Exploring MAGA Accounts: A New Proposal in Congress
A fresh tax bill proposed in Congress seeks to establish MAGA savings accounts for children. But what exactly are these accounts, and how are they intended to function?
One notable aspect of the MAGA ideology is its occasional alignment with left-wing policy objectives. The latest instance is the introduction of MAGA accounts, as part of a $4 trillion tax bill under consideration by House Republicans.
This proposal aims to provide every baby born between 2025 and 2029 with $1,000 in a MAGA account, an acronym for Money Account for Growth and Advancement. The concept gained attention in 2018 through U.S. Senator Cory Booker’s “baby bonds” plan. With the escalating costs of education and housing, alongside rising wealth inequality, it’s understandable why such an initiative appeals across the political spectrum.
The MAGA account proposal presents intriguing features but also poses the risk of becoming another costly attempt to patch up existing policy shortcomings.
Under the current draft, parents could make additional deposits of up to $5,000 annually, adjusted for inflation. These funds are to be invested in a low-cost stock index fund and remain inaccessible until the account beneficiary reaches 18 years old. Following this milestone, the funds can be used for education, purchasing a home, or starting a business, subject to capital gains tax. Should the money be spent on non-qualified expenses before 30, a 10% penalty applies. Once the account holder turns 31, the account terminates, and the funds are disbursed.
Considering the escalating challenges faced by young people, such as soaring education costs and unaffordable housing, it’s difficult to overlook the potential benefit of MAGA accounts. Student debt continues to rise, with educational expenses outpacing inflation. Housing prices are climbing, and the average first-time homebuyer age is increasing.
Despite these benefits, the root causes of escalating housing and education costs, which are tied to government policies that inflate demand and limit supply, remain unaddressed. Effective fiscal policy should focus on regulatory changes to make these sectors more accessible, including better financing methods. In many ways, MAGA accounts might inadvertently boost demand further without addressing the underlying issues.
An additional touted advantage of MAGA accounts is wealth accumulation for children from low-income families. However, they may not be the most effective tool for addressing broader inequality, which often hinges on parental ability to provide early financial support. If greater equality is the objective, the accounts should be more specifically targeted towards families in need. The ability for wealthier families to contribute more could also exacerbate disparities. Additionally, these accounts replicate the function of existing 529 college savings plans.
Nonetheless, MAGA accounts improve upon earlier proposals, such as the Booker plan which involved low-risk bonds with a fixed 3% return. While this approach entailed less risk, it also offered limited growth opportunities.
The expansion of 401(k) participation over recent decades has deeply embedded more Americans in the stock market. Similarly, MAGA accounts could broaden stock ownership from birth, fostering a deeper connection with America’s economic growth. However, it’s crucial to consider that the issues these accounts aim to address are, in part, government-created.
This initiative represents a notable experiment in financial policy aimed at empowering future generations, but it may merely serve as a temporary remedy to more systemic fiscal shortcomings.
