• To bring back the office, bring back lunch
• Does it really matter who gets into Harvard?
• Our pensions shouldn't be used to juice the economy
• A soft landing won't mean the economy is safe
• The 30-year mortgage is saving the U.S. economy … or is it?
• The one true secret to successful investing
• Less work, more burn-out
• When did risk become a bad word in the U.S.?
• AI-proofing your career starts in college
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• Say it with Rubio: Changing clocks is stupid
• Sure, we'll return to the office in 2023 but not to stores
• How to manage the biggest risk of all: Uncertainty
• If you think U.S. pensions are safe, just wait
• Harry and Meghan and the perils of superstar culture
• Norman Rockwell's economy is never coming back
• Burned by crypto? Don't learn the wrong lesson
• Quiet Quitters are looking in the wrong place for meaningful work
• America's MBAs are the latest skeptics of capitalism
• Generation Z is getting a harsh lesson in stock risk
• The biggest threat to the U.S. economy is policymakers
• Buck up, boomers. You're still better off than your parents
• How to manage the biggest risk of all: uncertainty
• Startup boom is the kind of risk-taking Americans need
• Gen Z is too compliant to achieve greatness
• A bigger child tax credit isn't the poverty solution we need
• Finding your power in a higher-priced world
• The Biden administration's plans to double the tax rate on capital gains will prove costly to all Americans, not just the wealthy
• WARNING: Feel Good Now --- Pay Later: Stimulus is crammed with goodies but makes no economic sense
• The 'Stakeholder' Fallacy: Joe Biden's vision of capitalism is a recipe for failure